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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
Commission File Number 333-68632

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MISSION ENERGY HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

95-4867576(I.R.S. Employer Identification No.)1321 South State College Boulevard, Room 224
Fullerton, California(Address of principal executive offices)

92831(Zip Code)


Registrant's telephone number, including area code:(714) 626-4687

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Aggregate
market value of the registrant's Common Stock held by non-affiliates of the registrant as of March 28, 2002: $0. Number of shares outstanding of the
registrant's Common Stock as of March 28, 2002: 1,000 shares (all shares held by an affiliate of the registrant).

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TABLE OF CONTENTS

|         |  |                                                                                          |  | Page
|-------- |  | ---------------------------------------------------------------------------------------- |  | ----
|PART I  
|Item 1.  |  | Business                                                                                 |  | 1   
|Item 2.  |  | Properties                                                                               |  | 20  
|Item 3.  |  | Legal Proceedings                                                                        |  | 21  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                      |  | 22  
|PART II 
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                    |  | 23  
|Item 6.  |  | Selected Financial Data                                                                  |  | 24  
|Item 7.  |  | Management's Discussion and Analysis of Results of Operations and Financial Condition    |  | 25  
|         |  | General                                                                                  |  | 25  
|         |  | Results of Operations                                                                    |  | 31  
|         |  | Liquidity and Capital Resources                                                          |  | 43  
|         |  | Risk Factors                                                                             |  | 71  
|         |  | Off-Balance Sheet Transactions                                                           |  | 76  
|         |  | Environmental Matters and Regulations                                                    |  | 80  
|         |  | Critical Accounting Policies                                                             |  | 86  
|         |  | Recent Developments                                                                      |  | 89  
|Item 7a. |  | Quantitative and Qualitative Disclosures about Market Risk                               |  | 89  
|Item 8.  |  | Financial Statements and Supplementary Data                                              |  | 90  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial
    Disclosure |  | 90  
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                       |  | 160 
|Item 11. |  | Executive Compensation                                                                   |  | 161 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                           |  | 162 
|Item 13. |  | Certain Relationships and Related Transactions                                           |  | 162 
|PART IV 
|Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                          |  | 163 
|         |  | Signatures                                                                               |  | 206 

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PART I

In this section, for convenience, Mission Energy Holding Company is, at times, referenced to in the first person as "we," "our," "ours" or
"us." The use of these terms is not intended to imply that Mission Energy Holding conducted any business prior to its formation on June 8, 2001. All our business operations are currently
conducted by Edison Mission Energy and its subsidiaries and investments.

The presentation of information below pertaining to Edison Mission Energy and its consolidated subsidiaries should not be understood to mean that Edison Mission
Energy has agreed to pay or become liable for any debt of Mission Energy Holding. Edison Mission Energy and Mission Energy Holding are separate entities with separate operations and obligations.
Mission Energy Holding is the sole obligor on the 13.50% senior secured notes due 2008 and the $385 million term loan due 2006, and neither Edison Mission Energy nor any of its subsidiaries or
other investments has any obligation with respect to the notes.

ITEM 1. BUSINESS

The Company

We were formed as a wholly-owned subsidiary of The Mission Group in order to:



On
July 2, 2001, The Mission Group contributed to us all the outstanding common stock of Edison Mission Energy. The contribution of the common stock of Edison Mission Energy to us
has been accounted for as a transfer of ownership of companies under common control, which is similar to a pooling of interest. This means that our historical financial results of operations and
financial position will include the historical financial results and results of operations of Edison Mission Energy and its subsidiaries as though we had such ownership throughout the periods
presented. Our only substantive liabilities are our obligations under the senior secured notes, the term loan and corporate overhead, including fees of our legal counsel, auditors and other advisors.
We do not have any substantive operations other than through Edison Mission Energy and its subsidiaries and other investments. At December 31, 2001, we had consolidated assets of
$11.1 billion and total shareholder's equity of $716.9 million.

We
are incorporated under the laws of the State of Delaware. Our headquarters and principal executive offices are located at 1321 South State College Boulevard, Room 224, Fullerton,
California 92831, and our telephone number is (714) 626-4687.

Forward-Looking Statements

This annual report includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future
events based upon our knowledge of facts as of the date of this annual report and our assumptions about future events. These forward-looking statements are subject to various risks and uncertainties
that may be outside our control, including, among other things:



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We
use words like "anticipate," "estimate," "project" "plan," "expect," "will," "believe" and similar expressions to help identify forward-looking statements in this annual report.

For
additional factors that could affect the validity of our forward-looking statements, and for other risk factors affecting our business and financial condition, you should read
"Management's Discussion and Analysis of Results of Operations and Financial ConditionRisk Factors and Critical Accounting Policies," contained in Part II, Item 7 and
the "Notes to Consolidated Financial Statements" contained in Part II, Item 8. The information contained in this report is subject to change without notice. Readers should review future reports
filed by us with the Securities and Exchange Commission. In light of these and other risks, uncertainties and assumptions, actual events or results may be very different from those expressed or
implied in the forward-looking statements in this annual report or may not occur. We have no obligation to publicly update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.

Description of Business

Electric Power Industry

Until the enactment of the Public Utility Regulatory Policies Act of 1978, utilities were the only producers of bulk electric power intended for sale to third
parties in the United States. The Public Utility Regulatory Policies Act encouraged the development of independent power by removing regulatory constraints relating to the production and sale of
electric energy by certain non-utilities and requiring electric utilities to buy electricity from certain types of non-utility power producers, qualifying facilities, under
certain conditions. The passage of the Energy Policy Act of 1992 further encouraged the development of independent power by significantly expanding the options available to independent power producers
with respect to their regulatory status and by liberalizing transmission access. As a result, a significant market for electric power produced by independent power producers, such as Edison Mission
Energy, has developed in the United States since the enactment of the Public Utility Regulatory Policies Act. In 1998, utility deregulation in several states led utilities to divest generating assets,
which has created new opportunities for growth of independent power in the United States. In deregulating markets, industry trends and regulatory initiatives have caused vertically integrated, price
regulated utilities to enter into markets in which generators compete with each other for their principal

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customers (wholesale power suppliers, distribution companies, and major end-users) on the basis of price, reliability and other factors. As a result of the recent energy crisis in
California, some states have either discontinued or delayed implementation of initiatives involving retail deregulation. These developments have generally not affected the market structures in
Illinois and Pennsylvania, where many of Edison Mission Energy's power plants are located.

The
movement toward privatization of existing power generation capacity in many foreign countries and the growing need for new capacity has also led to the development of significant new
markets for independent power producers outside the United States. Edison Mission Energy has developed or acquired power plants in the Asia-Pacific region and in Europe and the Middle East
regions as a result of these developments.

Competition

Edison Mission Energy and its subsidiaries are subject to intense competition in the United States and overseas from energy marketers, utilities, industrial
companies and other independent power producers. Over the past several years, the restructuring of energy markets has led to the sale of utility-owned assets to Edison Mission Energy and its
competitors. More recently, in response to market conditions, Edison Mission Energy and other power generators have changed focus from acquisition and growth to concentrating on selective asset
dispositions as well as postponing or canceling power plants under
development. This trend is in response to credit concerns in the wake of the bankruptcy of Enron Corp., economic recession in the United States and a potential oversupply of new generating capacity.

In
markets where Edison Mission Energy sells power from plants where the output is not committed to be sold under long-term contracts, commonly referred to as merchant
plants, Edison Mission Energy is subject to substantial competition with independent power producers with power plants located in the same geographic region. Edison Mission Energy competes primarily
based on price, reliability and other factors which are heavily influenced by electricity demand and supply, which is commonly referred to as capacity. Edison Mission Energy's customers include large
electric utilities or regional distribution companies. In some cases, the electric utilities and distribution companies have their own generation capacity, including nuclear generation, that affects
the amount of generation available to meet demand and may affect the price of electricity in a particular market.

Amendments
to the Public Utility Holding Company Act of 1935 made by the Energy Policy Act have increased the number of competitors in the domestic independent power industry by reducing
restrictions applicable to projects that are not qualifying facilities under the Public Utility Regulatory Policies Act. Retail wheeling of power, which is the offering by utilities of unbundled
retail distribution services could also lead to increased competition in the independent power market. See "Regulatory MattersRetail Competition."

Segment Information

We operate predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas,
Asia-Pacific, and Europe and Middle East. Edison Mission Energy's plants are located in different geographic areas, which mitigate the effects of regional markets, economic downturns or
unusual weather conditions. These regions take advantage of the increasing globalization of the independent power market. See "Mission Energy Holding Company and Subsidiaries Notes to Consolidated
Financial StatementsNote 19. Business Segments."

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Regional Overview of Business Segments

As of December 31, 2001, Edison Mission Energy had ownership or leasehold interests in the following domestic operating projects:

|Project                          |                | Location      |  | Primary
Electric
Purchaser(4) |  | Type of
Facility(5) |  | Ownership
Interest |  | Electric
Capacity
(in MW) |        | Net Electric
Capacity
(in MW)
|-------------------------------- | -------------- | ------------- |  | ----------------------------- |  | ------------------- |  | ------------------ |  | ------------------------- | ------ | -----------------------------
|American Bituminous(1)           |                | West Virginia |  | MPC                           |  | Waste Coal          |  | 50%                |  | 80                        |        | 40                           
|Brooklyn Navy Yard(2)            |                | New York      |  | CE                            |  | Cogeneration/EWG    |  | 50%                |  | 286                       |        | 143                          
|Coalinga(1)                      |                | California    |  | PG&E                          |  | Cogeneration        |  | 50%                |  | 38                        |        | 19                           
|Commonwealth Atlantic(3)         |                | Virginia      |  | VEPCO                         |  | EWG                 |  | 50%                |  | 340                       |        | 170                          
|EcoEléctrica(1)(2)               |                | Puerto Rico   |  | PREPA                         |  | Cogeneration        |  | 50%                |  | 540                       |        | 270                          
|Gordonsville(1)(2)               |                | Virginia      |  | VEPCO                         |  | Cogeneration/EWG    |  | 50%                |  | 240                       |        | 120                          
|Harbor(1)(3)                     |                | California    |  | Pool                          |  | EWG                 |  | 30%                |  | 80                        |        | 24                           
|Homer City(1)                    |                | Pennsylvania  |  | Pool                          |  | EWG                 |  | 100%               |  | 1,884                     |        | 1,884                        
|Illinois Plants (12 projects)(1) |                | Illinois      |  | EG                            |  | EWG                 |  | 100%               |  | 9,539                     |        | 9,539                        
|James River(3)                   |                | Virginia      |  | VEPCO                         |  | Cogeneration        |  | 50%                |  | 110                       |        | 55                           
|Kern River(1)                    |                | California    |  | SCE                           |  | Cogeneration        |  | 50%                |  | 300                       |        | 150                          
|March Point I                    |                | Washington    |  | PSE                           |  | Cogeneration        |  | 50%                |  | 80                        |        | 40                           
|March Point II                   |                | Washington    |  | PSE                           |  | Cogeneration        |  | 50%                |  | 60                        |        | 30                           
|Mid-Set(1)                       |                | California    |  | PG&E                          |  | Cogeneration        |  | 50%                |  | 38                        |        | 19                           
|Midway-Sunset(1)                 |                | California    |  | SCE                           |  | Cogeneration        |  | 50%                |  | 225                       |        | 112                          
|Salinas River(1)                 |                | California    |  | PG&E                          |  | Cogeneration        |  | 50%                |  | 38                        |        | 19                           
|Sargent Canyon(1)                |                | California    |  | PG&E                          |  | Cogeneration        |  | 50%                |  | 38                        |        | 19                           
|Sunrise(1)                       |                | California    |  | CDWR                          |  | EWG                 |  | 50%                |  | 320                       |        | 160                          
|Sycamore(1)                      |                | California    |  | SCE                           |  | Cogeneration        |  | 50%                |  | 300                       |        | 150                          
|Watson                           |                | California    |  | SCE                           |  | Cogeneration        |  | 49%                |  | 385                       |        | 189                          
|                                 |                |               |  |                               |  |                     |  |                    |  |                           |        |                              
|                                 | Total Americas |               |  |                               |  |                     |  |                    |  |                           | 14,921 |                              
|                                 |                |               |  |                               |  |                     |  |                    |  |                           |        |                              

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CDWR

California Department of Water Resources

PREPA

Puerto Rico Electric Power AuthorityCE

Consolidated Edison Company of New York, Inc.

PSE

Puget Sound Energy, Inc.EG

Exelon Generation Company

SCE

Southern California Edison CompanyMPC

Monongahela Power Company

VEPCO

Virginia Electric & Power CompanyPG&E

Pacific Gas & Electric CompanyPool

Regional electricity trading market


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As of December 31, 2001, Edison Mission Energy had ownership or leasehold interests in the following international operating projects:

|Project                              |                     | Location    |  | Primary
Electric
Purchaser(2) |  | Ownership
Interest |     | Electric
Capacity
(in MW) |       | Net Electric
Capacity
(in MW)
|------------------------------------ | ------------------- | ----------- |  | ----------------------------- |  | ------------------ | --- | ------------------------- | ----- | -----------------------------
|Europe and Middle East:              |                     |             |  |                               |  |                    |     |                           |       |                              
|Derwent(1)                           |                     | England     |  | SE(3)                         |  | 33%                |     | 214                       |       | 71                           
|Doga(1)                              |                     | Turkey      |  | TEAS                          |  | 80%                |     | 180                       |       | 144                          
|First Hydro (2 projects)(1)          |                     | Wales       |  | Various                       |  | 100%               |     | 2,088                     |       | 2,088                        
|Iberian Hy-Power I (5 projects)(1)   |                     | Spain       |  | FECSA                         |  | 100%               | (6) | 43                        |       | 39                           
|Iberian Hy-Power II (13 projects)(1) |                     | Spain       |  | FECSA                         |  | 100%               |     | 43                        |       | 43                           
|ISAB                                 |                     | Italy       |  | GRTN                          |  | 49%                |     | 512                       |       | 251                          
|Italian Wind (10 projects)           |                     | Italy       |  | GRTN                          |  | 50%                |     | 230                       |       | 115                          
|Lakeland                             |                     | England     |  | NORWEB(4)                     |  | 100%               |     | 220                       |       | 220                          
|                                     |                     |             |  |                               |  |                    |     |                           |       |                              
|                                     | Total Europe        |             |  |                               |  |                    |     |                           | 3,530 |                              
|                                     |                     |             |  |                               |  |                    |     |                           |       |                              
|Asia Pacific:                        |                     |             |  |                               |  |                    |     |                           |       |                              
|Contact Energy (10 projects)         |                     | New Zealand |  | Pool                          |  | 51%                | (7) | 2,302                     |       | 1,064                        
|Kalayaan I                           |                     | Philippines |  | NPC                           |  | 50%                |     | 168                       |       | 84                           
|Kwinana(1)                           |                     | Australia   |  | WP                            |  | 70%                |     | 116                       |       | 81                           
|Loy Yang B                           |                     | Australia   |  | Pool(5)                       |  | 100%               |     | 1,000                     |       | 1,000                        
|Paiton(1)                            |                     | Indonesia   |  | PLN                           |  | 40%                |     | 1,230                     |       | 492                          
|Tri Energy                           |                     | Thailand    |  | EGAT                          |  | 25%                |     | 700                       |       | 175                          
|                                     |                     |             |  |                               |  |                    |     |                           |       |                              
|                                     | Total Asia Pacific  |             |  |                               |  |                    |     |                           | 5,516 |                              
|                                     |                     |             |  |                               |  |                    |     |                           |       |                              
|                                     | Total International |             |  |                               |  |                    |     |                           | 9,046 |                              
|                                     |                     |             |  |                               |  |                    |     |                           |       |                              

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EGAT

Electricity Generating Authority of Thailand

Pool

Electricity trading markets for England,FECSA

Fuerzas Electricas de Cataluma, S.A.



Wales, Australia and New ZealandGRTN

Gestore Rete Transmissione Nazionale

SE

Southern Electric plc.NORWEB

North Western Electricity Board

TEAS

Turkiye Elektrik Urehm A.S.NPC

National Power Corp.

WP

Western PowerPLN

PT PLN


Americas

As of December 31, 2001, Edison Mission Energy had 31 operating projects in this region, all of which are presently located in the United States and its
territories. Edison Mission Energy's Americas region is headquartered in Chicago, Illinois, with additional offices located in Irvine, California, and Boston, Massachusetts. A description of Edison
Mission Energy's power plants and major investments in energy projects in the Americas region is set forth below.

Illinois Plants

On December 15, 1999, Edison Mission Energy completed a transaction with Commonwealth Edison, now a subsidiary of Exelon Corporation, to acquire
Commonwealth Edison's fossil-fuel power generating plants located in Illinois, which are collectively referred to as the Illinois plants. These plants are located in the
Mid-America Interconnected Network, which has transmission connections to the

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East Central Area Reliability Council and other regional markets. In connection with this transaction, Edison Mission Energy entered into three power purchase agreements with Commonwealth Edison with
terms of up to five years expiring in 2004, pursuant to which Commonwealth Edison purchases capacity and has the right to purchase energy generated by the plants. Subsequently, Commonwealth Edison
assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC. In each of 2003 and 2004, Exelon Generation is committed to purchase 1,696 MW of capacity
from specific coal units, but has the option to terminate all or any remaining coal units and all of the natural gas and oil-fired units with prior notice as specified under each agreement. Edison
Mission Energy's power purchase agreements with Exelon Generation accounted for 36% and 42% of our electric revenues for 2001 and 2000, respectively. See further discussion of the power purchase
contracts with Exelon Generation under "Management's Discussion and Analysis of Results of Operations and Financial ConditionMarket Risk Exposures."

The
Illinois plants are comprised of the following:

|Power Generating Plants |  | Location                  |  | Leased/
Owned |  | Type    |  | Megawatts
|----------------------- |  | ------------------------- |  | ------------- |  | ------- |  | ---------
|Collins Station         |  | Grundy County, Illinois   |  | Leased        |  | oil/gas |  | 2,698    
|Crawford Station        |  | Chicago, Illinois         |  | Owned         |  | coal    |  | 542      
|Fisk Station            |  | Chicago, Illinois         |  | Owned         |  | coal    |  | 327      
|Joliet #6               |  | Joliet, Illinois          |  | Owned         |  | coal    |  | 314      
|Joliet #7 and #8        |  | Joliet, Illinois          |  | Leased        |  | coal    |  | 1,044    
|Powerton Station        |  | Pekin, Illinois           |  | Leased        |  | coal    |  | 1,538    
|Waukegan Station        |  | Waukegan, Illinois        |  | Owned         |  | coal    |  | 789      
|Will County Station     |  | Romeoville, Illinois      |  | Owned         |  | coal    |  | 1,092    
|Peaking Sites           |  |                           |  |               |  |         |  |          
|Crawford                |  | Chicago, Illinois         |  | Leased        |  | oil/gas |  | 167      
|Fisk                    |  | Chicago, Illinois         |  | Leased        |  | oil/gas |  | 214      
|Joliet                  |  | Joliet, Illinois          |  | Leased        |  | oil/gas |  | 133      
|Waukegan                |  | Waukegan, Illinois        |  | Leased        |  | oil/gas |  | 118      
|Calumet                 |  | Chicago, Illinois         |  | Leased        |  | oil/gas |  | 158      
|Bloom                   |  | Chicago Heights, Illinois |  | Leased        |  | oil/gas |  | 54       
|Electric Junction       |  | Aurora, Illinois          |  | Leased        |  | oil/gas |  | 188      
|Lombard                 |  | Lombard, Illinois         |  | Leased        |  | oil/gas |  | 74       
|Sabrooke                |  | Rockford, Illinois        |  | Leased        |  | oil/gas |  | 89       
|                        |  |                           |  |               |  |         |  |          
|                        |  |                           |  | Total         |  |         |  | 9,539    
|                        |  |                           |  |               |  |         |  |          

As
part of the purchase of the Illinois plants, Edison Mission Energy assigned its right to purchase the Collins Station to third-party entities and its subsidiary simultaneously entered
into long-term lease of the Collins Station. Edison Mission Energy also completed sale-leaseback transactions with respect to its Illinois peaker units in July 2000 and
its Powerton and Joliet power facilities in August 2000. Edison Mission Energy sold these assets and entered into long-term leases to provide capital to finance its acquisition or to repay
corporate debt while maintaining control of the use of the power plants during the terms of the leases. See further discussion of these sale-leaseback transactions under "Management's
Discussion and Analysis of Results of Operations and Financial ConditionOff-Balance Sheet Financing."

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Homer City Facilities

On March 18, 1999, Edison Mission Energy completed a transaction with GPU, Inc., New York State Electric & Gas Corporation and their
respective affiliates to acquire the 1,884 MW Homer City Electric Generating Station. These facilities consist of three coal-fired steam turbine units, one coal preparation facility, an
1,800-acre site and associated support facilities in the mid-Atlantic region of the United States and have direct, high voltage interconnections to both the New York
Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is commonly known as the NYISO, and the Pennsylvania-New
Jersey-Maryland Power Pool, which is commonly known as the PJM. For further discussion of risks related to the sale of electricity from the Homer City Facilities, see "Management's Discussion and
Analysis of Results of Operations and Financial ConditionMarket Risk Exposures."

On
December 7, 2001, a subsidiary of Edison Mission Energy completed a sale-leaseback of the Homer City facilities to third-party lessors. Edison Mission Energy sold
the Homer City facilities and entered into long-term leases to provide capital to repay corporate debt while maintaining control of the use of the facilities during the terms of the leases. See
"Management's Discussion and Analysis of Results of Operations and Financial ConditionOff-Balance Sheet Financing."

Major Investments in California Cogeneration Projects

Edison Mission Energy owns partnership investments in the Kern River Cogeneration Company, Midway Sunset Cogeneration Company, Sycamore
Cogeneration Company and Watson Cogeneration Company, as described below. These projects have similar economic characteristics and have been used, collectively, to obtain bond financing by a special
purpose entity, Edison Mission Energy Funding Corp., a special purpose entity that Edison Mission Energy includes in its consolidated financial statements. Due to similar economic characteristics and
the bond financing related to its equity investments, Edison Mission Energy views these projects collectively and refers to them as the Big 4 projects.

Kern River ProjectEdison Mission Energy owns a 50% partnership interest in Kern River Cogeneration Company, which owns a 300
MW natural gas-fired cogeneration facility located near Bakersfield, California, which we refer to as the Kern River project. Kern River Cogeneration sells electricity to Southern
California Edison Company under a power purchase agreement that expires in 2005 and sells
steam to Texaco Exploration and Production Inc. under a steam supply agreement that also expires in 2005.

Midway-Sunset ProjectEdison Mission Energy owns a 50% partnership interest in Midway Sunset Cogeneration Company, which owns
a 225 MW natural gas-fired cogeneration facility located near Taft, California, which we refer to as the Midway-Sunset project. Midway-Sunset sells electricity to Southern California
Edison, Aera Energy LLC and Pacific Gas & Electric Company under power purchase agreements that expire in 2009 and sells steam to Aera under a steam supply agreement that also expires in 2009.

Sycamore ProjectEdison Mission Energy owns a 50% partnership interest in Sycamore Cogeneration Company, which owns and
operates a 300 MW natural gas-fired cogeneration facility located near Bakersfield, California, which we refer to as the Sycamore project. Sycamore Cogeneration sells electricity to
Southern California Edison under a power purchase agreement that expires in 2007 and sells steam to Texaco Exploration and Production Inc. under a steam supply agreement that also expires in
2007.

Watson ProjectEdison Mission Energy owns a 49% partnership interest in Watson Cogeneration Company, which owns a 385 MW
natural gas-fired cogeneration facility located in Carson, California, which we refer to as the Watson project. Watson Cogeneration sells electricity to Southern California Edison and to
the adjacent British Petroleum refinery under power purchase agreements that expire in 2008 and sells steam to ARCO Products Company under a steam supply agreement that also expires in 2008.

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Edison Mission Energy has a partnership interest in Sunrise Power Company that resulted from its efforts to add additional capacity in California in response to
the California power crisis. See "Management's Discussion and Analysis of Results of Operations and Financial ConditionThe California Power Crisis."

Sunrise ProjectEdison Mission Energy owns a 50% partnership interest in Sunrise Power Company, which owns a natural
gas-fired facility currently under construction in Kern County, California, which we refer to as the Sunrise project. The Sunrise project consists of two phases. Phase I, a
simple-cycle gas-fired facility (320 MW) was completed on June 27, 2001. Phase II, conversion to a combined-cycle gas-fired facility (560 MW), is currently
scheduled to be completed in July 2003. Sunrise Power entered into a long-term power purchase agreement with the California Department of Water Resources on June 25, 2001.
For further discussion related to this agreement, see "Legal ProceedingsSunrise Regulatory Proceedings."

Other Small Investments in Energy Projects

Edison Mission Energy also owns 50% investments in seven other small energy projects (less than 100 MW of net electric capacity) that are located in the
United States. Each project sells electricity under a long-term power purchase agreement with the local electric utility.

Americas Projects Offered for Sale

Edison Mission Energy's remaining projects in the Americas region consist of its Brooklyn Navy Yard, Gordonsville and EcoEléctrica projects
described below. Edison Mission Energy is currently offering all of its interests in these projects for sale.

Brooklyn Navy Yard ProjectEdison Mission Energy owns a 50% partnership interest in Brooklyn Navy Yard Cogeneration Partners
L.P., which owns a 286 MW natural gas and oil-fired cogeneration facility located near Brooklyn, New York, which we refer to as the Brooklyn Navy Yard project. Brooklyn Navy Yard sells
electricity and steam to Consolidated Edison Company of New York, Inc. under a power purchase agreement that expires in 2039. See "Legal ProceedingsPMNC Litigation" for information
regarding disputes related to the construction of this facility.

Gordonsville ProjectEdison Mission Energy owns a 50% partnership interest in Gordonsville Energy, L.P., which owns a 240 MW
natural gas-fired cogeneration facility located in Gordonsville, Virginia, which we refer to as the Gordonsville project. Gordonsville Cogeneration sells electricity to Virginia
Electric & Power Company under a power purchase agreement that expires in 2024 and sells steam to Rapidan Service Authority under a steam supply agreement that also expires in 2024.

EcoEléctrica ProjectEdison Mission Energy owns a 50% partnership interest in EcoEléctrica L.P.,
which owns a 540 MW power plant located Peñuelas, Puerto Rico, which we refer to as the EcoEléctrica project. EcoEléctrica sells electricity to Puerto Rico
Electric Power Authority under a power purchase agreement that expires in 2018 and sells water to Puerto Rico Water & Sewer Authority under a water supply agreement that also expires in 2018.

Asset Sales

During 2001, Edison Mission Energy decided to offer for sale some of its non-strategic investments in energy projects to reduce debt. At
December 31, 2001, Edison Mission Energy had agreements to sell five of its projects. Subsequent to December 31, 2001, Edison Mission Energy completed the sales of its 50% interests in
the Commonwealth Atlantic and James River projects and its 30% interest in the Harbor project. The sales of its interests in the EcoEléctrica and Gordonsville projects did not close,
and in each case, the sales agreement has terminated, and Edison Mission Energy has recommenced marketing efforts. On March 8, 2002, Edison Mission Energy filed a complaint against Mirant
Corporation and two of its affiliates, alleging that Mirant wrongfully terminated the sale agreement for the purchase of the EcoEléctrica project. See "Management's Discussion and
Analysis of

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Results of Operations and Financial ConditionAcquisitions, Dispositions and Sale-Leaseback TransactionsDispositions" for further details about Edison Mission
Energy's asset sales.

Investment in Four Star Oil and Gas Company

Edison Mission Energy owns a 37.2% direct and indirect interest (with 36.05% voting stock) in Four Star Oil and Gas Company, with majority control held by
affiliates of ChevronTexaco Corp. Four Star Oil and Gas owns oil and gas reserves in the San Juan Basin, the Hugoton Basin, the Permian Basin and offshore Gulf Coast and Alabama. Under a
long-term service contract, the majority of Four Star Oil and Gas's properties are operated through Texaco Exploration & Production Inc. See "Mission Energy Holding Company
and Subsidiaries Notes to Consolidated Financial StatementsNote 7. Investments" for financial information on Edison Mission Energy's oil and gas investments.

Asia Pacific

As of December 31, 2001, Edison Mission Energy had 15 operating projects in this region that are located in Australia, Indonesia, Thailand and New Zealand.
Edison Mission Energy's Asia-Pacific region is headquartered in Singapore, with additional offices located in Australia, Indonesia and the Philippines. A description of Edison Mission
Energy's power plants, investment in Contact Energy and investments in energy projects in the Asia-Pacific region is set forth below.

Australia

Loy Yang B ProjectEdison Mission Energy owns a 1,000 MW coal-fired power station in
located in Traragon, Victoria, Australia, which we refer to as the Loy Yang B project. The project sells electricity to a centralized electricity pool, which provides for a system of generator
bidding, central dispatch and a settlements system based on a clearing market for each half-hour of every day. The National Electricity Market Management Company, operator and
administrator of the pool, determines a spot price each half-hour. Edison Mission Energy has entered into an agreement with the State Electricity Commission of Victoria, which agreement we
refer to as the State Hedge, that provides through October 16, 2016 for the project to receive a fixed price for a portion of its electricity in exchange for payment to the State of the spot
price applicable to such portion. For further discussion of risks related to the sale of electricity from the Loy Yang B project, see "Management's Discussion and Analysis of Results of Operations and
Financial ConditionMarket Risk Exposures."

Valley Power Peaker ProjectDuring 2001, Edison Mission Energy began construction of a 300 MW gas-fired peaker
plant located at the Loy Yang B coal-fired power plant site, which we refer to as the Valley Power Peaker project. The peaker units will service peaking demand within the National Energy
Market of Eastern Australia and, specifically, within the State of Victoria by selling the output of the peakers directly into the pool and by entering into financial contracts related to pool prices
with other power generators and distribution businesses. Edison Mission Energy owns a 60% interest in the Valley Power Peaker project, with the remaining interest held by its 51.2%-owned affiliate,
Contact Energy.

Kwinana ProjectEdison Mission Energy owns a 70% interest in a 116 MW gas-fired cogeneration plant in Perth,
Australia, which we refer to as the Kwinana project. Edison Mission Energy sells electricity to Western Power under a power purchase agreement that expires in 2021 and sells steam to the British
Petroleum Kwinana refinery under a steam supply agreement which also expires in 2021.

New Zealand

Contact EnergyEdison Mission Energy owns a 51.2% majority interest in Contact Energy Limited. The
remaining shares of Contact Energy are publicly held and traded on the New Zealand stock exchange. Contact Energy is the largest wholesaler and retailer of natural gas in New Zealand

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and generates about one-quarter of New Zealand's electricity. Contact Energy owns the following power plants:

Plant

Type

MegawattsNew Plymouth

Gas thermal

464Clyde

Hydro

432Otahuhu B

Natural gas

372Roxbugh

Hydro

320Oakey (25%)(1)

Natural Gas

300Wairakei

Geothermal

165Ohaaki

Geothermal

104Poihipi

Geothermal

55Otahuhu A

Natural gas

45Te Rapa

Natural gas

452,302


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Contact Energy also owns a 40% interest in the Valley Power Peaker project under construction in Australia with the remaining interest held by a wholly-owned subsidiary
of Edison Mission Energy.

Indonesia

The Paiton ProjectEdison Mission Energy owns a 40% interest in PT Paiton Energy (Paiton Energy),
which owns a 1,230 MW coal-fired power plant in operation in East Java, Indonesia, which we refer to as the Paiton project. Paiton Energy sells electricity to PT PLN, the state-owned
electric utility company, under a power purchase agreement that expires in 2029. PT PLN and Paiton Energy signed a Binding Term Sheet on December 14, 2001 setting forth the commercial terms
under which Paiton Energy is to be paid for capacity and energy charges, as well as a monthly "restructure settlement payment" covering arrears owed by PT PLN as well as settlement of other claims. In
addition, the Binding Term Sheet provides for an extension of the terms of the power purchase agreement from 2029 to 2039. For a further discussion of the Paiton project, see "Management's Discussion
and Analysis of Results of Operations and Financial ConditionContingencies."

Philippines

CBK ProjectIn February 2001, Edison Mission Energy purchased a 50% interest in CBK Power
Co. Ltd. CBK Power has entered into a 25-year build-rehabilitate-operate-transfer (BROT) agreement with National Power Corporation related to the 728 MW Caliraya-Botocan-Kalayaan
hydroelectric project located in the Philippines, which we refer to as the CBK project. CBK Power is paid capital recovery fees and operations and maintenance fees for generating electricity and
providing other services under the BROT agreement. At December 31, 2001, 168 MW have been commissioned and are operational.

Thailand

Tri Energy ProjectEdison Mission Energy owns a 25% interest in Tri Energy Company Limited, which owns
a 700 MW gas-fired cogeneration plant located west of Bangkok, Thailand, which we refer to as the Tri Energy project. Tri Energy sells electricity to Electricity Generating Authority of
Thailand, which is known as EGAT, under a power purchase agreement that expires in 2020.

Europe and Middle East

As of December 31, 2001, Edison Mission Energy had 34 operating projects in this region that are located in the U.K., Turkey, Spain and Italy. Edison
Mission Energy's Europe and Middle East region

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is headquartered in London, England, with additional offices located in Italy, Spain and Turkey. The London office was established in 1989. A description of Edison Mission Energy's power plants and
investments in energy projects in the Europe and Middle East region is set forth below.

United Kingdom

First Hydro ProjectEdison Mission Energy owns two pumped storage stations in North Wales at Dinorwig
and Ffestiniog which have a combined capacity of 2,088 MW, which we refer to as the First Hydro project. Pump storage stations consume electricity when it is comparatively less expensive in order to
pump water up for storage in an upper reservoir. Water is then allowed to flow back through turbines in order to generate electricity when its market value is higher. Edison Mission Energy sells
electricity and ancillary services to regional electricity companies, other generators and into short-term markets. For further discussion of the risks related to the sale of electricity
from the First Hydro project, see "Management's Discussion and Analysis of Results of Operations and Financial ConditionMarket Risk Exposures."

Lakeland ProjectEdison Mission Energy owns a 220 MW combined-cycle natural gas-fired power plant located in
Barrow-in-Furness, Cumbria, United Kingdom, which we refer to as the Lakeland project. Edison Mission Energy's sells electricity to North Western Electricity Board under a
power purchase contract that expires in 2006.

Derwent ProjectEdison Mission Energy owns a 33% interest in Derwent Cogeneration Limited, which owns a 214 MW
gas-fired cogeneration plant in Derby, England, which we refer to as the Derwent project. Derwent sells electricity to Southern Electric plc under a power purchase agreement that expires
in 2010 and sells steam to Courtaulds Chemicals (Holdings) Limited under a steam supply contract that also expires in 2010.

Italy

ISAB ProjectEdison Mission Energy owns a 49% interest in ISAB Energy S.r.l., which owns a 512 MW
integrated gasification combined cycle power plant in Sicily, Italy, which we refer to as the ISAB project. ISAB sells electricity to Gestore Rete Transmissione Nazionale, Italy's state transmission
company, under a power purchase agreement that expires in 2020. The ISAB project is located at an oil refinery owned by ERG Petroli SpA.

Italian Wind ProjectIn 2000, Edison Mission Energy purchased Edison Mission Wind Power Italy B.V., which owns a 50% interest
in a series of power projects that are in operation or under development in Italy by UPC International Partnership CV II, which we collectively refer to as the Italian Wind project. The projects use
wind to generate electricity from turbines, which is sold under fixed-price, long-term tariffs to Gestore Rate Transmissione Nazionale. At December 31, 2001, 230 MW have been
commissioned and are operational. Assuming all the projects under construction at December 31, 2001 are completed, currently scheduled for 2002, the total capacity of these projects will be 283
MW.

Spain

Spanish Hydro ProjectEdison Mission Energy owns 18 small,
run-of-the-river hydroelectric plants regionally dispersed in Spain totaling 86 MW, which we refer to as the Spanish Hydro project. Edison Mission Energy sells
electricity to Fuerzas Electricas de Cataluma, S.A. under concessions that have various expiration dates ranging from 2030 to 2065.

Turkey

Doga ProjectEdison Mission Energy owns an 80% interest in Doga Enerji, which owns a 180 MW
gas-fired cogeneration plant in Istanbul, Turkey, which we refer to as the Doga project. Doga

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Enerji sells electricity to Turkiye Elektrik Urehm A.S., commonly known as TEAS, under a power purchase agreement that expires in 2018.

In
addition to the facilities and power plants that it owns, Edison Mission Energy uses the term "its" in regard to facilities and power plants that it operates under
sale-leaseback arrangements.

Discontinued Operations

As a result of the change in the prices of power in the U.K. and the anticipated negative impacts of such changes on earnings and cash flow, Edison Mission Energy
offered for sale through a competitive bidding process the Ferrybridge and Fiddler's Ferry coal-fired power plants located in the United Kingdom. On December 21, 2001, Edison
Mission Energy completed the sale of these power plants to two wholly-owned subsidiaries of American Electric Power. In addition, as part of the transactions, the purchasers acquired other assets and
assumed specified liabilities associated with the plants. Edison Mission Energy acquired the plants in 1999 from PowerGen UK plc. In accordance with SFAS No. 144, the results of Ferrybridge and
Fiddler's Ferry have been reflected as discontinued operations in our consolidated financial statements. See "Mission Energy Holding Company and Subsidiaries Notes to Consolidated Financial
StatementsNote 6. Discontinued Operations."

Trading and Risk Management Activities

Edison Mission Energy has developed risk management policies and procedures, which, among other things, address credit risk. When making sales under negotiated
bilateral contracts, it is Edison Mission Energy's general policy to deal with investment grade counterparties or counterparties that have equivalent credit quality. Edison Mission Energy's risk
management committees grant exceptions to the policy only after review and scrutiny. Most entities that have received exceptions are typically organized power pools and quasi-governmental agencies.
Edison Mission Energy hedges a portion of the electric output of its merchant plants in order to provide more predictable earnings and cash flow. When appropriate, Edison Mission Energy manages the
spread between electric prices and fuel prices, and uses forward contracts, swaps, futures, or options contracts to achieve those objectives.

Edison
Mission Energy's domestic power marketing and trading organization, Edison Mission Marketing & Trading Inc., markets and trades electric power and energy related to
commodity products,
including forwards, futures, options and swaps. It also provides services and price risk management capabilities to the electric power industry. Edison Mission Marketing & Trading segregates its
activities into two categories:



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Edison Mission Marketing & Trading is divided into front-, middle-, and back-office segments, with specified duties segregated for control purposes. The personnel of
Edison Mission Marketing & Trading have a high level of knowledge of utility operations, fuel procurement, energy marketing and futures and options trading. Edison Mission Marketing & Trading
has systems in place which monitor real time spot and forward pricing and perform option valuations. Edison Mission Marketing & Trading also has a wholesale power scheduling group that operates on a
24-hour basis.

Internationally,
Edison Mission Energy also conducts price risk management activities through subsidiaries that are primarily focused on marketing and fuel management activities in the
same manner described above.

Energy
trading and price risk management activities give rise to commodity price risk, which represents the potential loss that can be caused by a change in the market value of a
particular commodity. Commodity price risks are actively monitored to ensure compliance with Edison Mission Energy's risk management policies. Policies are in place which limit the amount of total net
exposure Edison Mission Energy may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior management. Edison
Mission Energy performs a "value at risk" analysis in its daily business to measure, monitor and control its overall market risk exposure. The use of value at risk allows management to aggregate
overall risk, compare risk on a consistent basis and identify the drivers of the risk. Value at risk measures the worst expected loss over a given time interval, under normal market conditions, at a
given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, Edison Mission Energy supplements this approach with stress testing and
worst-case scenario analysis, as well as stop limits and counterparty credit exposure limits.

Seasonality

Due to warmer weather during the summer months, electric revenues generated from the Homer City facilities and the Illinois plants are usually higher during the
third quarter of each year. In addition, Edison Mission Energy's third quarter revenues from energy projects are materially higher than other quarters of the year due to a significant number of its
domestic energy projects located on the West Coast of the United States, which generally have power sales contracts that provide for higher payments during the summer months. The First Hydro plants
and the Iberian Hy-Power plants provide for higher electric revenues during the winter months.

Regulatory Matters

General

Edison Mission Energy's operations are subject to extensive regulation by governmental agencies in each of the countries in which it conducts operations. Edison
Mission Energy's domestic operating projects are subject to energy, environmental and other governmental laws and regulations at the federal, state and local levels in connection with the development,
ownership and operation of, and use of electric energy, capacity and related products, including ancillary services from its projects. Federal laws and regulations govern, among other things,
transactions by and with purchasers of power, including utility companies, the operations of a project and the ownership of a project. Under limited circumstances where exclusive federal jurisdiction
is not applicable or specific exemptions or waivers from state or federal laws or regulations are otherwise unavailable, federal and/or state utility regulatory commissions may have broad jurisdiction
over non-utility owned electric power plants. Energy producing projects are also subject to federal, state and local laws and regulations that govern the geographical location, zoning,
land use and operation of a project. Federal, state and local environmental requirements generally require that a wide variety of permits and other approvals be obtained before the commencement of
construction or operation of an energy producing facility and

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that the facility then operate in compliance with these permits and approvals. While Edison Mission Energy believes the requisite approvals for its existing projects have been obtained and that its
business is operated in substantial compliance with applicable laws, Edison Mission Energy remains subject to a varied and complex body of laws and regulations that both public officials and private
parties may seek to enforce. Regulatory compliance for the construction of new facilities is a costly and time consuming process. Intricate and changing environmental and other regulatory requirements
may necessitate substantial expenditures and may create a significant risk of expensive delays or significant loss of value in a project if the project is unable to function as planned due to changing
requirements or local opposition.

Furthermore,
each of Edison Mission Energy's international projects is subject to the energy and environmental laws and regulations of the foreign country in which this project is
located. The degree of regulation varies according to each country and may be materially different from the regulatory regime in the United States.

U.S. Federal Energy Regulation

The Federal Energy Regulatory Commission has ratemaking jurisdiction and other authority with respect to interstate sales and transmission of electric energy
under the Federal Power Act and with
respect to certain interstate sales, transportation and storage of natural gas under the Natural Gas Act of 1938. The Securities and Exchange Commission has regulatory powers with respect to upstream
owners of electric and natural gas utilities under the Public Utility Holding Company Act of 1935. The enactment of the Public Utility Regulatory Policies Act of 1978 and the adoption of regulations
thereunder by the Federal Energy Regulatory Commission provided incentives for the development of cogeneration facilities and small power production facilities using alternative or renewable fuels by
establishing certain exemptions from the Federal Power Act and the Public Utility Holding Company Act for the owners of qualifying facilities. The passage of the Energy Policy Act in 1992 further
encouraged independent power production by providing additional exemptions from the Public Utility Holding Company Act for exempt wholesale generators and foreign utility companies.

A"qualifying facility"under the Public Utility Regulatory Policies Act is a cogeneration facility or a small power production facility
that satisfies criteria adopted by the Federal Energy Regulatory Commission. In order to be a qualifying facility, a cogeneration facility must (i) sequentially produce both useful thermal
energy, such as steam, and electric energy, (ii) meet specified operating standards, and energy efficiency standards when oil or natural gas is used as a fuel source and (iii) not be
controlled, or more than 50% owned by one or more electric utilities (where "electric utility" is interpreted with reference to the Public Utility Holding Company Act definition of an "electric
utility company"), electric utility holding companies (defined by reference to the Public Utility Holding Company Act definitions of "electric utility company" and "holding company") or affiliates of
such entities. A small power production facility seeking to be a qualifying facility must produce power from renewable energy sources, such as geothermal energy, waste sources of fuel, such as waste
coal, or any combination thereof and must meet the ownership restrictions discussed above. Before 1990, a small power production facility seeking to be a qualifying facility was subject to 30 MW or 80
MW size limits, depending upon its fuel source. In 1990, these limits were lifted for solar, wind, waste, and geothermal qualifying facilities, provided that applications for or notices of qualifying
facility status were filed with the Federal Energy Regulatory Commission for these facilities on or before December 31, 1994, and provided, in the case of new facilities, the construction of
these facilities commenced on or before December 31, 1999.

An"exempt wholesale generator"under the Public Utility Holding Company Act is an entity determined by the Federal Energy Regulatory
Commission to be exclusively engaged, directly or indirectly, in the business of owning and/or operating specified eligible facilities and selling electric energy at wholesale or, if located in a
foreign country, at wholesale or retail.

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A"foreign utility company"under the Public Utility Holding Company Act is, in general, an entity located outside the United States that
owns or operates facilities used for the generation, distribution or transmission of electric energy for sale or the distribution at retail of natural or manufactured gas, but that derives none of its
income, directly or indirectly, from such activities within the United States.

Federal Power ActThe Federal Power Act grants the Federal Energy Regulatory Commission exclusive ratemaking jurisdiction over
wholesale sales of electricity in interstate commerce, including ongoing, as
well as initial, rate jurisdiction. This jurisdiction allows the Federal Energy Regulatory Commission to revoke or modify previously approved rates. These rates may be based on a
cost-of-service approach or, in geographic and product markets determined by Federal Energy Regulatory Commission to be workably competitive, may be market-based. As noted,
most qualifying facilities are exempt from the ratemaking and several other provisions of the Federal Power Act. Exempt wholesale generators and other non-qualifying facility independent
power projects are subject to the Federal Power Act and to the ratemaking jurisdiction of the Federal Energy Regulatory Commission thereunder, but the Federal Energy Regulatory Commission typically
grants exempt wholesale generators the authority to charge market-based rates as long as the absence of market power is shown. In addition, the Federal Power Act grants the Federal Energy Regulatory
Commission jurisdiction over the sale or transfer of jurisdictional facilities, including wholesale power sales contracts, and in some cases, jurisdiction over the issuance of securities or the
assumption of specified liabilities and some interlocking directorates. In granting authority to make sales at market-based rates, the Federal Energy Regulatory Commission typically also grants
blanket approval for the issuance of securities and partial waiver of the restrictions on interlocking directorates.

Currently,
in addition to the facilities owned or operated by Edison Mission Energy, a number of its operating projects, including the Homer City facilities, the Illinois plants and
Brooklyn Navy Yard facilities, are subject to the Federal Energy Regulatory Commission ratemaking regulation under the Federal Power Act. Edison Mission Energy's future domestic
non-qualifying facility independent power projects will also be subject to Federal Energy Regulatory Commission jurisdiction on rates.

The Public Utility Holding Company ActUnless exempt or found not to be a holding company by the Securities and Exchange
Commission, a company that falls within the definition of a holding company must register with the Securities and Exchange Commission and become subject to Securities and Exchange Commission
regulation as a registered holding company under the Public Utility Holding Company Act."Holding company"is defined in Section 2(a)(7) of the
Public Utility Holding Company Act to include, among other things, any company that owns 10% or more of the voting securities of an electric utility company."Electric utility
company"is defined in Section 2(a)(3) of the Public Utility Holding Company Act to include any company that owns facilities used for generation, transmission or
distribution of electric energy for resale. Exempt wholesale generators and foreign utility companies are not deemed to be electric utility companies and qualifying facilities are not considered
facilities used for the generation, transmission or distribution of electric energy for resale. Securities and Exchange Commission precedent also indicates that it does not consider "paper
facilities," such as contracts and tariffs used to make power sales, to be facilities used for the generation, transmission or distribution of electric energy for resale, and power marketing
activities will not, therefore, result in an entity being deemed to be an electric utility company.

A
registered holding company is required to limit its utility operations to a single integrated utility system and to divest any other operations not functionally related to the
operation of that utility system. In addition, a registered holding company will require Securities and Exchange Commission approval for the issuance of securities, other major financial or business
transactions (such as mergers) and transactions between and among the holding company and holding company subsidiaries.

Because
it owns Southern California Edison, an electric utility company, Edison International, Edison Mission Energy's parent company, is a holding company. Edison International is,
however,

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exempt from registration pursuant to Section 3(a)(1) of the Public Utility Holding Company Act, because the public utility operations of the holding company system are predominantly intrastate
in character. Consequently, Edison Mission Energy is not a subsidiary of a registered holding company, so long as Edison International continues to be exempt from registration pursuant to
Section 3(a)(1) or another of the exemptions enumerated in Section 3(a). Nor is Edison Mission Energy a holding company under the Public Utility Holding Company Act, because Edison
Mission Energy's interests in power generation facilities are exclusively in qualifying facilities, exempt wholesale generators and foreign utility companies. All international projects and specified
U.S. projects that Edison Mission Energy might develop or acquire will be non-qualifying facility independent power projects. Edison Mission Energy intends for each project to qualify as
an exempt wholesale generator or as a foreign utility company. Loss of exempt wholesale generator, qualifying facility or foreign utility company status for one or more projects could result in Edison
Mission Energy becoming a holding company subject to registration and regulation under the Public Utility Holding Company Act and could trigger defaults under the covenants in Edison Mission Energy's
project agreements. Becoming a holding company could, on a retroactive basis, lead to, among other things, fines and penalties and could cause certain of Edison Mission Energy's project agreements and
other contracts to be voidable.

Public Utility Regulatory Policies Act of 1978The Public Utility Regulatory Policies Act provides two primary benefits to
qualifying facilities. First, as discussed above, ownership of qualifying facilities will not result in a company's being deemed an electric utility company for purposes of the Public Utility Holding
Company Act. In addition, all cogeneration facilities and all small production facilities that generate power from sources other than geothermal and whose capacity exceeds 30 MW that are qualifying
facilities are exempt from most provisions of the Federal Power Act and regulations of the Federal Energy Regulatory Commission thereunder. Second, the Federal Energy Regulatory Commission regulations
promulgated under the Public Utility Regulatory Policies Act require that electric utilities purchase electricity generated by qualifying facilities at a price based on the purchasing utility's
avoided cost, and that the utilities sell back up power to the qualifying facility on a non-discriminatory basis. The Federal Energy Regulatory Commission's regulations define "avoided cost" as the
incremental cost to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, the utility would generate itself or
purchase from another source. The Federal Energy Regulatory Commission's regulations also permit qualifying facilities and utilities to negotiate agreements for utility purchases of power at prices
different from the utility's avoided costs. While it has been common for utilities to enter into long-term contracts with qualifying facilities in order, among other things, to facilitate
project financing of independent power facilities and to reflect the deferral by the utility of capital costs for new plant additions, increasing competition and the development of new power markets
have resulted in a trend toward shorter term power contracts that would place greater risk on the project owner.

If
one of the projects in which Edison Mission Energy has an interest were to lose its status as a qualifying facility, the project would no longer be entitled to the qualifying
facility-related exemptions from regulation under the Public Utility Holding Company Act and the Federal Power Act. As a result, the project could become subject to rate regulation by the Federal
Energy Regulatory Commission under the Federal Power Act, and Edison Mission Energy could inadvertently become a holding company under the Public Utility Holding Company Act. Under
Section 26(b) of the Public Utility Holding Company Act, any project contracts that are entered into in violation of the Public Utility Holding Company Act, including contracts entered into
during any period of non-compliance with the registration requirement, could be determined by the courts or the Securities and Exchange
Commission to be void. If a project were to lose its qualifying facility status, Edison Mission Energy could attempt to avoid holding company status on a prospective basis by qualifying the project
owner as an exempt wholesale generator. However, assuming this changed status would be permissible under the terms of the applicable power sales agreement, rate approval from the Federal Energy
Regulatory Commission would be required. In addition, the project would be required to cease selling electricity to

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any retail customers, in order to qualify for exempt wholesale generator status, and could become subject to additional state regulation. Loss of qualifying facility status by one project could also
potentially cause other projects with the same partners to lose their qualifying facility status to the extent those partners became electric utilities, electric utility holding companies or
affiliates of such companies for purposes of the ownership criteria applicable to qualifying facilities. Loss of qualifying facility status could also trigger defaults under covenants to maintain
qualifying facility status in the project's power sales agreements, steam sales agreements and financing agreements and result in termination, penalties or acceleration of indebtedness under such
agreements. If a power purchaser were to cease taking and paying for electricity or were to seek to obtain refunds of past amounts paid because of the loss of qualifying facility status, Edison
Mission Energy cannot assure you that the costs incurred in connection with the project could be recovered through sales to other purchasers. Moreover, Edison Mission Energy's business and financial
condition could be adversely affected if regulations or legislation were modified or enacted that changed the standards for maintaining qualifying facility status or that eliminated or reduced the
benefits, such as the mandatory purchase provisions of the Public Utility Regulatory Policies Act and exemptions currently enjoyed by qualifying facilities. Loss of qualifying facility status on a
retroactive basis could lead to, among other things, fines and penalties being levied against Edison Mission Energy, or claims by a utility customer for the refund of payments previously made.

Edison
Mission Energy endeavors to develop its qualifying facility projects, monitor regulatory compliance by these projects and choose its customers in a manner that minimizes the risks
of losing these projects' qualifying facility status. However, some factors necessary to maintain qualifying facility status are subject to risks of events outside Edison Mission Energy's control. For
example, loss of a thermal energy customer or failure of a thermal energy customer to take required amounts of thermal energy from a cogeneration facility that is a qualifying facility could cause a
facility to fail to meet the requirements regarding the minimum level of useful thermal energy output. Upon the occurrence of this type of event, Edison Mission Energy would seek to replace the
thermal energy customer or find another use for the thermal energy that meets the requirements of the Public Utility Regulatory Policies Act.

Natural Gas ActMany of the domestic operating facilities that Edison Mission Energy owns, operates or has investments in use
natural gas as their primary fuel. Under the Natural Gas Act, the Federal Energy Regulatory Commission has jurisdiction over certain sales of natural gas and over transportation and storage of natural
gas in interstate commerce. The Federal Energy Regulatory Commission has granted blanket authority to all persons to make sales of natural gas without restriction but continues to exercise significant
oversight with respect to transportation and storage of natural gas services in interstate commerce.

State Energy Regulation, California Deregulation and Recent Foreign Regulatory Matters

See the discussion on state regulation, California deregulation and recent foreign regulatory matters in "Management's Discussion and Analysis of Results of
Operations and Financial ConditionThe California Power Crisis," and "Management's Discussion and Analysis of Results of Operations and Financial ConditionMarket Risk
Exposures."

Transmission of Wholesale Power

Generally, projects that sell power to wholesale purchasers other than the local utility to which the project is interconnected require the transmission of
electricity over power lines owned by others, also known as wheeling. The prices and other terms and conditions of transmission contracts are regulated by the Federal Energy Regulatory Commission,
when the entity providing the wheeling service is a jurisdictional public utility under the Federal Power Act. Until 1992, the Federal Energy Regulatory

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Commission's ability to compel wheeling was very limited, and the availability of voluntary wheeling service could be a significant factor in determining whether a site was viable for project
development.

The
Federal Energy Regulatory Commission's authority under the Federal Power Act to require electric utilities to provide transmission service on a case by case basis to qualifying
facilities, exempt wholesale generators, and other power generators was expanded substantially by the Energy Policy Act. Furthermore, in 1996 the Federal Energy Regulatory Commission issued a
rulemaking order, Order 888, in which the Federal Energy Regulatory Commission asserted the power, under its authority to eliminate undue discrimination in transmission, to compel all jurisdictional
public utilities under the Federal Power Act to file open access transmission tariffs consistent with a pro forma tariff drafted by the Federal Energy Regulatory Commission. The Federal Energy
Regulatory Commission subsequently issued Orders 888-A, 888-B and 888-C to clarify the terms that jurisdictional transmitting utilities are required to include in
their open access transmission tariffs. The Federal Energy Regulatory Commission also issued Order 889, which required those transmitting utilities to abide by specified standards of conduct when
using their own transmission systems to make wholesale sales of power, and to post specified transmission information, including information about transmission requests and availability, on a publicly
available computer bulletin board.

In
issuing Order No. 888et al., the Federal Energy Regulatory Commission determined that the open-access rules set
forth in the Order would apply to transmission with respect to wholesale sales and also with respect to retail transactions where the transmission component had been unbundled from the retail sale by
state regulatory action or voluntarily by the utility making the retail sale. The Commission declined to assert jurisdiction over retail transmission that remained bundled into the retail sale.
Subsequent court appeals of Order No. 888 have been brought by parties challenging the Order on the basis that the Commission had no authority to regulate the transmission of unbundled retail
sales and by those challenging the Commission's failure to include the transmission of bundled retail sales in the order. On June 30, 2000, the U.S. Court of Appeals for the District of
Columbia Circuit upheld the
decision by the Federal Energy Regulatory Commission in both respects, finding that the Commission did have jurisdiction to regulate transmission of unbundled retail transactions, and that it was not
required to assert jurisdiction over transmission embedded in bundled retail sales. In an opinion issued on March 4, 2002, the Supreme Court affirmed the decision of the Court of Appeals.

In
the meantime, while Order No. 888 was pending judicial review, it became apparent to the Federal Energy Regulatory Commission that the Order was not having the desired effects
of eliminating discriminatory behavior by transmission owning utilities and in promoting the development of competitive wholesale electricity markets. Accordingly, in an effort to remedy the
shortcomings it perceived, the Commission, on December 20, 1999, issued Order No. 2000, which required all transmission-owning utilities to file by December 15, 2000, a statement
of their plans with respect to placing their transmission assets under a Regional Transmission Organization, or RTO, meeting certain criteria set forth in the Order. Although Order No. 2000 did
not mandate that a utility join an RTO, it set forth various incentives for voluntary action by utilities to take such action and required them to explain in detail their reasons for deviating from
the objectives set forth in the Order. RTOs meeting the Commission's criteria in Order No. 2000 were required to be operationally independent of the transmission-owning utilities whose assets
they controlled and to possess other essential attributes, such as regional scope and configuration, the authority to receive and rule upon requests for service, a separate tariff governing all
transactions of the RTO, a market monitoring capability, and other features. In subsequent orders, the Commission has progressively tightened its policies in favor of RTO formation, by such means as
an explicit proposal that approvals of market-based rate authority for affiliates of utilities owning transmission should be tied to such utilities' placing their transmission assets in an RTO meeting
the criteria of Order No. 2000. These and other regulatory initiatives by the Federal Energy Regulatory Commission are ongoing, and it is not possible to predict the extent of future
developments. However, the direction of regulatory policy at the Commission appears generally positive for continued progress toward competitive wholesale electricity markets.

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Retail Competition

In response to pressure from retail electric customers, particularly large industrial users, the state commissions or state legislatures of most states are
considering, or have considered, whether to open the retail electric power market to competition. Retail competition is possible when a customer's local utility agrees, or is required, to unbundle its
distribution service (for example, the delivery of electric power through its local distribution lines), from its transmission and generation service (for example, the provision of electric power from
the utility's generating facilities or wholesale power purchases). Several state commissions and legislatures have issued orders or passed legislation requiring utilities to offer unbundled retail
distribution service, which is called retail wheeling, and phasing in retail wheeling over the next several years.

The
competitive pricing environment that will result from retail competition may cause utilities to experience revenue shortfalls and deteriorating creditworthiness. However, Edison
Mission Energy expects that most, if not all, state plans will insure that utilities receive sufficient revenues, through a distribution surcharge if necessary, to pay their obligations under existing
long-term power purchase contracts with qualifying facilities and exempt wholesale generators. On the other hand, qualifying facilities and exempt wholesale generators may be subject to
pressure to lower their contract prices in an effort to reduce the stranded investment costs of their utility customers.

Environmental Matters and Regulations

See discussion on environmental matters and regulations in "Management's Discussion and Analysis of Results of Operations and Financial
ConditionEnvironmental Matters and Regulations."

Employees

Mission Energy Holding has no full-time employees. At December 31, 2001, Edison Mission Energy employed 3,021 people, all of whom were
full-time employees and 188, 152 and 1,236 of whom were covered by collective bargaining agreements in the United Kingdom, Australia and the United States, respectively. Edison Mission
Energy believes it has good relations with its employees.

Between
early June and mid-October of 2001, Edison Mission Energy's subsidiary, Midwest Generation, and the union that represents the employees at the Illinois plants were in
negotiations to replace the expired collective bargaining agreement, covering wages and working conditions. The union authorized a strike that began on June 28, 2001. Midwest Generation
operated the Illinois plants during the strike. Negotiations have concluded with a new four-year agreement that was ratified by the represented employees on October 16, 2001.
Pursuant to the reinstatement process, employees began returning to work on October 22, 2001.

Our and Edison Mission Energy's Relationship with Certain Affiliated Companies

Both we and Edison Mission Energy are indirect subsidiaries of Edison International. Edison International is a holding company. Edison International is also the
corporate parent of Southern California Edison, an electric utility that buys and sells power in California. Southern California Edison has faced material operating disruptions as a result of the
California power crisis. For a description of the California power crisis, see "Management's Discussion and Analysis of Results of Operations and Financial ConditionThe California Power
Crisis."

Tax Sharing Agreement

Edison Mission Energy participates in a tax sharing agreement with The Mission Group, which in turn participates in a tax sharing agreement with Edison
International. Upon our formation on July 2, 2001, we became a party to the tax sharing agreement with The Mission Group. Accordingly, we are

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included in the consolidated federal income tax and combined state franchise tax returns of Edison International. Tax benefits generated by us and used in the Edison International consolidated tax
return are recognized by us without regard to separate company limitations.

ITEM 2. PROPERTIES

We lease our principal office in Fullerton, California. This lease is for approximately 120 square feet. The term of the lease expires on October 31, 2006
with no options to extend.

Edison
Mission Energy leases its principal office in Irvine, California. This lease covers approximately 142,000 square feet. The term of the lease for approximately 65,500 square feet
expires on December 31, 2004 with two five-year options to extend. The term of the lease for the balance of approximately 76,500 square feet expires on December 31, 2004 with
no options to extend. Edison
Mission Energy also leases office space in Chicago, Illinois; Chantilly, Virginia; Boston, Massachusetts; Fairfax, Virginia and Washington D.C. The Chicago lease is for approximately 41,000 square
feet and expires on December 31, 2009. The Chantilly lease is for approximately 30,000 square feet and expires on March 31, 2010. The Boston lease is for approximately 40,500 square feet
and expires on July 31, 2007. Both the Fairfax and the Washington D.C. leases are immaterial. At December 31, 2001, approximately 31% of the above space was either available for sublease
or subleased. Edison Mission Energy's subsidiaries in the Asia Pacific region lease office space in Manila, Philippines; Melbourne, Australia; Jakarta, Indonesia; and Singapore. Edison Mission
Energy's subsidiaries in the Europe and Middle East region lease office space in Barcelona, Spain; Istanbul, Turkey; London, England; and Rome, Italy. These subsidiary leases are immaterial.

The
following table shows the material properties owned or leased by Edison Mission Energy or its projects. Each property represents at least five percent of Edison Mission Energy's
income before tax or is one in which Edison Mission Energy has an investment balance greater than $50 million. Most of these properties are subject to mortgages or other liens or encumbrances
granted to the lenders providing financing for the plant or project.

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Description of Properties

|Plant or Project       |  | Business
Segment |  | Location                       |  | Interest
In Land |  | Plant Description                          
|---------------------- |  | ---------------- |  | ------------------------------ |  | ---------------- |  | -------------------------------------------
|Brooklyn Navy Yard (1) |  | Americas         |  | Brooklyn, New York             |  | Leased           |  | Natural gas-turbine cogeneration facility  
|Contact Energy         |  | Asia Pacific     |  | Wellington, New Zealand        |  | Owned/Leased     |  | Various                                    
|Doga                   |  | Europe           |  | Esenyurt, Turkey               |  | Owned            |  | Combined cycle generation technology       
|EcoEléctrica(1)        |  | Americas         |  | Peñuelas, Puerto Rico          |  | Owned            |  | Liquified natural gas cogeneration facility
|First Hydro            |  | Europe           |  | Dinorwig, Wales                |  | Owned            |  | Pumped-storage electric power facility     
|First Hydro            |  | Europe           |  | Ffestiniog, Wales              |  | Owned            |  | Pumped-storage electric power facility     
|Homer City             |  | Americas         |  | Pittsburgh, Pennsylvania       |  | Owned            |  | Coal-fired generation facility             
|Illinois Plants        |  | Americas         |  | Northeast Illinois             |  | Owned/Leased     |  | Coal, oil/gas-fired generation facilities  
|Kern River             |  | Americas         |  | Oildale, California            |  | Leased           |  | Natural gas-turbine cogeneration facility  
|Loy Yang B             |  | Asia Pacific     |  | Victoria, Australia            |  | Owned            |  | Coal-fired generation facility             
|Midway-Sunset          |  | Americas         |  | Fellows, California            |  | Leased           |  | Natural gas-turbine cogeneration facility  
|Paiton                 |  | Asia Pacific     |  | East Java, Indonesia           |  | Leased           |  | Coal-fired generation facility             
|Lakeland               |  | Europe           |  | Barrow-in-Furness, Cumbria, UK |  | Owned            |  | Combined cycle generation technology       
|Sunrise                |  | Americas         |  | Fellows, California            |  | Leased           |  | Simple cycle generation technology         
|Sycamore               |  | Americas         |  | Oildale, California            |  | Leased           |  | Natural gas-turbine cogeneration facility  
|Watson                 |  | Americas         |  | Carson, California             |  | Leased           |  | Natural gas-turbine cogeneration facility  

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ITEM 3. LEGAL PROCEEDINGS

PMNC Litigation

In February 1997, a civil action was commenced in the Superior Court of the State of California, Orange County, entitled The Parsons Corporation and PMNC
v. Brooklyn Navy Yard Cogeneration Partners, L.P., Mission Energy New York, Inc. and B-41 Associates, L.P., Case No. 774980, in which the plaintiffs asserted general monetary
claims under the construction turnkey agreement for the project in the amount of $136.8 million. Brooklyn Navy Yard has also filed an action entitled Brooklyn Navy Yard Cogeneration Partners,
L.P. v. PMNC, Parsons Main of New York, Inc., Nab Construction Corporation, L.K. Comstock & Co., Inc. and The Parsons Corporation, in the Supreme Court of the State of New York,
Kings County, Index No. 5966/97 asserting general monetary claims in excess of $13 million under the construction turnkey agreement. On March 26, 1998, the Superior Court in the
California action granted PMNC's motion for attachment in the amount of $43 million against Brooklyn Navy Yard and attached a Brooklyn Navy Yard bank account in the amount of
$0.5 million. Brooklyn Navy Yard is appealing the attachment order. On the same day, the court stayed all proceedings in the California action pending the New York action. PMNC's motion to
dismiss the New York action was denied by the New York Supreme Court and further denied on appeal in September 1998. On March 9, 1999, Brooklyn Navy Yard filed a motion for partial
summary judgment in the New York action. The motion was denied and Brooklyn Navy Yard has appealed. The appeal and the commencement of discovery were suspended until June 2000 to allow for
voluntary mediation between the parties. The mediation ended unsuccessfully on March 23, 2000. On November 13, 2000, a New York appellate court issued a ruling granting summary judgment
in favor of Brooklyn Navy Yard, striking PMNC's cause of action for quantum meruit, and limiting PMNC to its claims under the construction contract. On February 14, 2002, PMNC moved to amend
the complaint in the New York action to add Edison Mission Energy as a defendant and to seek a $43 million attachment against it. This motion is presently calendared for May 2002. Edison
Mission Energy agreed to indemnify Brooklyn Navy Yard and its partner in the venture from all claims and costs arising from or in connection with this litigation. Edison Mission Energy believes that
the outcome of this litigation will not have a material adverse effect on its consolidated financial position or results of operations.

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EcoEléctrica Potential Environmental Proceeding

Edison Mission Energy owns an indirect 50% interest in EcoEléctrica, L.P., a limited partnership which owns and operates a liquified natural gas
import terminal and cogeneration project at Peñuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued to EcoEléctrica a notice of violation and a
compliance order alleging violations of the Federal Clean Air Act primarily related to start-up activities. Representatives of EcoEléctrica have met with the Environmental
Protection Agency to discuss the notice of violations and compliance order. To date, EcoEléctrica has not been informed of the commencement of any formal enforcement proceedings. It is
premature to assess what, if any, action will be taken by the Environmental Protection Agency. At December 31, 2001, no loss accrual had been recorded by EcoEléctrica. Edison
Mission Energy does not believe the outcome of this matter will have a material adverse effect on its consolidated financial position or results of operations. Edison Mission Energy is currently
offering its interest in the EcoEléctrica project for sale.

Sunrise Regulatory Proceedings

Sunrise Power Company, in which Edison Mission Energy owns a 50% interest, sells all of its output to the California Department of Water Resources under a power
purchase agreement entered into on June 25, 2001. On February 25, 2002, the California Public Utilities Commission and the California Electricity Oversight Board filed complaints with
the Federal Energy Regulatory Commission against all sellers of long-term contracts to the California Department of Water Resources, including Sunrise Power Company. The California Public
Utilities Commission complaint alleges that the contracts are "unjust and unreasonable" on price and other terms, and requests that the contracts be abrogated. The California Electricity Oversight
Board complaint makes a similar allegation and requests that the contracts be deemed voidable at the request of the California Department of Water Resources or, in the alternative, abrogated as of a
future date, to allow for the possibility of renegotiation. In response, on March 19, 2002, Sunrise filed a motion to dismiss with the Federal Energy Regulatory Commission requesting, among
other things, a dismissal of both complaints and expedited treatment of its motion; however, Edison Mission Energy cannot predict what actions the Federal Energy Regulatory Commission may take at this
proceeding.

Paiton Labor Suit

In April 2001, Paiton Energy was sued in the Central Jakarta District Court by the PLN Labor Union. PT PLN, the Indonesian Minister of Mines and Energy and the
former President Director of PT PLN are also named as defendants in the suit. The union seeks to set aside the power purchase agreement between Paiton Energy and PT PLN and the interim agreement then
in effect between Paiton Energy and its lenders, as well as damages and other relief. The initial preliminary hearing was held on April 30, 2001 in Jakarta. Paiton Energy and the other
defendants filed challenges to jurisdiction and moved for a dismissal of the suit, but such actions were denied by an order dated July 23, 2001. Paiton Energy has filed a notice of appeal.
Paiton Energy believes, based upon discussions with its Indonesian counsel, that the suit is without merit.

Edison
Mission Energy experiences other routine litigation in the normal course of its business. None of Edison Mission Energy's pending litigation is expected to have a material adverse
effect on its consolidated financial position or results of operations. See "BusinessRegulatory MattersEnvironmental Matters and Regulations."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Inapplicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

All the outstanding Common Stock of Mission Energy Holding Company is, as of the date hereof, owned by our direct parent, The Mission Group, which is a
wholly-owned subsidiary of Edison International. There is no market for the Common Stock. Dividends on the Common Stock will be paid when declared by our board of directors. Our wholly-owned
subsidiary, Edison Mission Energy, made cash dividends totaling $65 million to our parent, The Mission Group, prior to our formation on July 2, 2001, and we paid two dividends to The
Mission Group: (i) $811.2 million from the proceeds of the issuance of 13.5% senior secured notes and the term loan, and (ii) $31.5 million from dividends received from
Edison Mission Energy after July 2, 2001.

During
the first two years of our operations, when debt interest payments will be funded with restricted cash, we intend to distribute to our direct parent, The Mission Group:
(i) dividends we receive from Edison Mission Energy, less our overhead costs, and (ii) any tax sharing payments received from inclusion of our net interest costs and overhead in the
consolidated tax returns of Edison International, in each case subject to compliance with limitations contained in the senior secured notes indenture and in the term loan. Limitations on our ability
to pay dividends and make other distributions to our parent in subsequent years are significantly more restrictive than the restrictions applicable during the first two years of our operations.
Dividends from Edison Mission Energy may be limited based on its earnings and cash flow, terms of restrictions contained in Edison Mission Energy's contractual obligations
(including its corporate credit facility), charter documents, business and tax considerations, and restrictions imposed by applicable law.

Edison
Mission Energy's articles of incorporation and bylaws require the unanimous approval of its board of directors, including at least one independent director, before it can declare
or pay dividends or distributions, unless:



Edison
Mission Energy's interest coverage ratio for the four quarters ended December 31, 2001 was 1.64 to 1. Accordingly, until Edison Mission Energy's interest coverage ratio
exceeds 2.2 to 1 for the immediately preceding four quarters, it can only pay dividends if it has an investment grade rating and has received rating agency confirmation that a dividend will not result
in a downgrade or has received unanimous approval of Edison Mission Energy's board of directors, including Edison Mission Energy's independent director. For more information on these restrictions, see
"Management's Discussion and Analysis of Results of Operations and Financial ConditionEdison Mission Energy's Credit Ratings."

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ITEM 6. SELECTED FINANCIAL DATA

|                                                                                                                          |  | Years Ended December 31, |         
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------
|
|
|INCOME STATEMENT DATA                                                                                                     |  |                          |         
|Operating revenues                                                                                                        |  | $                        | 2,945.1 
|Operating expenses                                                                                                        |  |                          | 2,241.0 
|                                                                                                                          |  |                          |         
|Operating income                                                                                                          |  |                          | 704.1   
|Interest expense                                                                                                          |  |                          | (652.0  
|Interest and other income                                                                                                 |  |                          | 81.5    
|                                                                                                                          |  |                          |         
|Income from continuing operations before income taxes and minority interest                                               |  |                          | 133.6   
|Provision (benefit) for income taxes                                                                                      |  |                          | 67.7    
|Minority interest                                                                                                         |  |                          | (22.1   
|                                                                                                                          |  |                          |         
|Income from continuing operations                                                                                         |  |                          | 43.8    
|Income (loss) from operations of discontinued foreign subsidiary (including loss on disposal of $1.1 billion), net of tax |  |                          | (1,234.3
|                                                                                                                          |  |                          |         
|Income (loss) before accounting change and extraordinary gain (loss)                                                      |  |                          | (1,190.5
|Cumulative effect of change in accounting, net of tax                                                                     |  |                          | 15.1    
|Extraordinary gain (loss) on early extinguishment of debt, net of income tax expense (benefit)                            |  |                          | 5.7     
|                                                                                                                          |  |                          |         
|Net income (loss)                                                                                                         |  | $                        | (1,169.7
|                                                                                                                          |  |                          |         

|                                     |  | As of December 31,
|------------------------------------ |  | ------------------
|
|
|BALANCE SHEET DATA                   |  |                   
|Assets                               |  | $                 
|Current liabilities                  |  |                   
|Long-term obligations                |  |                   
|Preferred securities of subsidiaries |  |                   
|Shareholder's equity                 |  |                   

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

The following discussion contains forward-looking statements. These statements are based on our current plans and expectations and involve
risks and uncertainties which could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements.

The presentation of information below pertaining to Edison Mission Energy and its consolidated subsidiaries should not be understood to mean that Edison Mission
Energy has agreed to pay or become liable for any debt of Mission Energy Holding. Edison Mission Energy and Mission Energy Holding are separate entities with separate operations and obligations.
Mission Energy Holding is the sole obligor on the 13.50% senior secured notes due 2008 and the $385 million term loan due 2006, and neither Edison Mission Energy nor any of its subsidiaries or
other investments has any obligation with respect to the notes or the term loan.

In this report, Mission Energy Holding is, at times, referred to in the first person as "we," "our," "ours," or "us."

General

We were formed as a wholly-owned subsidiary of The Mission Group in order to:



On
July 2, 2001, The Mission Group contributed to us all the outstanding common stock of Edison Mission Energy. The contribution of the common stock of Edison Mission Energy to us
has been accounted for as a transfer of ownership of companies under common control, which is similar to a pooling of interest. This means that our historical financial results of operations and
financial position will include the historical financial results and results of operations of Edison Mission Energy and its subsidiaries as though we had such ownership throughout the periods
presented. Our only substantive liabilities are our obligations under the senior secured notes, the term loan and corporate overhead, including fees of our legal counsel, auditors and other advisors.
We do not have any substantive operations other than through Edison Mission Energy and its subsidiaries and other investments. At December 31, 2001, we had consolidated assets of
$11.1 billion and total shareholder's equity of $716.9 million.

Except where the context of the discussion makes it otherwise clear, the balance of this "Management's Discussion and Analysis of Results of Operations and
Financial Condition" pertains to Edison Mission Energy and its subsidiaries. We do not believe that we have material market risk exposures other than those applicable to Edison Mission Energy
discussed below.

Edison
Mission Energy is an independent power producer engaged in the business of developing, acquiring, owning or leasing and operating electric power generation facilities worldwide.
Edison Mission Energy also conducts energy trading and price risk management activities in power markets open to competition. Edison International is Edison Mission Energy's ultimate parent company.
Edison International also owns Southern California Edison Company, one of the largest electric utilities in the United States. Edison Mission Energy was formed in 1986 with two domestic operating
projects. As of December 31, 2001, Edison Mission Energy owned interests in 31 domestic and 49 international operating power projects with an aggregate generating capacity of 23,967 MW, of
which Edison Mission Energy's share was 19,019 MW. At that date, one domestic and six international projects, totaling 1,153

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MW of generating capacity, of which Edison Mission Energy's anticipated share will be approximately 668 MW, were under construction. At December 31, 2001, Edison Mission Energy had
consolidated assets of $10.7 billion and total shareholder's equity of $1.6 billion.

Edison
Mission Energy's operating revenues are derived primarily from electric revenues and equity in income from power projects. Electric revenues accounted for 85%, 89% and 79% of its
total operating revenues during 2001, 2000 and 1999, respectively. Edison Mission Energy's consolidated operating revenues during those years also include equity in income from oil and gas
investments, net gains (losses) from energy trading and price risk management activities and revenues attributable to operation and maintenance services.

Edison
Mission Energy's current strategy is focused on strengthening its balance sheet through the selective disposition of assets, enhancing the performance of its existing portfolio of
power projects and aligning its staffing needs to meet these objectives.

Acquisitions, Dispositions and Sale-Leaseback Transactions

Acquisition of Interest in CBK Power Co. Ltd.

In February 2001, a subsidiary of Edison Mission Energy completed the acquisition of a 50% interest in CBK Power Co. Ltd. in exchange for
$20 million. CBK Power has entered into a 25-year build-rehabilitate-transfer-and-operate agreement with National Power Corporation related to the 728 MW
Caliraya-Botocan-Kalayaan (CBK) hydroelectric project located in the Philippines. Financing for this $460 million project comprises equity commitments of $110.6 million, of which Edison
Mission Energy's 50% share is $55.3 million, and debt financing which is in place for the remainder of the cost for this project. As of December 31, 2001, Edison Mission Energy has made
equity contributions of $10 million. For a more detailed discussion of the commitment to contribute project equity, refer to "Contractual Obligations, Commitments and
ContingenciesFirm Commitments to Contribute Project Equity."

Acquisition of Sunrise Project

On November 17, 2000, a subsidiary of Edison Mission Energy completed a transaction with Texaco Power & Gasification Holdings Inc. to
purchase a proposed 560 MW gas-fired combined cycle project to be located in Kern County, California, referred to as the Sunrise project. The acquisition included all rights, title and
interest held by Texaco in the Sunrise project, except that Texaco had an option to repurchase, at cost, a 50% interest in the project prior to its commercial operation which commenced on
June 27, 2001. On June 25, 2001, Texaco exercised its option and repurchased a 50% interest for $84 million. As part of Edison Mission Energy's acquisition of the Sunrise project,
it also: (i) acquired from Texaco two gas turbines for the project and (ii) granted Texaco an option to acquire a 50% interest in 1,000 MW of future power plant projects Edison Mission
Energy designates. The Sunrise project consists of two phases, with Phase I, a simple-cycle gas-fired facility (320 MW), completed on June 27, 2001, and Phase II, conversion to a
combined-cycle gas-fired facility (560 MW), currently scheduled to be completed in July 2003. Edison Mission Energy entered into a long-term power purchase agreement
with the California Department of Water Resources on June 25, 2001. See "Legal ProceedingsSunrise Regulatory Proceedings."

The
total purchase price of the Sunrise project from Texaco was $27 million. Edison Mission Energy funded the purchase with cash. The total estimated construction cost of this
project through 2003 is approximately $459 million. The project intends to obtain project financing for a portion of the capital costs.

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Acquisition of Trading Operations of Citizens Power LLC

On September 1, 2000, a subsidiary of Edison Mission Energy completed a transaction with P&L Coal Holdings Corporation and Gold Fields Mining Corporation
(Peabody) to acquire the trading operations of Citizens Power LLC and a minority interest in structured transaction investments relating to long-term power purchase agreements. The
purchase price of $44.9 million was based on the sum of: (a) fair market value of the trading portfolio and the structured transaction investments at the date of the acquisition and
(b) $25 million. The acquisition was funded with cash. As a result of this acquisition, Edison Mission Energy has expanded its operations beyond the traditional marketing of its electric
power to include trading of electricity and fuels, although this represents a small portion of its consolidated operations. By the end of the third quarter of 2000, the Citizens trading operations
were merged into Edison Mission Energy's marketing operations under Edison Mission Marketing & Trading, Inc.

Acquisition of Interest in Italian Wind

On March 15, 2000, a subsidiary of Edison Mission Energy completed a transaction with UPC International Partnership CV II to acquire Edison Mission Wind
Power Italy B.V., formerly known as Italian Vento Power Corporation Energy 5 B.V., which owns a 50% interest in a series of power projects that are in operation or under development in Italy. All the
projects use wind to generate electricity from turbines which is sold under fixed-price, long-term tariffs. At December 31, 2001, 230 MW have been commissioned and are operational.
Assuming all the projects under construction at December 31, 2001 are completed, currently scheduled for 2002, the total capacity of these projects will be 283 MW. The total purchase price is
90 billion Italian Lira, with equity contribution obligations of up to 33 billion Italian Lira, depending on the number of projects that are ultimately developed. As of
December 31, 2001, Edison Mission Energy's payments in respect of these projects included 77 billion Italian Lira ($37.4 million) toward the purchase price and 33 billion
Italian Lira ($16.3 million), which funded Edison Mission Energy's entire equity contribution obligation.

Acquisition of Illinois Plants

On December 15, 1999, a subsidiary of Edison Mission Energy completed a transaction with Commonwealth Edison, now a subsidiary of Exelon Corporation, to
acquire Commonwealth Edison's fossil-fuel power generating plants located in Illinois, which are collectively referred to as the Illinois plants. These plants are located in the
Mid-America Interconnected Network which has transmission connections to the East Central Area Reliability Council and other regional markets. In connection with this transaction, Edison
Mission Energy entered into three power purchase agreements with Commonwealth Edison with terms of up to five years expiring in 2004, pursuant to which Commonwealth Edison purchases capacity and has
the right to purchase energy generated by the plants. Subsequently, Commonwealth Edison assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC.
Exelon Generation provided Edison Mission Energy notice to continue the agreement related to the coal units and the Collins Station for
2002. In October 2001, Exelon Generation terminated the power purchase agreement for the peaker units with respect to 300 megawatts of oil peakers, effective January 2002, but continued
the agreement for all other peaker plants for 2002. In each of 2003 and 2004, Exelon Generation is committed to purchase 1,696 MW of capacity from specific coal units, but has the option to terminate
all or any of the remaining coal units and all of the natural gas and oil-fired units with prior notice as specified under each agreement.

Concurrently
with the acquisition of the Illinois plants, Edison Mission Energy assigned its right to purchase the Collins Station, a 2,698 MW gas and oil-fired generating
station located in Illinois, to third-party lessors. After this assignment, Edison Mission Energy entered into leases of the Collins

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Station with terms of 33.75 years. The aggregate MW either purchased or leased as a result of these transactions with Commonwealth Edison and the third party lessors is 9,539 MW.

Consideration
for the Illinois plants, excluding $860 million paid by the third-party lessors to acquire the Collins Station, consisted of a cash payment of approximately
$4.1 billion. The acquisition was funded primarily with a combination of approximately $1.6 billion of non-recourse debt secured by a pledge of the stock of specified
subsidiaries, $1.3 billion of Edison Mission Energy's debt and $1.2 billion in equity contributions to Edison Mission Energy from Edison International.

Acquisition of Interest in Contact Energy

On May 14, 1999, a subsidiary of Edison Mission Energy completed a transaction with the New Zealand government to acquire 40% of the shares of Contact
Energy Limited. The remaining 60% of Contact Energy's shares were sold in a New Zealand and overseas public offering resulting in widespread ownership among the citizens of New Zealand and offshore
investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. Contact Energy owns and operates hydroelectric, geothermal and natural gas fired power generating plants
primarily in New Zealand with a total current generating capacity of 2,302 MW.

Consideration
for Edison Mission Energy's interest in Contact Energy consisted of a cash payment of approximately $635 million (NZ$1.2 billion), which was financed by
$120 million of preferred securities, a $214 million (NZ$400 million at the time of the acquisition) credit facility, a $300 million equity contribution to Edison Mission
Energy from Edison International and cash. The credit facility was subsequently paid off with proceeds from the issuance of additional preferred securities.

During
2000, Edison Mission Energy increased its share of ownership in Contact Energy to 42.6%. Subsequently, during the second quarter of 2001, a subsidiary of Edison Mission Energy
completed the purchase of additional shares of Contact Energy for NZ$152 million, thereby increasing Edison Mission
Energy's ownership interest from 42.6% to 51.2%. Due to acquisition of a controlling interest, Edison Mission Energy began accounting for Contact Energy on a consolidated basis effective
June 1, 2001. Prior to June 1, 2001, Edison Mission Energy used the equity method of accounting for Contact Energy. In order to finance the purchase of the additional shares, the
subsidiary obtained a NZ$135 million, 364-day bridge loan from an investment bank under a credit facility which was syndicated by the bank. In addition to other security
arrangements, a security interest over all Contact Energy shares held by Edison Mission Energy has been provided as collateral. On July 2, 2001, Edison Mission Energy redeemed
NZ$400 million preferred securities issued by one of Edison Mission Energy's subsidiaries, EME Taupo. Funding for the redemption of the existing preferred securities was provided by a
NZ$400 million credit facility scheduled to mature in July 2005. The financing documents provide that the credit facility may be funded under either, or a combination of, a letter of
credit facility or a revolving credit facility. The NZ$400 million was originally funded as a revolving credit facility. From June 2001 to October 2001, Edison Mission Energy
issued NZ$250 million of new preferred securities through one of its subsidiaries. The proceeds were used to repay borrowings outstanding under the NZ$400 million credit facility and to
repay the bridge loan.

On
October 12, 2001, Edison Mission Energy announced its intention to acquire the remaining 48.8% of Contact Energy that it does not own, thereby increasing its ownership interest
to 100%. Edison Mission Energy proposed an offer of NZ$4.25 per share, including an interim dividend of NZ$0.11 per share, to the minority shareholders payable in cash. The offer commenced on
November 6, 2001 and was extended until February 3, 2002. The offer was conditioned on Edison Mission Energy's acquiring a 90% interest in Contact Energy, which would have enabled it to
acquire the remaining minority interests through a merger. On February 4, 2002, Edison Mission Energy announced that it did not receive the necessary level of acceptances required to complete
the transaction, and, therefore, Edison Mission Energy currently plans to continue with its current 51.2% ownership interest.

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Acquisition of Homer City Facilities

On March 18, 1999, a subsidiary of Edison Mission Energy completed a transaction with GPU, Inc., New York State Electric & Gas Corporation
and their respective affiliates to acquire the 1,884 MW Homer City Electric Generating Station. This facility is a coal-fired plant in the mid-Atlantic region of the United
States and has direct, high voltage interconnections to both the New York Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is
commonly known as the NYISO, and the Pennsylvania-New Jersey-Maryland Power Pool, which is commonly known as the PJM.

Consideration
for the Homer City facilities consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined
with Edison Mission Energy's revolver borrowings and cash.

On
December 7, 2001, Edison Mission Energy sold the Homer City facilities to third party lessors in a sale-leaseback transaction. See
"Sale-Leaseback Transactions" and "Off Balance Sheet Financing".

Accounting Treatment of Acquisitions

Each of the acquisitions described above has been accounted for utilizing the purchase method. The purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair market values. Amounts in excess of the fair value of the net assets acquired have been assigned to goodwill. Our consolidated statement of income
reflects the operations of Sunrise beginning July 1, 2001, Citizens beginning September 1, 2000, Italian Wind beginning April 1, 2000, the Homer City facilities beginning
March 18, 1999, Contact Energy beginning May 1, 1999, and the Illinois plants beginning December 15, 1999. Edison Mission Energy began accounting for Contact Energy on a
consolidated basis effective June 1, 2001, upon acquisition of a controlling interest.

Dispositions

On December 21, 2001, Edison Mission Energy completed the sale of the Ferrybridge and Fiddler's Ferry coal-fired power plants located in the
United Kingdom to two wholly-owned subsidiaries of American Electric Power. In addition, as part of the transactions, the purchasers acquired other assets and assumed specified liabilities associated
with the plants. Edison Mission Energy acquired the plants in 1999 from PowerGen UK plc for £1.3 billion. In accordance with SFAS No. 144, the results of Ferrybridge and
Fiddler's Ferry have been reflected as discontinued operations in the consolidated financial statements. See "Discontinued Operations." The loss from operations of Ferrybridge and
Fiddler's Ferry in 2001 includes $1.9 billion ($1.148 billion after tax) related to the loss on disposal. Net proceeds from the sales of £643 million were used to
repay borrowings outstanding under the existing debt facility related to the acquisition of the power plants.

During
2001, Edison Mission Energy also sold its 50% interest in the Nevada Sun-Peak project, 50% interest in the Saguaro project and 25% interest in the Hopewell project for
a total gain on sale of $45 million ($24.4 million after tax). In addition, Edison Mission Energy entered into agreements, subject to obtaining consents from third parties and other
conditions precedent to closing, for the sale of its interests in the Commonwealth Atlantic, Gordonsville, EcoEléctrica, Harbor and James River projects. During 2001, Edison Mission
Energy recorded asset impairment charges of $33.7 million related to the Commonwealth Atlantic, Gordonsville, Harbor and James River projects based on the expected sales proceeds. Subsequent to
December 31, 2001, Edison Mission Energy completed the sales of its 50% interests in the Commonwealth Atlantic and James River projects and its 30% interest in the Harbor project for
$47.7 million. The sales of Edison Mission Energy's interests in the EcoEléctrica and Gordonsville projects have not closed, and in each case, the sale agreement has terminated
and Edison Mission Energy has recommenced marketing efforts. On March 8, 2002, Edison Mission Energy filed a complaint against Mirant Corporation and two of its affiliates, alleging that Mirant
wrongfully terminated the sale agreement for the purchase of the EcoEléctrica project. Edison Mission Energy is

29

---

currently offering for sale its interest in the Brooklyn Navy Yard, EcoEléctrica and Gordonsville projects.

On
June 25, 2001, Edison Mission Energy completed the sale of a 50% interest in the Sunrise project to Texaco Power & Gasification Holdings Inc. Proceeds from the
sale were $84 million.

On
August 16, 2000, Edison Mission Energy completed the sale of 30% of its interest in the Kwinana cogeneration plant to SembCorp Energy. Edison Mission Energy retains the
remaining 70% ownership interest in the plant. Proceeds from the sale were $12 million. Edison Mission Energy recorded a gain on the sale of $8.5 million ($7.7 million after tax).

On
June 30, 2000, Edison Mission Energy completed the sale of its 50% interest in the Auburndale project to the existing partner. Proceeds from the sale were $22 million.
Edison Mission Energy recorded a gain on the sale of $17 million ($10.5 million after tax).

Sale-Leaseback Transactions

On December 7, 2001, a subsidiary of Edison Mission Energy completed a sale-leaseback of its Homer City facilities to third-party lessors for
an aggregate purchase price of $1.591 billion, consisting of $782 million in cash and assumption of debt (the fair value of which was $809.3 million). Under the terms of the
33.67-year leases, the subsidiary is obligated to make semi-annual lease payments on each April 1 and October 1. If a lessor intends to sell its interest in the
Homer City facilities, Edison Mission Energy has a right of first refusal to acquire the interest at fair market value. Minimum lease payments during the next five years are $175.0 million for
2002, $174.0 million for 2003, $142.1 million for 2004, $151.9 million for 2005, and $151.6 million for 2006. At December 31, 2001, the total remaining minimum lease
payments are $3.4 billion. Lease costs will be levelized over the terms of the leases. The gain on the sale of the facilities has been deferred and is being amortized over the term of the
leases.

On
August 24, 2000, a subsidiary of Edison Mission Energy completed a sale-leaseback of its Powerton and Joliet power facilities located in Illinois to third-party
lessors for an aggregate purchase price of $1.367 billion. Under the terms of the leases (33.75 years for Powerton and 30 years for Joliet), the subsidiary makes
semi-annual lease payments on each January 2 and July 2, which began January 2, 2001. Edison Mission Energy guarantees its subsidiary's payments under these leases. If
a lessor intends to sell its interest in the Powerton or Joliet power facility, Edison Mission Energy has a right of first refusal to acquire the interest at fair market value. Minimum lease payments
during the next five years are $97.3 million for 2002, $97.3 million for 2003, $97.3 million for 2004, $141.1 million for 2005, and $184.9 million for 2006. At
December 31, 2001, the total remaining minimum lease payments are $2.3 billion. Lease costs of these power facilities will be levelized over the terms of the respective leases. The gain
on the sale of the power facilities has been deferred and is being amortized over the term of the leases.

On
July 10, 2000, one of Edison Mission Energy's subsidiaries entered into a sale-leaseback of equipment, primarily Illinois peaker power units, to a third party
lessor for $300 million. Under the terms of the 5-year lease, Edison Mission Energy has a fixed price purchase option at the end of the lease term of $300 million. Edison
Mission Energy guarantees the monthly payments under the lease. In connection with the sale-leaseback, a subsidiary of Edison Mission Energy purchased $255 million of notes issued
by the lessor which accrue interest at the London Interbank Offered Rate, commonly referred to as LIBOR, plus 0.65% to 0.95%, depending on Edison Mission Energy's credit rating. The notes are due and
payable in 2005. The gain on the sale of equipment has been deferred and is being amortized over the term of the lease.

For
more information on these sale-leaseback transactions, see "Off-Balance Sheet TransactionsSale-Leaseback Transactions."

30

---

RESULTS OF OPERATIONS

Operating revenues are derived from Edison Mission Energy's majority-owned domestic and international entities. Equity in income from investments relates to
energy projects where Edison Mission Energy's ownership interest is 50% or less in the projects. The equity method of accounting is generally used to account for the operating results of entities over
which Edison Mission Energy has a significant influence but in which it does not have a controlling interest. With respect to entities accounted for under the equity method, Edison Mission Energy
recognizes its proportional share of the income or loss of those entities.

As
an aid in an understanding of our results of operations, the following table summarizes revenues and operating income during the past three years from major projects (in millions):

|                    |                       |  |          | 2001 |   | 2000    |  | 1999 | 
|------------------- | --------------------- |  | -------- | ---- | - | ------- |  | ---- | 
|
|
|Operating revenues: |                       |  |          |      |   |         |  |      | 
|                    | Illinois plants       |  | Americas |      | $ | 1,068.7 |  | 36   | 
|                    | Homer City facilities |  | Americas |      |   | 494.1   |  | 17   | 
|                    | Big 4 projects(2)     |  | Americas |      |   | 228.6   |  | 8    | 
|                    | First Hydro           |  | Europe   |      |   | 235.8   |  | 8    | 
|                    | Four Star(3)          |  | Americas |      |   | 87.7    |  | 3    | 
|Operating income:   |                       |  |          |      |   |         |  |      | 
|                    | Illinois plants       |  | Americas |      |   | 80.1    |  | 9    | 
|                    | Homer City facilities |  | Americas |      |   | 187.1   |  | 22   | 
|                    | Big 4 projects (2)    |  | Americas |      |   | 228.6   |  | 27   | 
|                    | First Hydro           |  | Europe   |      |   | 60.8    |  | 7    | 
|                    | Four Star (3)         |  | Americas |      |   | 86.0    |  | 10   | 

---

Edison
Mission Energy operates predominantly in one line of business, electric power generation, with reportable segments organized by geographic regions: Americas,
Asia-Pacific, and Europe and Middle East. The following discussion of Edison Mission Energy's operating results is set forth by region with reference to the performance of its major
projects described above.

31

---

Americas

Years Ended December 31,2001

2000

1999(in millions)Operating revenues

$
1,613.1

$
1,571.0

$
378.6Net gains (losses) from energy trading and price risk management


35.3


(17.3
)

(6.4
)Equity in income from investments


353.3


257.2


224.8Total operating revenues


2,001.7


1,810.9


597.0Fuel and plant operations


1,165.2


1,131.6


237.7Depreciation and amortization


167.2


191.2


52.5Asset impairment and other charges


59.1





Administrative and general


32.5


21.1


Operating income

$
577.7

$
467.0

$
306.8


Operating Revenues

Operating revenues increased $42.1 million in 2001 compared to 2000, and increased $1.2 billion in 2000 compared to 1999. The 2001 increase resulted
from higher electric revenues from the Homer City facilities due to higher energy prices, as compared to the prior year. This increase was partially offset by lower electric revenues from the Illinois
plants in 2001 due to lower dispatch of their coal units as a result of lower market prices for power. The 2000 increase resulted from a full-year of electric revenues from the Illinois
plants acquired in December 1999 and the Homer City facilities acquired in March 1999.

Electric
power generated at the Illinois plants is sold under three five-year power purchase agreements with Exelon Generation Company, terminating in December 2004.
Exelon Generation is obligated to make capacity payments for the plants under contract and an energy payment for electricity produced by these plants. Edison Mission Energy's revenues under these
power purchase agreements were $1.1 billion for each of the years ended December 31, 2001 and 2000. This represented 36% and 42% of our consolidated operating revenues in 2001 and 2000,
respectively. For more information on these power purchase agreements, see "Market Risk ExposuresIllinois Plants" and "Risk Factors."

Net
gains from energy trading activities were $10 million in 2001 and $62.2 million from September 1, 2000, the acquisition date of Citizens Power, to
December 31, 2000. The 2001 decrease in gains primarily resulted from a reduction in Edison Mission Energy's trading activity in 2001, as compared to 2000, due to volatility of power prices in
the West Coast trading markets during the fourth quarter of 2000 and the adverse impact of the California power crisis on Edison Mission Energy's credit in 2001.

Total
gains and losses from price risk management activities recorded at fair value under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) were $25.3 million, ($79.5) million and ($6.4) million in 2001, 2000 and 1999, respectively. The 2001 gain was primarily due to
realized and unrealized gains for a gas swap purchased to hedge a portion of Edison Mission Energy's gas price risk related to its share of gas production in Four Star, an oil and gas company in which
Edison Mission Energy has a minority interest and which Edison Mission Energy accounts for under the equity method. Although Edison Mission Energy believes the gas swap hedges its gas price risk,
hedge accounting is not permitted for transactions of investments accounted for on the equity method, and thus, Edison Mission Energy was required to record changes in fair value of these positions
through the income statement (commonly

32

---

referred to as mark-to-market accounting). During 2000, Edison Mission Energy recorded a loss on these gas swaps of $87 million due to a substantial increase in gas
prices in the fourth quarter of 2000. As gas prices decreased in 2001, Edison Mission Energy recorded a gain of $44.7 million on these positions resulting in a
year-over-year increase in its earnings in 2001 from 2000 of $131.7 million. Partially offsetting this gain in 2001 was a loss resulting from the change in market value
of future contracts entered into with respect to a portion of Edison Mission Energy's anticipated fuel purchases through 2002 at the Illinois plants that did not qualify for hedge accounting under
SFAS No. 133.

The
2000 losses from price risk management activities recorded at fair value increased from 1999 primarily due to realized and unrealized losses for a gas swap entered into as an
economic hedge of a portion of Edison Mission Energy's gas price risk related to its share of gas production in Four Star discussed above. Partially offsetting the 2000 loss was a gain realized on
financial options entered into beginning August 2000 as a hedge of Edison Mission Energy's price risk associated with expected natural gas purchases at the Illinois plants for 2001. During the
fourth quarter, Edison Mission Energy determined that it was no longer probable that it would purchase natural gas at the Illinois plants during 2001. This decision resulted from sustained gas prices
far greater than were contemplated when Edison Mission Energy originally projected its 2001 gas needs and the fact that Edison Mission Energy can use fuel oil interchangeably with natural gas at some
of the Illinois plants. At the time Edison Mission Energy made its revised determination, the fair value of its financial option was $38 million. This gain was deferred as required by hedge
accounting and was recognized during 2001 based on the date of the occurrence of the original anticipated transaction. Subsequent to Edison Mission Energy's revised determination, Edison Mission
Energy settled the option for a $56 million gain. Accordingly, $18 million of gain was recognized in the fourth quarter of 2000. Concurrent with Edison Mission Energy's revised
determination of its 2001 natural gas requirements at the Illinois plants, Edison Mission Energy entered into some additional fuel contracts to offset its financial option and economically hedge the
price risk associated with fuel oil. Edison Mission Energy recognized a $12 million loss at December 31, 2000 on these additional fuel contracts.

Equity
in income from investments increased $96.1 million in 2001 over 2000, and increased $32.4 million in 2000 over 1999. The 2001 increase was primarily the result of
higher revenues from cogeneration projects due to higher energy pricing on the West Coast during 2001 and revenues from the Sunrise project, which commenced operations in June 2001. Edison
Mission Energy had no comparable results for the Sunrise project in 2000. The 2000 increase was primarily the result of higher revenues from cogeneration projects due to higher energy pricing and
higher revenues from oil and gas investments due to higher oil and gas prices.

Many
of the domestic energy projects in which Edison Mission Energy's ownership interest is 50% or less rely on one power sales contract with a single electric utility customer for the
majority, and in some cases all, of their power sales revenues over the life of the power sales contract. The primary power sales contracts for four of Edison Mission Energy's operating projects in
2001, 2000 and 1999 are with Southern California Edison. Edison Mission Energy's share of equity in earnings from these projects accounted for 8% in 2001, 6% in 2000 and 10% in 1999 of our
consolidated revenues for the respective years. For more information on these projects and other projects in California, see "Contractual Obligations, Commitments and
ContingenciesThe California Power Crisis."

Due
to warmer weather during the summer months, electric revenues generated from the Homer City facilities and the Illinois plants are usually higher during the third quarter of each
year. In addition, Edison Mission Energy's third quarter equity in income from investments in energy projects is materially higher than other quarters of the year due to higher summer pricing for our
West Coast power investments.

33

---

Operating Expenses

Fuel and plant operations costs increased $33.6 million in 2001 compared to 2000, and increased $893.9 million in 2000 compared to 1999. The 2001
increase was primarily due to an increase in plant operations at the Illinois plants, partially offset by lower fuel costs at these plants. The 2001 increase in plant operations resulted from lease
costs related to the sale-leaseback commitments for the Powerton-Joliet power facilities and the Collins gas and oil-fired power plant. There were no comparable lease costs for
the Powerton-Joliet power facilities through the period ended August 2000. See "Off-Balance Sheet TransactionsSale-Leaseback Transactions" for
discussion of the financial impact of sale-leaseback transactions. In addition, plant operations costs increased due to higher maintenance costs at the Illinois plants in 2001 from planned
outages and costs of additional security related to a strike at the Illinois plants during June through October 2001. Fuel costs were lower at the Illinois plants in 2001 due to less dispatch
of their coal units as compared to 2000 and decreased generation from the Collins Station and peaker plants. The 2000 increase resulted from a full year of expenses at the Illinois plants and the
Homer City facilities.

Depreciation
and amortization expense decreased $24 million in 2001 compared to 2000, and increased $138.7 million in 2000 compared to 1999. The 2001 decrease resulted from
lower depreciation expense at the Illinois plants related to the sale-leaseback transaction for the Powerton-Joliet power facilities with third-party lessors on August 24, 2000. The
2000 increase was primarily due to a full year of depreciation and amortization expense related to the Illinois plants.

Asset
impairment and other charges of $59.1 million consisted of $33.7 million to write down Edison Mission Energy's investments to the estimated net proceeds from the
planned sale of the Commonwealth Atlantic, Gordonsville, Harbor and James River projects and $25.4 million related to a loss on the termination of a portion of the Edison Mission Energy Master
Turbine Lease. For more information on the termination of the lease, see "Contractual Obligations, Commitments and ContingenciesEdison Mission Energy Master Turbine Lease."
There were no comparable asset impairment and other charges for the same prior year periods.

Administrative
and general expenses consist of administrative and general expenses incurred at Edison Mission Energy's trading operations in Boston, Massachusetts and a provision for bad
debts. In 2001, Edison Mission Energy recorded a provision of $8.5 million for bad debts from Enron as a result of its bankruptcy. The 2001 increase also included a full year of trading
operations, partially offset by higher bonuses during 2000. Prior to the September 1, 2000 acquisition of Citizens Power, administrative and general expenses incurred by Edison Mission Energy's
marketing operations were reflected in Corporate/Other administrative and general expenses.

Operating Income

Operating income increased $110.7 million in 2001 compared to 2000, and increased $160.2 million in 2000 compared to 1999. The 2001 increase was
primarily due to increases in operating income from the Homer City facilities, equity in income from investments in energy projects and gains from price risk management activities discussed above. The
2000 increase was primarily due to a full year of operating income from the Illinois plants and the Homer City facilities and increased equity in income from Edison Mission Energy's oil and gas
investments due to higher oil and gas prices.

34

---

Asia-Pacific

Years Ended December 31,2001

2000

1999(in millions)Operating revenues

$
464.4

$
184.2

$
213.6Net losses from energy trading and price risk management


(4.1
)




Equity in income from investments


7.5


14.6


18.1Total operating revenues


467.8


198.8


231.7Fuel and plant operations


265.9


61.5


73.8Depreciation and amortization


51.9


35.0


40.5Operating income

$
150.0

$
102.3

$
117.4


Operating Revenues

Operating revenues increased $280.2 million in 2001 compared to 2000, and decreased $29.4 million in 2000 compared to 1999. The 2001 increase was
primarily due to consolidating Contact Energy operating revenues as a result of Edison Mission Energy acquiring a controlling interest in the company, effective June 1, 2001. Electric revenues
generated by Contact Energy benefited in 2001 from higher energy prices in New Zealand caused by dry and cold conditions during the third quarter of 2001. The increase was partially offset by lower
U.S. dollar electric revenues from the Loy Yang B plant in Australia due to a 11.1% decrease in the average exchange rate of the Australian dollar compared to the U.S. dollar during 2001, compared to
2000. The 2000 decrease was attributable to lower electric revenues from the Loy Yang B plant. During May 2000, Edison Mission Energy experienced a major unplanned outage due to damage to the
generator at one of its two 500 MW units at the Loy Yang B power plant in Australia. The unit was restored to operation in September 2000. The repair costs in excess of Edison Mission Energy's
$2 million deductible amount, together with the loss of profits after the first 15 days and until the unit was back in operation, were partially recovered from insurance.

Net
losses from price risk management activities recorded at fair value were $4.1 million in 2001. The losses primarily resulted from the change in the market value of interest
rate swaps and options that did not qualify for hedge accounting under SFAS No. 133 and the ineffective portion of a long-term contract with the State Electricity Commission of
Victoria entered into by the Loy Yang B plant, which is a derivative that qualified as a cash flow hedge under SFAS No. 133. See "Mission Energy Holding Company and Subsidiaries Notes to
Consolidated Financial StatementsNote 4. Accumulated Other Comprehensive Income (Loss)" for further discussion.

Equity
in income from investments decreased $7.1 million in 2001 compared to 2000, and decreased $3.5 million in 2000 compared to 1999. The 2001 decrease primarily reflects
Contact Energy being accounted for on a consolidated basis effective June 1, 2001, compared to the equity method of accounting prior to the acquisition of a controlling interest. The 2000
decrease was primarily due to lower profitability of Edison Mission Energy's interest in Contact Energy resulting from lower electricity prices caused by milder winter weather conditions.

Operating Expenses

Fuel and plant operations costs increased $204.4 million in 2001 compared to 2000, and decreased $12.3 million in 2000 compared to 1999. The 2001
increase was primarily due to consolidating Contact Energy operating expenses, effective June 1, 2001. The 2000 decrease resulted primarily from lower fuel costs at the Loy Yang B plant due to
the major unplanned outage at one of its two 500 MW units.

35

---

Depreciation
and amortization expense increased $16.9 million in 2001 compared to 2000, and decreased $5.5 million in 2000 compared to 1999. The 2001 increase primarily
reflects the consolidation of Contact Energy depreciation and amortization expenses, effective June 1, 2001. The 2000 decrease was primarily due to favorable changes in foreign exchange rates.

Operating Income

Operating income increased $47.7 million in 2001 compared to 2000, and decreased $15.1 million in 2000 compared to 1999. The 2001 increase was
primarily due to consolidating Contact Energy's results of operations, effective June 1, 2001, and the favorable impact of higher energy prices in New Zealand discussed above. The increase was
partially offset by lower operating income from the Loy Yang B plant, resulting primarily from lower electric revenues due to a decrease in the value of the Australian dollar compared to the U.S.
dollar. The 2000 decrease was due to lower operating income from the Loy Yang B plant resulting from the major unplanned outage at one of its two 500 MW units and a decrease in the value of the
Australian dollar compared to the U.S. dollar. Edison Mission Energy recorded pre-tax losses of $8.4 million in 2000 related to this outage.

Europe and Middle East(1)

Years Ended December 31,2001

2000

1999(in millions)Operating revenues

$
457.3

$
543.6

$
490.6Net gains from energy trading and price risk management


3.3





Equity in income (loss) from investments


13.3


(5.0
)

1.4Total operating revenues


473.9


538.6


492.0Fuel and plant operations


297.7


270.6


247.8Depreciation and amortization


42.6


44.7


42.2Operating income

$
133.6

$
223.3

$
202.0


---

Operating Revenues

Operating revenues decreased $86.3 million in 2001 compared to 2000, and increased $53.0 million in 2000 compared to 1999. The 2001 decrease
resulted primarily from lower capacity revenues from the First Hydro plant. On March 27, 2001, the United Kingdom pool pricing system was replaced with a bilateral physical trading system
referred to as the new electricity trading arrangements. The new electricity trading arrangements are described in further detail under "Market Risk ExposuresUnited Kingdom."
These new electricity trading arrangements resulted in lower capacity prices in 2001, compared to 2000. The 2000 increase resulted from a full year of electric revenues from the Doga project, which
commenced commercial operation in May 1999, and by higher capacity revenues from the First Hydro plants due to favorable market conditions. The First Hydro plants and the Iberian
Hy-Power plants are expected to provide for higher electric revenues during the winter months.

Net
gains from price risk management activities recorded at fair value were $3.3 million in 2001. The gains primarily represent the change in market value of long-term
commodity contracts entered into by the First Hydro plant for the purchase and sale of electricity that were recorded at fair value under SFAS No. 133 with changes in fair value recorded
through the income statement, effective

36

---

July 1, 2001. The related cumulative effect of change in accounting for these contracts is described in further detail under "Cumulative Effect of Change in Accounting
PrincipleAccounting for Derivatives."

Equity
in income from investments increased $18.3 million in 2001 compared to 2000, and decreased $6.4 million in 2000 compared to 1999. The 2001 increase primarily
reflects gains from the ISAB project. In 2001, the operational performance of the project substantially improved as expected, thereby achieving profitability. During 2000, Edison Mission Energy
recorded losses from this project. Commercial operation of the ISAB project commenced in April 2000. The 2000 decrease was primarily due to Edison Mission Energy's interest in the ISAB project
which incurred losses primarily from extended start-up and commissioning activities during 2000, its first year of operation.

Operating Expenses

Fuel and plant operations costs increased $27.1 million in 2001 compared to 2000, and increased $22.8 million in 2000 compared to 1999. The 2001
increase was primarily due to higher fuel costs at the First Hydro plant and Doga plant. The increase in fuel costs at the First Hydro plant reflects the changes under the new electricity trading
arrangements. Under the new trading arrangements, fuel costs include contracts to purchase electricity which Edison Mission Energy uses to meet sales commitments when it was more
cost-effective to purchase as compared to generate electricity, thus reducing the need for physical pumping or generating. In addition, due to the new trading arrangements, some costs
previously paid by suppliers now are being paid by generators and all market participants are being charged imbalance costs when their metered position differs from their contracted position. The new
electricity trading arrangements are described in further detail under "Market Risk ExposuresUnited Kingdom." Fuel costs increased at the Doga plant primarily due to
increased production in 2001, compared to the same prior year period. The 2000 increase resulted from a full year of expenses at the Doga project, partially offset by lower fuel expense at the First
Hydro plant. Fuel expense at First Hydro decreased primarily due to lower generation levels in 2000, resulting in a lower pumping requirement.

Operating Income

Operating income decreased $89.7 million in 2001 compared to 2000, and increased $21.3 million in 2000 compared to 1999. The 2001 decrease was
primarily due to lower operating income of $105.9 million from the First Hydro plant due to lower energy and capacity prices resulting from the new electricity trading arrangements. The 2000
increase was primarily due to operating income from the Doga project and higher operating income from the First Hydro plant.

37

---

Corporate/Other

Years Ended December 31,2001

2000

1999(in millions)Revenues:Net gains from energy trading and price risk management

$
1.7

$


$
Expenses:Depreciation and amortization


11.2


11.1


8.9Long-term incentive compensation


6.0


(56.0
)

136.3Administrative and general


141.7


139.8


114.8Operating loss

$
(157.2
)
$
(94.9
)
$
(260.0
)


Net
gains from price risk management activities were $1.7 million in 2001. The gains primarily resulted from the change in market value of our interest rate swaps with respect to
Edison Mission Energy's $100 million senior notes that did not qualify for hedge accounting under SFAS No. 133.

Long-term
incentive compensation expense consists of charges related to Edison Mission Energy's terminated phantom option plan. Long-term incentive compensation
expenses increased $62 million in 2001 compared to 2000, and decreased $192.3 million in 2000 compared to 1999. The 2001 increase was due to a reduction in the liability for previously
accrued incentive compensation by approximately $60 million recorded during 2000 and additional 2001 compensation expense related to deferred payments and annual vesting of benefits. The 2000
decrease was due to the absence of new accruals, as the plan had been terminated, and to a reduction in the liability. This reduction resulted from the lower valuation implicit in the
August 2000 exchange offer pursuant to which the phantom option plan was terminated compared to the value previously accrued.

Administrative
and general expenses increased $1.9 million in 2001 compared to 2000, and increased $25 million in 2000 compared to 1999. There were no material changes in
2001 administrative and general expenses from 2000. The 2000 increase was primarily due to additional salaries and facilities costs incurred to support the 1999 acquisitions. Edison Mission Energy
recorded a pre-tax charge of approximately $9 million against earnings for severance and other related costs, which contributed to the 2000 increase. The charge resulted from a
series of actions undertaken by Edison Mission Energy designed to reduce administrative and general operating costs, including reductions in management and administrative personnel.

Other Income (Expense)

Interest and other income increased $9.5 million in 2001 compared to 2000, and decreased $13.7 million in 2000 compared to 1999. The 2001 increase
was primarily due to higher interest income from interest earned on funds placed into an escrow account from the sale of the senior secured notes and the term loan. The 2000 decrease was primarily due
to fees incurred in December 2000 related to the liquidation of Edison Mission Energy Global Management, Inc. in connection with the redemption of the $120 million Flexible Money
Market Cumulative Preferred Stock.

38

---

Gains
on sale of assets were $41.3 million, $25.8 million and $7.6 million in 2001, 2000 and 1999, respectively. Gains on sale of assets for 2001 and 2000 included:

Project

Gross Proceeds

Edison Mission
Energy's
Ownership
Interest Sold

DateNevada Sun-Peak

$
11.2

50
%
December 5, 2001Saguaro


67.0

50

September 20, 2001Hopewell


26.5

25

June 29, 2001Kwinana


12.0

30

August 16, 2000Auburndale


22.0

50

June 30, 2000


During
the fourth quarter of 1999, a subsidiary of Edison Mission Energy completed the sale of 31.5% of its 50.1% interest in Four Star Oil & Gas for $34.2 million in cash
and a 50% interest in the acquirer, Four Star Holdings. Four Star Holdings financed the purchase of the interest in Four Star Oil & Gas from $27.5 million in loans from affiliates,
including $13.7 million from Edison Mission Energy, and $13.7 million from cash. Upon completion of the sale, Edison Mission Energy continued to own an 18.6% direct interest in Four Star
Oil & Gas and an indirect interest of 15.75% which is held through Four Star Holdings. As a result of this transaction, Edison Mission Energy's total interest in the profits and losses of Four
Star Oil & Gas decreased from 50.1% to 34.35%. Cash proceeds from the sale were $34.2 million ($20.5 million net of the loan to Four Star Holdings). The gain on the sale of the
31.5% interest in Four Star Oil & Gas was $11.5 million of which Edison Mission Energy deferred 50%, or $5.6 million, due to its equity interest in Four Star Holdings. The
after-tax gain on the sale was approximately $30 million.

Interest
expense increased $71.3 million in 2001 compared to 2000, and increased $250.6 million in 2000 compared to 1999. The 2001 increase primarily reflects the issuance
of our $800 million senior secured notes on July 2, 2001 and our borrowings of $385 million under a term loan entered into on July 2, 2001. The 2000 increase was primarily
the result of additional debt financing associated with the acquisitions of the Illinois plants and the Homer City facilities.

Dividends
on Edison Mission Energy's mandatorily redeemable preferred securities decreased $9.8 million in 2001 compared to 2000 and increased $9.7 million in 2000 compared
to 1999. The 2001 decrease reflects the redemption of the NZ$400 million EME Taupo preferred securities in July 2001. The 2000 increase reflects the issuance of preferred securities in
connection with the original Contact Energy acquisition.

Provision (Benefit) for Income Taxes

We had effective tax provision (benefit) rates of 50.7%, 49.7% and (43.0)% in 2001, 2000 and 1999, respectively. There was no significant change in the effective
tax rate between 2001 and 2000. Income taxes increased in 2000 principally due to a higher foreign income tax expense compared to 1999, nonrecurring 1999 tax benefits discussed below and higher state
income taxes due to the Homer City facilities and Illinois plants. In 1999, Edison Mission Energy recorded tax benefits associated with a capital loss attributable to the sale of a portion of its
interest in Four Star Oil & Gas Company, refunds of advanced corporation tax payments from the United Kingdom and a reduction in deferred taxes in Australia as a result of a decrease in
statutory rates. In addition, Edison Mission Energy benefited from lower foreign income taxes that resulted from the permanent reinvestment of earnings from foreign affiliates located in different
foreign tax jurisdictions. The Australian corporate tax rate decreased from 36% to 34% effective in July 2000, and decreased from 34% to 30% effective in July 2001. In accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the reductions in the Australian income tax rates resulted in reductions in income tax expense of
approximately $5.9 million in 1999.

39

---

Edison
Mission Energy is, and may in the future be, under examination by tax authorities in varying tax jurisdictions with respect to positions it takes in connection with the filing of
its tax returns. Matters raised upon audit may involve substantial amounts, which, if resolved unfavorably, an event not currently anticipated, could possibly be material. However, in Edison Mission
Energy's opinion, it is unlikely that the resolution of any such matters will have a material adverse effect upon its financial condition or results of operations.

Minority Interest

Minority interest expense increased $19 million in 2001 compared to 2000 and increased $0.2 million in 2000 compared to 1999. The 2001 increase was
due to accounting for Contact Energy on a consolidated basis, effective June 1, 2001, due to Edison Mission Energy's purchase of additional shares of Contact Energy that increased its ownership
interest from 42.6% to 51.2%.

Discontinued Operations

As a result of the change in the prices of power in the U.K. and the anticipated negative impacts of such changes on earnings and cash flow, Edison Mission Energy
offered for sale through a competitive bidding process the Ferrybridge and Fiddler's Ferry coal-fired power plants located in the United Kingdom. On December 21, 2001, Edison
Mission Energy completed the sale of the power plants to two wholly-owned subsidiaries of American Electric Power. In addition, as part of the transactions, the purchasers acquired other assets and
assumed specified liabilities associated with the plants. Edison Mission Energy acquired the plants in 1999 from PowerGen UK plc for £1.3 billion. In accordance with SFAS
No. 144, the results of Ferrybridge and Fiddler's Ferry have been reflected as discontinued operations in the consolidated financial statements.

The
loss from operations of Ferrybridge and Fiddler's Ferry in 2001 includes $1.9 billion ($1.148 billion after tax) related to the loss on disposal. Included in the loss
on disposal is the asset impairment charge of $1.9 billion ($1.154 billion after tax) Edison Mission Energy recorded in the third quarter of 2001 to reduce the carrying amount of the
power plants to reflect the estimated fair value less the cost to sell and related currency adjustments.

Net
proceeds from the sales of £643 million were used to repay borrowings outstanding under the existing debt facility related to the acquisition of the power plants.
The early repayment of the projects' existing debt facility of £682.2 million at December 21, 2001 resulted in an extraordinary loss of $28 million, after tax,
attributable to the write-off of unamortized debt issue costs.

Effective
January 1, 2001, Edison Mission Energy recorded a $5.8 million, after tax, increase to income (loss) from discontinued operations, as the cumulative effect of
change in accounting for derivatives. The majority of Edison Mission Energy's activities related to the Ferrybridge and Fiddler's Ferry power plants did not qualify for either the normal purchases and
sales exception or as cash flow hedges under SFAS No. 133. Edison Mission Energy could not conclude, based on information available at December 31, 2000, that the timing of generation
from these power plants met the probable requirement for a specific forecasted transaction under SFAS No. 133. Accordingly, the majority of these contracts were recorded at fair value with
subsequent changes in fair value recorded through the income statement.

Effective
January 1, 2000, Edison Mission Energy recorded a $4.1 million, after tax, decrease to income (loss) from discontinued operations, as the cumulative effect of
change in accounting for major maintenance costs. Through December 31, 1999, Edison Mission Energy accrued for major maintenance costs incurred during the period at the Ferrybridge and
Fiddler's Ferry power plants between turnarounds (referred to as "accrue in advance" accounting method). In March 2000, Edison Mission Energy voluntarily decided to change its accounting policy
to record major maintenance costs as an expense as incurred.

40

---

Cumulative Effect of Change in Accounting Principle

Accounting for Derivatives and SFAS No. 133

Edison Mission Energy's primary market risk exposures arise from changes in electricity and fuel prices, interest rates and fluctuations in foreign currency
exchange rates. Edison Mission Energy manages these risks in part by using derivative financial instruments in accordance with established policies and procedures. Effective January 1, 2001, we
adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that derivative instruments be recorded in the balance sheet as either assets or liabilities measured at their fair value unless they meet an exception. SFAS
No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives that qualify for hedge
accounting, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in earnings.

Effective
January 1, 2001, we recorded all derivatives at fair value unless the derivatives qualified for the normal sales and purchases exception. This exception applies to
physical sales and purchases of power or fuel where it is probable that physical delivery will occur, the pricing provisions are clearly and closely related to the contracted prices and the
documentation requirements of SFAS No. 133 are met.

Accounting
for derivatives under SFAS No. 133 is complex. Each transaction requires an assessment of whether it is a derivative according to the definition under SFAS
No. 133, including amendments and interpretations. Transactions that do not meet the definition of a derivative are accounted by us on the accrual basis, unless they relate to Edison Mission
Energy's trading operations, in which case they are accounted for using the fair value method under EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." The majority of Edison Mission Energy's physical long-term power and fuel contracts, and the similar business activities of its affiliates, either do not meet the definition
of a derivative or qualify for the normal purchases and sales exception.

As
a result of the adoption of SFAS No. 133, we expect our quarterly earnings will be more volatile than earnings reported under the prior accounting policy.



On January 1, 2001, Edison Mission Energy recorded a $0.2 million, after tax, increase to income from continuing operations and a
$230.2 million, after tax, decrease to other comprehensive income as the cumulative effect of the adoption of SFAS No. 133. The following material items were recorded at fair value:



41

---





Effective July 1, 2001, the Derivative Implementation Group of the Financial Accounting Standards Board under Statement No. 133 Implementation Issue
Number C15 modified the normal sales and purchases exception to include electricity contracts which include terms that require physical delivery by
the seller in quantities that are expected to be sold in the normal course of business. This modification had two significant impacts:



Under
SFAS No. 133, the portion of a cash flow hedge that does not offset the change in value of the transaction being hedged, which is commonly referred to as the ineffective
portion, of a derivative's change in fair value is immediately recognized in earnings. Edison Mission Energy recorded a net loss of $1.4 million in 2001, representing the amount of cash flow
hedges' ineffectiveness, reflected in net gains (losses) from energy trading and price risk management in its consolidated income statement.

42

---

Accounting for Major Maintenance Costs

Through December 31, 1999, Edison Mission Energy accrued for major maintenance costs incurred during the period between turnarounds (referred to as "accrue
in advance" accounting method). In March 2000, Edison Mission Energy voluntarily decided to change its accounting policy to record major maintenance costs as an expense as incurred. This change
in accounting policy is considered preferable based on guidance provided by the Securities and Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," Edison Mission Energy recorded a $21.8 million, after tax, increase to income from continuing operations, as the cumulative effect of change in accounting for major maintenance costs
during the quarter ended March 31, 2000.

Accounting for Start-up Costs

In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," which became effective in January 1999. The Statement requires that specified costs related to start-up activities be expensed as incurred and that
specified previously capitalized costs be expensed and reported as a cumulative change in accounting principle. The reduction to Edison Mission Energy's net income in 1999 that resulted from adopting
SOP 98-5 was $13.8 million, after tax.

Extraordinary Gain

As a result of the Homer City sale-leaseback transaction on December 7, 2001, Edison Mission Energy recorded an extraordinary gain of
$5.7 million, net of income tax expense of $4.4 million, attributable to the extinguishment of debt that was assumed in the sale-leaseback transaction. See
"Sale-Leaseback Transactions."

LIQUIDITY AND CAPITAL RESOURCES

Our ability to honor our obligations under the senior secured notes and the term loan after the two year interest reserve period (which expires July 1,
2003) and to pay overhead is substantially dependent upon the receipt of dividends from Edison Mission Energy and receipt of tax sharing payments from our parent, The Mission Group. The common stock
of Edison Mission Energy has been pledged to secure all obligations with respect to the senior secured notes and the term loan. Part of the proceeds from the senior secured notes and the term loan
were used to fund escrow accounts to secure the first four interest payments due under the senior secured notes and the interest payments for the first two years under the term loan. During the
initial two-year period, we intend to distribute to The Mission Group any dividends we receive from Edison Mission Energy, less our overhead costs, subject to compliance with limitations
in the senior secured notes indenture and in the term loan. Other than the dividends received from Edison Mission Energy, funds received pursuant to our tax sharing arrangements with our affiliates
and the interest reserve account, we will not have any other source of funds to meet our obligations under the senior secured notes and the term loan. If we are unable to make any payment on the
senior secured notes or under the term loan as that payment becomes due, it would result in a default under the senior secured notes and the term loan and could lead to foreclosure on our ownership
interest in the capital stock of Edison Mission Energy. Dividends from Edison Mission Energy may be limited based on its earnings and cash flow, terms of restrictions contained in Edison Mission
Energy's contractual obligations (including its corporate credit facility), charter documents, business and tax considerations, and restrictions imposed by applicable law.

At
December 31, 2001, Edison Mission Energy and its subsidiaries had cash and cash equivalents of $372.1 million and had available a total of $554.3 million of
borrowing capacity under its $750 million corporate credit facility. The credit facility includes a one-year $538.3 million component, Tranche A, that expires on
September 17, 2002 and a three-year $211.7 million component, Tranche B,

43

---

that expires on September 17, 2004. The credit facility provides credit available in the form of cash advances or letters of credit. At December 31, 2001, Tranche A consisted of one
borrowing of $80 million at one-month LIBOR of 1.9256%, plus the applicable margin as determined by Edison Mission Energy's long-term credit ratings (an all in rate of
4.30%). Tranche B, which had no advances outstanding at December 31, 2001, included the issuance of letters of credit in the amount of $115.7 million. In addition to the interest
payments, Edison Mission Energy pays a facility fee as determined by its long-term credit ratings (0.625% and 0.75% at December 31, 2001 for Tranche A and Tranche B, respectively)
on the entire credit facility independent of the level of borrowings. See "Subsidiary Financing PlansEdison Mission Energy Corporate Financing Plans."

Discussion of Historical Cash Flow

Cash Flows From Operating Activities

Net cash provided by (used in) operating activities:

Years Ended December 31,2001

2000

1999(in millions)Continuing operations

$
1.8

$
663.6

$
387.9Discontinued operations


(155.3
)

1.6


29.2$
(153.5
)
$
665.2

$
417.1


Cash
provided by continuing operating activities is derived primarily from operations of the Illinois plants and the Homer City facilities, distributions from energy projects and
dividends from investments in oil and gas. The lower operating cash flow from continuing operations in 2001, compared to 2000, reflects lower distributions from energy projects and higher current
income taxes payable due to the sale-leaseback of the Homer City facilities, partially offset by higher dividends from oil and gas investments. The change in operating cash flow in 2001
was also due to the timing of cash receipts and payables related to working capital items. Lower distributions from energy projects in 2001 primarily resulted from the delay in payments from the
California utilities to Edison Mission Energy's investments in California qualifying facilities. See "The California Power Crisis" for further discussion. The higher operating cash flow
from continuing operations in 2000, compared to 1999, primarily reflects higher pre-tax earnings from projects acquired in 1999 and higher dividends from oil and gas investments.

Net
working capital at December 31, 2001 was $288.1 million compared to ($800.8) million at December 31, 2000. The increase primarily reflects the repayment on
Edison Mission Energy's corporate credit facilities that were classified as short-term obligations at December 31, 2000 with the proceeds from the issuance of long-term
senior notes in 2001.

Cash
used in operating activities from discontinued operations in 2001 reflects operating losses from the Ferrybridge and Fiddler's Ferry power plants in 2001 as compared to operating
income during 2000, and the timing of cash payables related to working capital items.

44

---

Cash Flows From Financing Activities

Net cash provided by (used in) financing activities:

Years Ended December 31,2001

2000

1999(in millions)Continuing operations

$
(172.7
)
$
(1,006.3
)
$
6,622.2Discontinued operations


(1,057.6
)

223.3


1,741.2$
(1,230.3
)
$
(783.0
)
$
8,363.4


In
July 2001, we issued $800 million of 13.5% senior secured notes due 2008 and incurred borrowings of $385 million under a term loan contributing to the cash
provided by financing activities from continuing operations in 2001. Cash provided by financing activities from continuing operations also consisted of net proceeds from Edison Mission Energy bond
issuances totaling $1 billion, the proceeds of which were partially used to permanently repay $677 million under its former corporate credit facilities. In addition, Edison Mission
Energy used the proceeds from the December 2001 Homer City sale-leaseback transaction to permanently repay $250 million under the Homer City facilities construction loan and
to make a $350 million payment under its $750 million corporate credit facility. During 2001, dividends
totaling $811.2 million were paid by us to The Mission Group and ultimately to Edison International, our ultimate parent company. In addition, Edison Mission Energy paid $65 million and
$32.5 million to The Mission Group and us, respectively, and ultimately $96.5 million was paid to Edison International, its ultimate parent company, in 2001, compared to
$88 million in 2000. As of December 31, 2001, we had recourse debt of $1.1 billion on our consolidated balance sheet. In addition, Edison Mission Energy had recourse debt of
$2.1 billion, with an additional $4 billion of non-recourse debt (debt which is recourse to specific assets or subsidiaries, but not to Edison Mission Energy) on its
consolidated balance sheet.

Cash
used in financing activities from discontinued operations in 2001 was primarily related to the early repayment of the term loan facility in connection with the sale of the
Ferrybridge and Fiddler's Ferry power plants on December 21, 2001.

Payments
made under Edison Mission Energy's credit facilities totaling $1.4 billion, a $500 million payment on Edison Mission Energy's floating rate notes and the
redemption of the Flexible Money Market Cumulative Preferred Stock for $124.7 million were the primary contributors of the net cash used in financing activities from continuing operations
during 2000. Edison Mission Energy used the proceeds from the August 2000 Powerton and Joliet sale-leaseback transaction for a significant portion of the payments under its credit
facilities and its floating rate notes. In 2000, Edison Mission Energy also had borrowings of $1.2 billion under its credit facilities and commercial paper facilities.

Cash
provided by financing activities from discontinued operations in 2000 was primarily related to a loan from Edison Capital, an indirect affiliate. During 2001, the financing was
repaid with interest.

In
1999, financings related to the acquisition of three new projects in 1999 contributed to net cash provided by financing activities from continuing operations. These financings
included senior secured bonds totaling $830 million related to the Homer City facilities; $120 million Flexible Money Market Cumulative Preferred Stock and $125 million Retail
Redeemable Preference Shares and $84 million Class A Redeemable Preferred Shares related to Contact Energy; and, credit facilities totaling $1.7 billion related to the Illinois
plants. In addition, Edison Mission Energy financings in connection with the aforementioned acquisitions consisted of floating rate notes of $500 million, borrowings of $215 million
under its revolving credit facility and commercial paper facilities totaling $1.2 billion. In addition, Edison Mission Energy received $1.5 billion in equity contributions from Edison
International,

45

---

which amount was 100% financed in the capital markets, to finance its 1999 acquisitions. In June 1999, Edison Mission Energy also issued $600 million of 7.73% Senior Notes due 2009.

Cash
provided by financing activities from discontinued operations in 1999 resulted from the financing related to the acquisition of the Ferrybridge and Fiddler's Ferry power plants. The
financing consisted of a term loan facility of $1.3 billion and a $500 million equity contribution from Edison International.

Cash Flows From Investing Activities

Net cash provided by (used in) investing activities:

Years Ended December 31,2001

2000

1999(in millions)Continuing operations

$
(54.3
)
$
759.0

$
(7,199.4
)Discontinued operations


930.6


(40.9
)

(1,638.3
)$
876.3

$
718.1

$
(8,837.7
)


Cash
used in investing activities from continuing operations in 2001 included cash used by Edison Mission Energy for equity contributions totaling approximately $134 million to
meet capital calls by partnerships who own qualifying facilities that have power purchase agreements with Southern California Edison and Pacific Gas and Electric. See "The California
Power Crisis" for further discussion. In addition, restricted cash increased due to a portion of the net proceeds from the sale of 13.5% senior secured notes and the term loan placed into an escrow
account totaling approximately $292 million at December 31, 2001. In addition, Edison Mission Energy paid $10 million as equity contributions for the CBK project;
$6.4 million as part of the purchase price and $3 million as equity contributions for the Italian Wind projects; $20 million as part of the purchase of the 50% interest in the CBK
project; and $63.4 million for the purchase of additional shares in Contact Energy. Included in 2001 investing activities was proceeds of $782 million received from the
sale-leaseback transaction with respect to the Homer City facilities in December 2001. In connection with this transaction, $139 million was deposited into a restricted cash
account on the closing date resulting in a further increase of restricted cash in 2001. In June 2001, a subsidiary of Edison Mission Energy also completed the sale of a 50% interest in the
Sunrise project to Texaco for $84 million.

In
2001, cash provided by investing activities from discontinued operation was primarily due to £643 million proceeds received from the sale of the Ferrybridge and
Fiddler's Ferry power plants on December 21, 2001.

In
2000, net cash provided by investing activities from continuing operations included proceeds of $1.367 billion and $300 million received from the
sale-leaseback transactions with respect to the Powerton and Joliet power facilities in August 2000 and the Illinois peaker power units in July 2000, respectively. In
connection with the Illinois peaker power units transaction, a subsidiary of Edison Mission Energy purchased $255 million of notes issued by the lessor. In 2000, $30.9 million was paid
toward the purchase price and $13.3 million in equity contributions for the Italian Wind projects, $44.9 million for the Citizens trading operations and structured transaction
investments, and $27 million for the acquisition of the Sunrise project. In addition, $33.5 million, $21.2 million and $20 million was made in equity contributions for the
EcoEléctrica project (June 2000), the Tri Energy project (July 2000) and the ISAB project (September 2000), respectively.

In
1999, cash used in investing activities from continuing operations was primarily due to the purchase of the Homer City facilities, the Illinois plants and the 40% interest in Contact
Energy. Edison Mission Energy invested $242.2 million, $330.6 million and $200 million in 2001, 2000 and 1999,

46

---

respectively, in new plant and equipment principally related to the Valley Power project in Australia, Homer City facilities and Illinois plants in 2001, Homer City facilities and Illinois plants in
2000 and the Homer City facilities in 1999.

In
1999, cash used in investing activities from discontinued operations was primarily due to the purchase of the Ferrybridge and Fiddler's Ferry power plants.

Mission Energy Holding's Interest Coverage Ratio

Our interest coverage ratio is comprised of interest income and expense related to our holding company activities and the consolidated financial information of
Edison Mission Energy. For a complete discussion of Edison Mission Energy's interest coverage ratio and the components included therein, see Edison Mission Energy's Financial Ratios below. The
following table sets forth an actual and pro forma calculation of our interest coverage ratio for 2001.

Actual

Pro Forma
Adjustments(1)

Pro FormaFunds Flow From Operations:Edison Mission Energy

$
498.4




$
498.4Add: Outflows of funds from operations of projects sold


103.3





103.3Mission Energy Holding


4.9

$
4.9


9.8$
606.6

$
4.9

$
611.5Interest Expense:Edison Mission Energy

$
304.7




$
304.7Edison Mission Energyaffiliate debt


3.4





3.4Mission Energy Holding interest expense


82.2

$
79.7


161.9Less: Interest savings on projects sold


(4.5
)




(4.5
)$
385.8

$
79.7

$
465.5Interest Coverage Ratio


1.57





1.31


---

The
above interest coverage ratio was determined in accordance with the definitions set forth in the bond indenture governing our senior secured notes and the financing documents
governing the term loan agreement. Since the issuance of the senior secured notes and term loan occurred mid-year, the pro forma calculation is provided as an indication of the interest
coverage ratio on a full-year basis.

Ability of Edison Mission Energy to Pay Dividends

Edison Mission Energy's articles of incorporation and bylaws contain restrictions on its ability to declare or pay dividends or distributions. These restrictions
require the unanimous approval of its

47

---

board of directors, including at least one independent director, before it can declare or pay dividends or distributions, unless either of the following are true:



Edison
Mission Energy's interest coverage ratio for the four quarters ended December 31, 2001 was 1.64. See further details of Edison Mission Energy's financial ratios below.
Accordingly, until Edison Mission Energy's interest coverage ratio exceeds 2.2 to 1 for the immediately preceding four quarters, it can only pay dividends to us if it has an investment grade rating
and has received rating agency confirmation that a dividend will not result in a downgrade or has received unanimous approval of its board of directors, including its independent director.

Edison Mission Energy's Financial Ratios

In assessing the leverage of Edison Mission Energy, as a holding company, and its ability to meet debt service obligations, Edison Mission Energy uses two primary
ratios: recourse debt to recourse capital ratio and an interest coverage ratio. These ratios are determined in accordance with financial covenants that have been included in Edison Mission Energy's
corporate credit facilities and are not determined in accordance with generally accepted accounting principles as reflected in its Consolidated Statements of Cash Flows. Accordingly, these ratios
should not be considered in isolation or as a substitute for cash flows from operating activities or cash flow statement data set forth in Edison Mission Energy's Consolidated Statement of Cash Flows.
While the ratios included in Edison Mission Energy's corporate
credit facilities measure the leverage and ability of Edison Mission Energy to meet its debt service obligations, they do not measure the liquidity or ability of Edison Mission Energy's subsidiaries
to meet their debt service obligations. Furthermore, these ratios are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculations.

Edison
Mission Energy's corporate credit facilities include covenants tied to these financial ratios(1):

|Financial Ratio                         |  | Covenant                              |  | Actual at December 31, 2001 |  | Description                                                                                                                                                                                                
|--------------------------------------- |  | ------------------------------------- |  | --------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Recourse Debt to Recourse Capital Ratio |  | Less than or equal to 67.5%           |  | 64.1%                       |  | Ratio of (a) senior recourse debt to (b) sum of (i) shareholder's equity per Edison Mission Energy's balance sheet adjusted by comprehensive income after December 31, 1999, plus (ii) senior
recourse debt
|Interest Coverage Ratio                 |  | Greater than or equal to
1.50 to 1.00 |  | 1.64 to 1.00                |  | For prior 12-month period, ratio of (a) funds flow from operations to (b) interest expense on senior recourse debt                                                                                         

---

48

---

At December 31, 2001, Edison Mission Energy met the above financial covenants. The actual interest coverage ratio during 2001 was adversely affected by the operating results of
the Ferrybridge and Fiddler's Ferry projects in the United Kingdom. The interest coverage ratio, excluding the activities of the Ferrybridge and Fiddler's Ferry projects, was 1.98 to 1.0. Compliance
with these covenants is subject to future financial performance, including items that are beyond Edison Mission Energy's control. See "Market Risk Exposures" and "Risk
Factors."

Discussion of Recourse Debt to Recourse Capital Ratio

The recourse debt to recourse capital ratio of Edison Mission Energy at December 31, 2001 and 2000 was calculated as follows:

December 31,2001

2000(in millions)Recourse Debt(1)Corporate Credit Facilities

$
203.6

$
1,339.8Senior Notes


1,700.0


700.0Guarantee of termination value of Powerton/Joliet operating leases


1,431.9


1,394.5Coal and CapEx Facility


251.6


86.7Other


46.3


130.7Total Recourse Debt to Edison Mission Energy

$
3,633.4

$
3,651.7Recourse Capital

$
2,039.0

$
3,255.4Total Capitalization

$
5,672.4

$
6,907.1Recourse Debt to Recourse Capital Ratio


64.1
%

52.9
%


---

During
2001, the recourse debt to recourse capital ratio was adversely affected by a decrease in Edison Mission Energy's shareholder's equity from $1.1 billion of
after-tax losses, attributable to the loss on sale of its Ferrybridge and Fiddler's Ferry coal-fired power plants located in the United Kingdom. Edison Mission Energy sold the
Ferrybridge and Fiddler's Ferry power plants in December 2001 due, in part, to the adverse impact of the negative cash flow pertaining to these plants. Edison Mission Energy's recourse debt at
December 31, 2001 was slightly less than its recourse debt at December 31, 2000 with the proceeds from new notes issued during the course of the year having been used to repay
short-term indebtedness.

49

---

Discussion of Interest Coverage Ratio

The following table sets forth the major component of Edison Mission Energy's interest coverage ratio for 2001 and 2000:

December 31,2001

2000(in millions)Funds Flow from Operations:Operating Cash Flow(1) from Consolidated Operating Projects(2):Midwest Generation

$
201.3

$
175.4Homer City


175.2


106.7Ferrybridge and Fiddler's Ferry


(104.5
)

(9.2
)First Hydro


45.9


132.8Other consolidated operating projects


64.1


43.5Trading and price risk management


28.2


(44.9
)Distributions from non-consolidated Big 4 projects(3)


128.8


72.2Distributions from other non-consolidated operating projects


93.5


97.8Interest income


9.0


12.5Operating expenses


(143.1
)

(81.5
)Total funds flow from operations


498.4


505.3Interest Expense


304.8


206.8Interest Coverage Ratio


1.64


2.44


---

The
major factors affecting funds from operations in 2001 compared to 2000 were:



50

---



Interest
expense increased $98 million in 2001 from 2000 as a result of:



Edison Mission Energy's Credit Ratings

To isolate itself from the impact of the California power crisis on Edison International and Southern California Edison, and to facilitate its ability and the
ability of its subsidiaries to maintain its respective investment grade credit ratings, on January 17, 2001, Edison Mission Energy amended its articles of incorporation and its bylaws to
include so-called "ring-fencing" provisions. These ring-fencing provisions are intended to preserve Edison Mission Energy as a stand-alone investment grade rated
entity. These provisions require the unanimous approval of Edison Mission Energy's board of directors, including at least one independent director, before Edison Mission Energy can do any of the
following:



In
January 2001, Standard & Poor's and Moody's downgraded Edison Mission Energy's senior unsecured credit ratings to "BBB-" from "A-" and to "Baa3"
from "Baa1", respectively. Edison Mission Energy's credit ratings remain investment grade. Maintaining its investment grade credit ratings is part of Edison Mission Energy's current operational focus
and its long-term strategy. However, we cannot assure you that Standard & Poor's and Moody's will not downgrade Edison Mission Energy's credit rating below investment grade. If
Edison Mission Energy's credit ratings are downgraded below investment grade, Edison Mission Energy could be required to, among other things:



A
downgrade of Edison Mission Energy's credit ratings could result in a downgrade of the credit rating of Edison Mission Midwest Holdings Co., its indirect subsidiary. In the event of a
downgrade of Edison Mission Midwest Holdings below investment grade, provisions in the agreements binding on its subsidiary, Midwest Generation, LLC, would limit the ability of Midwest Generation to
use excess cash flow to make distributions.

A
downgrade in Edison Mission Energy's credit ratings below investment grade could increase its cost of capital, increase its credit support obligations, make efforts to raise capital
more difficult and

51

---

have an adverse impact on its subsidiaries. A downgrade in the credit rating of Edison Mission Energy below investment grade would adversely impact its ability to pay us dividends and, to the extent
its situation continued beyond July 1, 2003, it would adversely affect our ability to meet our debt service obligations. In addition, in order to continue to market the power from its Homer
City facilities and First Hydro plants in the United Kingdom as well as purchase natural gas or fuel oil at its Illinois Plants, Edison Mission Energy may be required to provide substantial additional
credit support in the form of letters of credit or cash. In addition, changes in forward market prices and margining requirements could further increase the need for credit support for Edison Mission
Energy's trading and price risk management activities.

Recently,
Standard & Poor's and Moody's have indicated that they are reviewing the criteria for assessing credit risk for merchant energy companies (companies that generate and/or
trade wholesale power without long-term contracts). The criteria used by Standard & Poor's and Moody's in assessing credit risk in turn is used to assign credit ratings, including
whether or not a company is investment grade. Edison Mission Energy cannot predict whether Standard & Poor's or Moody's will change their criteria for assessing credit risk or, if changes were
made, whether or not such changes would adversely affect its credit ratings.

Corporate Financing Plans

At December 31, 2001, we had cash and cash equivalents of $0.9 million and restricted cash of $291.9 million (excluding amounts held by
Edison Mission Energy and its subsidiaries). Restricted cash represents monies deposited into interest escrow accounts described above, whereby the funds collected will be used to make the interest
payments for the first two years due under the senior secured notes and the term loan.

The
timing and amount of distributions from our subsidiaries may be affected by many factors beyond our control, some of which are described below under "Risk Factors."

Subsidiary Financing Plans

Edison Mission Energy Corporate Financing Plans

Edison Mission Energy has a $750 million corporate credit facility which includes a one-year $538.3 million component, Tranche A, that
expires on September 17, 2002 and a three-year $211.7 million component, Tranche B, that expires on September 17, 2004. At December 31, 2001, Edison Mission
Energy had borrowing capacity under this facility of $554.3 million and corporate cash and cash equivalents of $25 million. Edison Mission Energy plans to utilize the corporate credit
facilities to fund corporate expenses, including interest, during 2002 depending on the timing and amount of distributions from its subsidiaries. Edison Mission Energy's 2002 cash flow will include
distributions from its investments in partnerships made subsequent to receipt of payments of past due accounts receivable from Southern California Edison on March 1, 2002. Total amounts paid to
these partnerships by Southern California Edison was $415 million, of which Edison Mission Energy's share was $206.2 million. In addition, Edison Mission Energy expects to receive in
2002 tax sharing payments of its outstanding receivable of $224.4 million at December 31, 2001 from its ultimate parent company. In addition, Edison Mission Energy plans to extend
Tranche A under its corporate facility or enter into a similar facility with other financial institutions by September 2002.

Edison Mission Energy Subsidiary Financing Plans

The estimated capital and construction expenditures of Edison Mission Energy's subsidiaries for 2002 are $95.2 million, excluding environmental
improvements disclosed under "Contractual Obligations, Commitments and ContingenciesOther Commercial Commitments." These expenditures are planned to be financed by existing
subsidiary credit agreements and cash generated from their

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operations. Other than as described under "Contractual Obligations, Commitments and Contingencies," Edison Mission Energy does not plan to make additional capital contributions to its
subsidiaries.

Coal and Capex Facility

In connection with the original acquisition and financing of the Ferrybridge and Fiddler's Ferry coal-fired electric generating plants, one of Edison
Mission Energy's subsidiaries, EME Finance UK Limited, entered into a Coal and Capex Facility Agreement dated July 16, 1999. At December 31, 2001, £68 million was
outstanding for coal purchases and £105 million was outstanding to fund capital expenditures under this facility. Edison Mission Energy has guaranteed the obligations of EME Finance
UK Limited under this facility, including any letters of credit issued to Edison First Power under the facility. Following the completion of the sale of the power plants, Edison Mission Energy can no
longer make any new borrowings under this facility. Edison Mission Energy's liability under the guarantee will extend only to the amounts currently outstanding under the facility agreement, which
totaled £173 million at December 31, 2001. Obligations under this facility are due in 2004. Edison Mission Energy plans to repay the Coal and Capex Facility prior to its
maturity in 2004 from settlement of the remaining assets and liabilities of its discontinued operations (estimated at £55 million at December 31, 2001) and cash flows
generated from its foreign subsidiaries. Subsequent to December 31, 2001, Edison Mission Energy made total payments of £35 million from a partial settlement of assets and
liabilities of discontinued operations reducing its obligation from £173 million to £138 million at March 25, 2002. Interest expense associated with the Coal and
Capex Facility will be included as part of corporate interest expense in income (loss) from continuing operations effective the date of the sale of the power plants, December 21, 2001. Through
December 21, 2001, interest expense associated with the facility agreement was classified in income (loss) from discontinued operations.

Intercompany Tax Sharing Payments

Edison Mission Energy participates in a tax sharing agreement with The Mission Group, which in turn participates in a tax sharing agreement with Edison
International. On July 2, 2001, we became a party to the tax sharing agreement with The Mission Group and thereby became a part of the Edison International consolidated filing group. At
December 31, 2001, we have recorded $29.3 million (excluding amounts due to Edison Mission Energy reflected below) as an income tax receivable under the tax sharing agreement. Edison
Mission Energy has historically received tax payments under the tax sharing agreement related to domestic net operating losses incurred by Edison Mission Energy. However, Edison Mission Energy was
required to pay Edison International $55 million during October 2001 primarily as a result of changes in estimated taxable income for 2000. At December 31, 2001, Edison Mission
Energy has recorded $224.4 million as an income tax receivable under the tax sharing agreement. However, Edison Mission Energy is not eligible to receive tax sharing payments for such losses
until such time as Edison International and its subsidiaries generate sufficient taxable income in order to be able to monetize tax losses of Edison Mission Energy in the consolidated income tax
returns for Edison International and its subsidiaries. Edison Mission Energy anticipates this will occur in 2002, and, accordingly, it expects to receive payments in 2002 of its outstanding receivable
from Edison International.

Restricted Assets of Subsidiaries

We are organized as a legal entity separate and apart from Edison Mission Energy and its other subsidiaries. Assets of Edison Mission Energy and its subsidiaries
may not be available to satisfy our obligations.

Each
of Edison Mission Energy's direct and indirect subsidiaries is organized as a legal entity separate and apart from Edison Mission Energy and its other subsidiaries. Assets of Edison
Mission

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Energy's subsidiaries may not be available to satisfy Edison Mission Energy's obligations or the obligations of any of its other subsidiaries. However, unrestricted cash or other assets which are
available for distribution may, subject to applicable law and the terms of financing arrangements of the subsidiaries, be advanced, loaned, paid as dividends or otherwise distributed or contributed to
Edison Mission Energy or to an affiliate of Edison Mission Energy.

Contractual Obligations, Commitments and Contingencies

Contractual Obligations

The following table summarizes consolidated contractual obligations as of December 31, 2001.

|                                                              |  | Payments Due by Period in U.S. $ (in millions) |         | 
|------------------------------------------------------------- |  | ---------------------------------------------- | ------- | 
|
|
|Long-term debt (excluding Edison Mission Energy)              |  | $                                              |        | 
|Edison Mission Energy's long-term debt                        |  |                                                | 190.3   | 
|Edison Mission Energy's capital lease obligations             |  |                                                | 0.2     | 
|Operating lease obligations (including Edison Mission Energy) |  |                                                | 379.7   | 
|Edison Mission Energy's fuel supply contracts                 |  |                                                | 642.3   | 
|Edison Mission Energy's gas transportation agreement          |  |                                                |        | 
|                                                              |  |                                                |         | 
|Total Contractual Cash Obligations                            |  | $                                              | 1,212.5 | 
|                                                              |  |                                                |         | 

Sale-Leaseback Commitments

At December 31, 2001, Edison Mission Energy had minimum lease payments related to purchased power generation assets from Commonwealth Edison that were
leased back to Edison Mission Energy in three separate transactions and the Homer City facilities. In connection with the 1999 acquisition of the Illinois plants, Edison Mission Energy assigned its
right to purchase the Collins gas and oil-fired power plant to third-party lessors. The third-party lessors purchased the Collins Station from Commonwealth Edison for $860 million
and leased the plant to Edison Mission Energy. During 2000, Edison Mission Energy entered into sale-leaseback transactions for equipment, primarily the Illinois peaker power units, and for
two power facilities, the Powerton and Joliet coal fired stations located in Illinois, to third-party lessors. During the fourth quarter of 2001, Edison Mission Energy entered into a
sale-leaseback transaction for the Homer City coal-fired plant located in Pennsylvania, to third-party lessors. Total minimum lease payments (included in the table above under
"Edison Mission Energy's operating lease obligations") during the next five years are $343.6 million in 2002, $342.6 million in 2003, $310.8 million in 2004, $353.9 million
in 2005, and $426.8 million in 2006. At December 31, 2001, the minimum lease payments due after 2006 were $5.4 billion. For further discussion, see
"Off-Balance Sheet TransactionsSale-Leaseback Transactions."

Edison Mission Energy Master Turbine Lease

In December 2000, Edison Mission Energy entered into a master lease and related agreements which together initially provided for the construction of
several new projects using in total nine turbines on order from Siemens Westinghouse. Under the terms of the master lease, an independent party is

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owner of the projects and is responsible for their development and construction using these turbines. In turn, as agent for the owner, Edison Mission Energy has agreed to supervise the development
and construction of the new projects, which duties include arranging for funding to enable the owner to make payments for construction costs, including progress payments on the turbines. Edison
Mission Energy is required to deposit U.S. treasury notes equal to 103% of the construction costs incurred by the owner from time to time as collateral security for its obligation to assist the owner
to complete the projects. This can only be called upon in limited circumstances. Edison Mission Energy has agreed to lease from the owner each project upon its completion and to provide a guarantee of
each project's residual value at the end of the lease term. Use of this structure during the development and construction phase of a project allows Edison Mission Energy to retain the flexibility to
finance the project on a long-term basis through a lease structure. Lease payments are scheduled to begin in November 2003. Minimum lease payments (included in the table above under
"Edison Mission Energy's operating lease obligations") under this agreement are $3.1 million in 2003, $27.7 million in 2004, $50.2 million in 2005 and $71.5 million in
2006. At December 31, 2001, the remaining minimum lease payments due after 2006 were $300.4 million. The term of the master lease ends in 2010.

Due
to unfavorable market conditions, Edison Mission Energy decided to terminate its obligation to cause the completion of three of the four projects, for which Edison Mission Energy
planned to use six of the turbines. In order to terminate the master lease for these projects, Edison Mission Energy exercised an option to acquire the assets of these projects, principally the
purchase rights for the
related turbines, for a purchase price of approximately $25 million. As a result of Edison Mission Energy's decision to terminate these projects, Edison Mission Energy recorded a loss of
$25.4 million during the year ended December 31, 2001. In connection with the termination, Edison Mission Energy obtained a release of the treasury notes held as collateral for its
performance obligations with respect to these projects. Also, as part of the termination, Edison Mission Energy acquired the purchase orders for the six turbines and, thus, can continue to make
progress payments and take delivery of them should market conditions improve. No progress payments are due until 2003, however, and Edison Mission Energy has the right to terminate these orders prior
to the end of 2002 with no additional payment obligations.

Edison
Mission Energy exercised its right to purchase the remaining three turbines under the master lease in March 2002 for $61.1 million, effectively terminating any
remaining obligations under this arrangement. Edison Mission Energy plans to use these turbines for a new gas-fired project and, accordingly, Edison Mission Energy plans to capitalize the
amount paid to purchase the turbines from the master lease. Edison Mission Energy's remaining purchase obligations under these turbines purchase orders are $53 million.

Fuel Supply Contracts

At December 31, 2001, Edison Mission Energy had contractual commitments to purchase and/or transport coal and fuel oil. The minimum commitments are based
on the contract provisions, which consist of fixed prices, subject to adjustment clauses in some cases.

Gas Transportation Agreement

In June 2000, a subsidiary of Edison Mission Energy entered into a long-term transportation contract with Kern River Gas Transmission Company
related to the expansion of the Midway-Sunset project, a 225 MW power plant in California in which Edison Mission Energy's wholly-owned subsidiary owns a 50% interest. Under the terms of the contract
Edison Mission Energy has contractual commitments to transport natural gas beginning the later of May 1, 2003 or the first day that expansion capacity is available for transportation services.
Edison Mission Energy is committed to pay minimum fees under this agreement which has a term of 15 years.

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Other Commercial Commitments

The following table summarizes consolidated commercial commitments as of December 31, 2001. Details regarding these commercial commitments are discussed in
the sections following the table.

|                                                                           |  | Amount of Commitments Per Period in U.S. $
(in millions) |       | 
|-------------------------------------------------------------------------- |  | -------------------------------------------------------- | ----- | 
|
|
|Standby letters of credit                                                  |  | $                                                        | 102.3 | 
|Firm commitment for asset purchase                                         |  |                                                          | 5.9   | 
|Firm commitments to contribute project equity                              |  |                                                          | 74.8  | 
|Environmental improvements at Edison Mission Energy's project subsidiaries |  |                                                          | 76.5  | 
|                                                                           |  |                                                          |       | 
|Total Commercial Commitments                                               |  | $                                                        | 259.5 | 
|                                                                           |  |                                                          |       | 

Credit Support for Trading and Price Risk Management Activities

Edison Mission Energy's domestic trading and price risk management activities are conducted through its subsidiary, Edison Mission Marketing &
Trading, Inc. As part of obtaining an investment grade rating for this subsidiary, Edison Mission Energy has entered into a support agreement, which commits it to contribute up to
$300 million in equity to Edison Mission Marketing & Trading, if needed to meet cash requirements. An investment grade rating is an important benchmark used by third parties when
deciding whether or not to enter into master contracts and trades with Edison Mission Marketing & Trading. The majority of Edison Mission Marketing & Trading's contracts have various
standards of creditworthiness, including the maintenance of specified credit ratings. Currently Edison Mission Energy provides a parent company guaranty to support Edison Mission Marketing &
Trading's contracts. If Edison Mission Energy does not maintain an investment grade rating or if other events adversely affect its financial position, a third party could request Edison Mission Energy
to provide adequate assurance. Adequate assurance could take the form of supplying additional financial information, collateral, letters of credit or cash. Failure to provide adequate assurance could
result in a counterparty liquidating an open position and filing a claim against Edison Mission Energy for any losses.

Beginning
in 2000, the California power crisis adversely affected the liquidity of West Coast trading markets and, to a lesser extent, markets in other regions in the United States.
Edison Mission Energy's trading and price risk management activity was reduced as a result of these market conditions and uncertainty regarding the effect of the power crisis on Edison Mission
Energy's affiliate, Southern California Edison. In addition, there have been a number of other factors since 2000, including the bankruptcy filing of Enron, increased concern regarding the liquidity
of independent power companies, decrease in market prices in U.S. wholesale energy markets, and risk factors related to Edison Mission Energy's business, that continue to limit Edison Mission Energy's
trading and price risk management activities. It is not certain that market conditions or risks related to Edison Mission Energy's business will change to allow Edison Mission Energy to be able to
conduct trading and price risk management activities in a manner favorable to Edison Mission Energy.

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Firm Commitment for Asset Purchase

Project

Local Currency

(in millions)
U.S. CurrencyItalian Wind(i)

13 billion Italian Lira

$
5.9


---

Firm Commitments to Contribute Project Equity

Projects

(in millions)
U.S. CurrencyCBK(i)

$
45.3Sunrise(ii)


93.9


---

Firm
commitments to contribute project equity could be accelerated due to events of default as defined in the non-recourse project financing facilities.

Contingencies

Paiton

Edison Mission Energy's wholly-owned subsidiary owns a 40% interest in PT Paiton Energy, which owns a 1,230 MW coal-fired power plant in operation in
East Java, Indonesia, which is referred to as the Paiton project. Edison Mission Energy's investment in the Paiton project was $492.1 million at December 31, 2001. Under the terms of a
long-term power purchase agreement between Paiton Energy

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and PT PLN, the state-owned electric utility company, PT PLN is required to pay for capacity and fixed operating costs once each unit and the plant achieve commercial operation.

PT
PLN and Paiton Energy signed a Binding Term Sheet on December 14, 2001 setting forth the commercial terms under which Paiton Energy is to be paid for capacity and energy
charges, as well as a monthly "restructure settlement payment" covering arrears owed by PT PLN and the settlement of other claims. In addition, the Binding Term Sheet provides for an extension of the
terms of the power purchase agreement from 2029 to 2039. Paiton Energy and PT PLN are continuing negotiations on an amendment to the power purchase agreement that will include the agreed commercial
terms in the Binding Term Sheet, with the aim of concluding those negotiations by June 30, 2002. The Binding Term Sheet serves as the basis under which PT PLN will pay Paiton Energy beginning
January 1, 2002. The Binding Term Sheet will expire on June 30, 2002 unless extended by mutual agreement. Previously, PT PLN and Paiton Energy entered into a Phase I Agreement (covering
January 1 to June 30, 2001), a Phase II Agreement (covering July 1 to September 30, 2001) and a Phase III Agreement (covering October 1 to December 31, 2001).
PT PLN has made all payments to Paiton Energy as required under these agreements, which are superseded by the Binding Term Sheet. Paiton Energy is continuing to generate electricity to meet the power
demand in the region and believes that PT PLN will continue to make payments for electricity under the Binding Term Sheet while negotiations on the amendment to the power purchase agreement continue.
Although completion of negotiations may be delayed beyond June 30, 2002, Paiton Energy continues to believe that negotiations on the long-term restructuring of the tariff will be
successful.

Under
the Binding Term Sheet, past due accounts receivable due under the original power purchase agreement will be compensated through a restructure settlement payment in the amount of
US$4 million per month for a period of 30 years. If the power purchase agreement amendment is not completed within reasonable time frames acceptable to Paiton Energy, the parties would
be entitled to revert back to the terms and conditions of the original power purchase agreement in order to pursue arbitration in the international courts.

Any
material modifications of the power purchase agreement resulting from the continuing negotiation of a new long-term tariff could require a renegotiation of the Paiton
project's debt agreements. The impact of any such renegotiations with PT PLN, the Government of Indonesia or the project's creditors on Edison Mission Energy's expected return on its investment in
Paiton Energy is uncertain at this time. However, Edison Mission Energy believes that it will ultimately recover its investment in the project.

Brooklyn Navy Yard

Brooklyn Navy Yard is a 286 MW gas-fired cogeneration power plant in Brooklyn, New York. A wholly-owned subsidiary of Edison Mission Energy owns 50%
of the project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. for damages in
the amount of $136.8 million. Brooklyn Navy Yard Cogeneration Partners has asserted general monetary claims against the contractor. In connection with a $407 million
non-recourse project refinancing in 1997, Edison Mission Energy agreed to indemnify Brooklyn Navy Yard Cogeneration Partners and its partner from all claims and costs arising from or in
connection with the contractor litigation, which indemnity has been assigned to Brooklyn Navy Yard Cogeneration Partners' lenders. Additional amounts, if any, which would be due to the contractor with
respect to completion of construction of the power plant would be accounted for as an addition to the
power plant investment. Furthermore, Edison Mission Energy's partner has executed a reimbursement agreement with Edison Mission Energy that provides recovery of up to $10 million over an
initial amount, including legal fees, payable from its management and royalty fees. Edison Mission Energy believes that the outcome of this litigation will not have a material adverse effect on its

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consolidated financial position or results of operations. Edison Mission Energy is currently offering its interest in the Brooklyn Navy Yard project for sale.

ISAB

In connection with the financing of the ISAB project, Edison Mission Energy has guaranteed for the benefit of the banks financing the construction of the ISAB
project its subsidiary's obligation to contribute project equity and subordinated debt totaling up to approximately $40 million. The amount of payment under the obligation is contingent upon
settlement of an arbitration proceeding brought in 1999 by the contractor of the project against ISAB Energy. No overall settlement of the dispute has yet been achieved.

Indemnities



Some of Edison Mission Energy's subsidiaries have entered into indemnification agreements, under which the subsidiaries agreed to repay capacity payments to the
projects' power purchasers in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contracts. Obligations
under these indemnification agreements as of December 31, 2001, if payment were required, would be $234.4 million. Edison Mission Energy has no reason to believe that the projects will
either terminate their performance or reduce their electric power producing capability during the term of the power contracts.



In support of the business of its subsidiaries, Edison Mission Energy has, from time to time, entered into guarantees and indemnity agreements with respect to its
subsidiaries' obligations such as debt service, fuel supply, or the delivery of power, and has also entered into reimbursement agreements with
respect to letters of credit issued to third parties to support its subsidiaries' obligations. Edison Mission Energy has also, from time to time, entered into guarantees and indemnification agreements
with respect to acquisitions made by its subsidiaries. In this regard, Edison Mission Energy has indemnified the previous owners of the Illinois Plants and the Homer City facilities for specified
liabilities, including environmental liabilities, incurred as a result of their prior ownership of the plants. Edison Mission Energy does not believe these indemnification obligations will have a
material impact on it.



In connection with the sale-leaseback transactions that Edison Mission Energy has entered into related to the Collins Station, Powerton and Joliet
plants in Illinois and the Homer City facilities in Pennsylvania, Edison Mission Energy has entered into tax indemnity agreements. Under these tax indemnity agreements, Edison Mission Energy has
agreed to indemnify the equity investors in the sale-leaseback transactions for specified adverse tax consequences. The potential indemnity obligations under these tax indemnity agreements
could be significant. However, Edison Mission Energy believes it is not likely that an event requiring material tax indemnification will occur under any of these agreements.

Additional Gas-Fired Generation

Pursuant to the acquisition documents for the purchase of generating assets from Commonwealth Edison, Edison Mission Energy's subsidiary committed to install one
or more gas-fired electric generating units having an additional gross dependable capacity of 500 MWs at or adjacent to an existing power plant site in Chicago. The acquisition documents
require that commercial operation of

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this project commence by December 15, 2003. Due to additional capacity for new gas-fired generation in the Mid-America Interconnected Network (generally referred to as MAIN) region
and the improved reliability of power generation in the Chicago area, Edison Mission Energy has undertaken preliminary discussions with Exelon Generation regarding alternatives to construction of 500
MW of capacity which Edison Mission Energy does not believe is needed at this time. If it were to install this additional capacity, Edison Mission Energy estimates the cost could be as much as
$320 million.

Contingent Obligations to Contribute Project Equity

Projects

Local Currency

(in millions)
U.S. CurrencyPaiton(i)



$
5.3ISAB(ii)

87 billion Italian Lira


40.0


---



For
more information on the ISAB project, see "ISAB" above.

Edison
Mission Energy is not aware of any other significant contingent obligations or obligations to contribute project equity.

The California Power Crisis

Edison Mission Energy has partnership interests in eight partnerships that own power plants in California and have power purchase contracts with Pacific Gas and
Electric and/or Southern California Edison. Three of these partnerships have a contract with Southern California Edison, four of them have a contract with Pacific Gas and Electric, and one of them has
contracts with both. In 2001, Edison Mission Energy's share of earnings before taxes from these partnerships was $244 million, which represented 35% of its operating income. Edison Mission
Energy's investment in these partnerships at December 31, 2001 was $527.9 million.

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Utility Payment Defaults

As a result of the liquidity crisis affecting Southern California Edison and Pacific Gas and Electric during 2001, each of these utilities failed to make payments
during the first quarter of 2001 to qualifying facilities supplying them power. These qualifying facilities included the eight power plants that are owned by partnerships in which Edison Mission
Energy has a partnership interest. The California utilities' failure to pay adversely affected the cash flow from Edison Mission Energy's eight California qualifying facilities.

Pacific Gas and Electric

On April 6, 2001, Pacific Gas and Electric filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in San Francisco bankruptcy court. Pacific
Gas and Electric has paid for power delivered after the bankruptcy filing, but it paid only a small portion of the amounts due to the partnerships for power delivered in December 2000 and
January 2001, and made no payment at all for power delivered in February and March 2001. At the petition date, accounts receivable to these partnerships from Pacific Gas and Electric
were $47 million. Edison Mission Energy's share of these receivables was $23 million.

Effective
as of July 31, 2001, Pacific Gas and Electric and four of the partnerships in which Edison Mission Energy has a partnership interest entered into agreements that amended
the power purchase agreements to provide for a fixed energy price for the lesser of the remaining term of the power purchase agreement or five years. The contract amendments were approved by both the
bankruptcy court and the California Public Utilities Commission. Pacific Gas and Electric assumed the power purchase agreements, as amended, and, in addition to payments for current deliveries of
power, is making payments of the past-due receivables on an agreed schedule which, absent further defaults by Pacific Gas and Electric, should bring the past-due amounts
current by the end of the first quarter of 2003.

Southern California Edison

Southern California Edison did not pay qualifying facilities, including four partnerships in which Edison Mission Energy has an interest, for power delivered
between November 1, 2000 and March 26, 2001. Southern California Edison had paid the partnerships for power delivered after March 27, 2001. As a result, at December 31,
2001, accounts receivable by these partnerships from Southern California Edison were $436 million. Edison Mission Energy's share of these receivables was $216.5 million. As discussed
below, Southern California Edison paid its past due receivables on March 1, 2002.

Provisions
in the relevant partnership agreements stipulate that partnership actions concerning contracts with affiliates are to be taken through the non-affiliated partner
in the partnership. Therefore, any partnership actions concerning the enforcement of rights under a partnership's power purchase agreement with Southern California Edison are to be taken through the
non-Edison Mission Energy affiliated partner in each partnership.

All
four of the partnerships in which Edison Mission Energy has an interest filed complaints against Southern California Edison with respect to the payment defaults. All of those
partnerships subsequently entered into agreements with Southern California Edison, under which the partnerships and Southern California Edison are to suspend the current litigation for a specified
"standstill period" and provisionally stipulate as to the amount of past due receivables, and Southern California Edison is to make partial payments with respect to past due receivables. Pursuant to
the standstill agreements, Southern California Edison paid the first 10% of the past due receivables and made monthly interest payments on the remaining past due amounts. On March 1, 2002,
Southern California Edison reported that it had closed on $1.8 billion of financing and repaid all of its material, undisputed past due obligations. The remaining past due receivables to the
four partnerships in which Edison Mission Energy has an interest were paid in full, except for certain disputed amounts totaling less than $1 million for all four partnerships.

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Regulatory and Legislative Developments

On March 27, 2001, the California Public Utilities Commission issued a decision that ordered the three California investor-owned utilities, including
Southern California Edison and Pacific Gas and Electric, to commence payment for power generated from qualifying facilities beginning in April 2001. As a result of this decision, Southern
California Edison paid in full for power delivered after March 27, 2001, and Pacific Gas and Electric paid for power delivered after April 6, 2001 (the date it filed its bankruptcy
petition). This decision did not address payment to the qualifying facilities for amounts due prior to March 27, 2001. In addition, the decision modified the pricing formula for determining
short-run avoided costs for qualifying facilities subject to these provisions, including four partnerships in which Edison Mission Energy has a partnership interest. Those four
partnerships, all of which sell power to Pacific Gas and Electric, have subsequently entered into agreements that amend the power purchase
agreements to provide for a fixed energy price for the lesser of the remaining term or five years, thereby reducing their exposure to variations in the short-run avoided costs formula.

On
April 3, 2001, the California Public Utilities Commission adopted an order instituting investigation. The order reopened past Commission decisions authorizing the California
investor-owned utilities to form holding companies and initiated an investigation into: whether the holding companies violated requirements to give priority to the capital needs of their respective
utility subsidiaries; whether ring-fencing actions by Edison International and PG&E Corporation and their respective non-utility affiliates (including Edison Mission Energy)
also violated requirements to give priority to the capital needs of their utility subsidiaries; whether the payment of dividends by the utilities violated requirements that the utilities maintain
dividend policies as though they were comparable stand-alone utility companies; any additional suspected violations of laws or Commission rules and decisions; and whether additional rules, conditions,
or other changes to the holding company decisions are necessary. On January 9, 2002, the Commission issued two decisions, the first asserting that it has adequate jurisdiction to adjudicate
these issues and enforce decisions concerning them, and the second construing the nature and scope of the requirements to give priority to the capital needs of the utility subsidiaries, referred to
above, to apply broadly to all forms of financial support, including working capital and cash for operating expenses such as wholesale power purchases, and not narrowly, to equity investment, as all
three utilities had argued. The Commission also stated that it has not yet determined whether any holding company violated such requirements, and that such determination would be made in subsequent
proceedings. Edison Mission Energy is not a party to this investigatory proceeding. Edison Mission Energy cannot predict what direct or indirect effects any subsequent action taken by the Commission
in this proceeding or in any other action or proceeding, in reliance on the principles articulated in this order and in other applicable authority, may have on Edison International, on Edison Mission
Energy, or on its subsidiaries.

On
October 2, 2001, the California Public Utilities Commission announced an agreement with Southern California Edison to settle a federal district court lawsuit filed in late 2000
in which Southern California Edison sought a ruling that it is entitled to full recovery of its costs for wholesale purchases of electricity. The settlement agreement provides for Southern California
Edison to recover its procurement-related liabilities, less cash on hand and certain other amounts, through a regulatory balancing account with a starting balance of approximately $3.3 billion.
The recovery will take place out of the positive difference of Southern California Edison's revenues from retail electric rates (including surcharges) over authorized costs. The parties agreed that
Southern California Edison will recover its procurement-related obligations by December 31, 2005. The settlement agreement also provides that, subject to certain qualifications, Southern
California Edison will cooperate with the California Public Utilities Commission and the California Attorney General to pursue and resolve claims and rights against sellers of energy and related
services.

On
October 5, 2001, the federal district court signed and entered a stipulated judgment approving the terms of the settlement agreement. One of the interveners in the lawsuit, a
consumer advocacy group known as The Utility Reform Network, has appealed the stipulated judgment to the Ninth

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Circuit Court of Appeals. A separate set of appeals was filed by two electricity wholesalers and by a group purporting to represent a class of ratepayers. The appeals were consolidated and were heard
on
March 4, 2002, and a decision could be issued within the next several months. The settlement agreement and existing retail rates remain in effect.

A
number of other federal and state, legislative and regulatory initiatives addressing the issues of the California electric power industry have been proposed, including wholesale rate
caps, retail rate increases, acceleration of power plant permitting and state entry into the power market. Many of these activities are ongoing. For example, on April 26, 2001, the Federal
Energy Regulatory Commission ordered price mitigation measures, or price caps, for power sales in the California spot market during emergency periods only. On June 19, 2001, the price
mitigation measures were expanded to apply during all periods and to cover the entire eleven-state Western region. These price mitigation measures are scheduled to end on September 30, 2002. In
a related matter, on July 25, 2001, the Federal Energy Regulatory Commission ordered that refunds may be due from sellers who engaged in transactions in the Western markets from
October 2, 2000 through June 20, 2001 at levels in excess of the price caps included in the April 26 and July 19 orders (with some modifications), and ordered an
evidentiary hearing to determine the refunds due from the market participants. These proceedings have been delayed due to difficulties in obtaining and analyzing the underlying data necessary to
calculate refunds. Currently no decision is expected until the third quarter of 2002 at the earliest. A separate proceeding addressed the potential for refunds in the Pacific Northwest. The
administrative law judge in that proceeding recommended that refunds not be ordered, finding that the Pacific Northwest market was workably competitive. The Federal Energy Regulatory Commission has
not yet acted on the administrative law judge's recommended disposition of the matter. The federal and state legislative and regulatory initiatives may result in a restructuring of the California
power market. A California voter initiative or referendum has been threatened against any measures that would raise consumer rates or aid California's investor-owned utilities. At this time, it is not
possible to estimate the likely ultimate outcome of these activities.

Regulatory Developments Affecting Sunrise Power Company

Sunrise Power Company, in which Edison Mission Energy owns a 50% interest, sells all of its output to the California Department of Water Resources under a power
purchase agreement entered into on June 25, 2001. On February 25, 2002, the California Public Utilities Commission and the California Electricity Oversight Board filed complaints with
the Federal Energy Regulatory Commission against all sellers of long-term contracts to the California Department of Water Resources, including Sunrise Power Company. The California Public
Utilities Commission complaint alleges that the contracts are "unjust and unreasonable" on price and other terms, and requests that the contracts be abrogated. The California Electricity Oversight
Board complaint makes a similar allegation and requests that the contracts be deemed voidable at the request of the California Department of Water Resources or, in the alternative, abrogated as of a
future date, to allow for the possibility of renegotiation. In response, on March 19, 2002, Sunrise filed a motion to dismiss with the Federal Energy Regulatory Commission requesting, among
other things, a dismissal of both complaints and expedited treatment of its motion; however, Edison Mission Energy cannot predict what actions the Federal Energy Regulatory Commission may take at this
proceeding.

Market Risk Exposures

Edison Mission Energy's primary market risk exposures arise from changes in electricity and fuel prices, interest rates and fluctuations in foreign currency
exchange rates. Edison Mission Energy manages these risks in part by using derivative financial instruments in accordance with established policies and procedures.

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Commodity Price Risk

Energy trading and price risk management activities give rise to commodity price risk, which represents the potential loss that can be caused by a change in the
market value of a particular commodity. Commodity price risks are actively monitored to ensure compliance with Edison Mission Energy's risk management policies. Policies are in place which limit the
amount of total net exposure Edison Mission Energy may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior
management. Edison Mission Energy performs a "value at risk" analysis in its daily business to measure, monitor and control its overall market risk exposure. The use of value at risk allows management
to aggregate overall risk, compare risk on a consistent basis and identify the drivers of the risk. Value at risk measures the worst expected loss over a given time interval, under normal market
conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, Edison Mission Energy supplements this approach with the use of
stress testing and worst-case scenario analysis, as well as stop loss limits and counterparty credit exposure limits.

Electric
power generated at Edison Mission Energy's merchant plants is generally sold under bilateral arrangements with utilities and power marketers under short-term
contracts with terms of two years or less, or, in the case of the Homer City facilities, to the Pennsylvania-New Jersey-Maryland Power Pool (PJM) or the New York Independent System
Operator (NYISO). Edison Mission Energy's risk management policies and procedures include an assessment of credit risk. When making sales under negotiated bilateral contracts, it is Edison Mission
Energy's general policy to deal with investment grade counterparties or counterparties that have equivalent credit quality. Edison Mission Energy's risk management committees grant exceptions to the
policy only after review and scrutiny. Most entities that have received exceptions are typically organized power pools and quasi-governmental agencies. Edison Mission Energy hedges a portion of the
electric output of its merchant plants, whose output is not committed to be sold under long-term contracts, in order to provide more predictable earnings and cash flow. When appropriate,
Edison Mission Energy manages the spread between electric prices and fuel prices, and uses forward contracts, swaps, futures, or options contracts to achieve those objectives.

Edison
Mission Energy's revenues and results of operations during the estimated useful lives of its merchant power plants will depend upon prevailing market prices for capacity, energy,
ancillary services, fuel oil, coal and natural gas and associated transportation costs in the market areas where
Edison Mission Energy's merchant plants are located. Among the factors that influence the price of power in these markets are:



A
discussion of each market area is set forth below by region.

Americas



Electric power generated at the Homer City facilities is sold under bilateral arrangements with domestic utilities and power marketers under
short-term contracts with terms of two years or less, or to

64

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the PJM or the NYISO. These pools have short-term markets, which establish an hourly clearing price. The Homer City facilities are situated in the PJM control area and is physically
connected to high-voltage transmission lines serving both the PJM and NYISO markets. The Homer City facilities can also transmit power to the Midwestern United States.

The
following table depicts the average markets prices per megawatt hour in PJM during the past three years:

24-Hour PJM Prices*2001

2000

1999January

$
36.66

$
23.15

$
19.92February


29.53


23.84


16.51March


35.05


21.97


19.60April


34.58


23.79


21.43May


28.64


28.41


22.55June


26.61


23.06


36.93July


30.21


23.53


90.10August


43.99


29.01


28.87September


22.44


25.12


21.54October


21.95


29.20


19.80November


19.58


30.68


16.48December


19.66


44.63


18.07Yearly Average

$
29.07

$
27.20

$
27.65


---

As
shown on the above table, the average market prices during the last three months of 2001 are below the average market prices during the last three months of 2000. In
addition, the forecasted calendar year market prices for 2002 in PJM beginning January 2, 2002 through March 12, 2002 range from approximately $23 to $28. The forward market prices in
PJM fluctuate as a result of a number of factors, including gas prices, electricity demand, which is also affected by economic growth, and the amount of existing and planned power plant capacity.

The
ability of Edison Mission Energy's subsidiary, EME Homer City, to make payments under the long-term lease entered into as part of the sale-leaseback
transaction discussed under "Off-Balance Sheet TransactionsSale-Leaseback Transactions" is dependent on revenues generated by the Homer City
facilities, which depend on market conditions for the sale of capacity and energy. These market conditions are beyond Edison Mission Energy's control.



Electric power generated at the Illinois plants is sold under three power purchase agreements with Exelon Generation Company, in which Exelon Generation purchases
capacity and has the right to purchase energy generated by the Illinois plants. The agreements, which began on December 15, 1999 and have a term of up to five years, provide for capacity and
energy payments. Exelon Generation is obligated to make a capacity payment for the plants under contract and an energy payment for the
electricity produced by these plants and taken by Exelon Generation. The capacity payments provide the Illinois plants revenue for fixed charges, and the energy payments compensate the Illinois plants
for variable costs of production.

Virtually
all of the energy and capacity sales in 2001 from Edison Mission Energy's Illinois plants were made to Exelon Generation under the power purchase agreements, and a significant
portion is likely to be sold to Exelon Generation during 2002. In October 2001, Exelon Generation exercised the option under one of the power purchase agreements to terminate all of the oil
peaker plants (300 megawatts), effective January 2002, but continued it with respect to all other peaker plants for 2002. In each of 2003 and 2004, Exelon Generation is committed to purchase
1,696 MW of capacity from

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specific coal units, but has the option to terminate all or any of the remaining coal units and all of the natural gas and oil-fired units with prior notice as specified under each agreement.

The
energy and capacity from any units which do not remain subject to one of the power purchase agreements with Exelon Generation will be sold under terms, including price and quantity,
to be negotiated with customers or into the so-called spot market. Thus, to the extent that Exelon Generation does not purchase Edison Mission Energy's power for 2003 or 2004, Edison
Mission Energy will be subject to the market risks related to the price of energy and capacity described above. Due to the volatility of market prices for energy and capacity during the past several
years, Edison Mission Energy cannot predict whether or not Exelon Generation will elect to terminate any of the units currently subject to the power purchase agreements for which termination is
permitted and, if they do, whether sales of energy and capacity to other customers and the market will be at prices sufficient to generate cash flow necessary to meet the obligations of Edison Mission
Energy's subsidiary. As of December 31, 2001, Edison Mission Energy had not entered into forward energy sales contracts for the Illinois plants other than those with Exelon Generation.

Europe and Middle East



Since 1989, Edison Mission Energy's plants in the U.K. have sold their electrical energy and capacity through a centralized electricity pool, which established a
half-hourly clearing price, also referred to as the pool price, for electrical energy. On March 27, 2001, this system was replaced by the U.K. government with a bilateral physical
trading system referred to as the new electricity trading arrangements. In connection with the new electricity trading arrangements, the First Hydro plant entered into forward contracts with varying
terms that expire on various dates through October 2003. In
addition, two long-term contracts with a three-year termination provision entered into in March 1999 from the First Hydro plant to buy and sell electricity were amended
as forward contracts.

The
new electricity trading arrangements provide for, among other things, the establishment of a range of voluntary short-term power exchanges and brokered markets operating
from a year or more in advance to 31/2-hours before a trading period of 1/2 hour; a balancing mechanism to enable the system operator to balance generation and demand and
resolve any transmission constraints; a mandatory settlement process for recovering imbalances between contracted and metered volumes with strong incentives for being in balance; and a Balancing and
Settlement Code Panel to oversee governance of the balancing mechanism. The grid operator retained the right under the new market mechanisms to purchase system reserve and response services to
maintain the quality of the electrical supply directly from generators (generally referred to as "ancillary services"). Ancillary services contracts typically run for a year and can consist of both
fixed contracted amounts and prices for services that are only paid for when called upon by the grid operator. Physical bilateral contracts have replaced the prior financial contracts for differences,
but have a similar commercial function. However, it remains difficult to evaluate the future impact of the new electricity trading arrangements. A key feature of the new arrangements is to require
firm physical delivery, which means that a generator must deliver, and a consumer must take delivery of their net contracted positions or pay for any energy imbalance at highly volatile imbalance
prices calculated by the market operator. A consequence of this should be to increase greatly the motivation of parties to contract in advance and develop forwards and futures markets of greater
liquidity than at present. Furthermore, another consequence of the market change is that counterparties may require additional credit support, including parent company guarantees or letters of credit.

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The legislation introducing the new trading arrangements set a principal objective for the Gas and Electric Market Authority to "protect the interests of consumers...where appropriate by
promoting competition...." This represents a shift in emphasis toward the consumer interest. However, this is qualified by a recognition that license holders should be able to finance their
activities. The Utilities Act of 2000 also contains new powers for the Secretary of State to issue guidance to the Gas and Electric Market Authority on social and environmental matters, changes to the
procedures for modifying licenses and a new power for the Gas and Electric Market Authority to impose financial penalties on companies for breach of license conditions. Edison Mission Energy is
monitoring the operation of these new provisions.

During
2001, Edison Mission Energy's operating income from the First Hydro plant decreased $105.9 million from the prior year primarily due the removal of a formal capacity
mechanism in the new trading arrangements and the oversupply of generation in the market resulting in a sharp fall in the market value for capacity. In addition, First Hydro's operating results have
been adversely impacted in the second half of the year by a fall in the differential of the peak daytime energy price compared to the cost of purchasing power at nighttime to pump water back to the
top reservoir. Generation capacity on the UK system has been in excess of demand due to generators holding plant on the system at part load to protect themselves against the adverse affects of being
out of balance in the new market and the mild weather experienced during 2001.

For
the foregoing reasons, First Hydro's interest coverage ratio, when measured for the twelve-month period ended June 30, 2002, may be below the threshold set forth in its bond
financing documents, although it is anticipated that current project revenues will enable the July 31, 2002 interest payment to be made without recourse to the project's debt service reserve.
Edison Mission Energy believes that should market and trading conditions experienced thus far in 2002 be sustained for the balance of the year, First Hydro's interest coverage ratio will be above the
required threshold when measured for the twelve-month period ended December 31, 2002. Compliance by First Hydro with these and other requirements of its bond financing documents are subject,
however, to market conditions for the sale of energy and ancillary services. These market conditions are beyond our control. There is no assurance that these requirements will be met and, if not met,
will be waived by the holders of First Hydro's bonds. The bond financing documents stipulate that a breach of a financial covenant constitutes an immediate event of default and, if the event of
default is not waived or cured, the holders of the First Hydro bonds are entitled to enforce their security over First Hydro's assets, including its power plants.

Asia Pacific

Australia.The Loy Yang B plant sells its electrical energy through a centralized electricity pool, which provides for a
system of generator bidding, central dispatch and a settlements system based on a clearing market for each half-hour of every day. The National Electricity Market Management Company,
operator and administrator of the pool, determines a system marginal price each half-hour. To mitigate exposure to price volatility of the electricity traded into the pool, the Loy Yang B
plant has entered into a number of financial hedges. The State Hedge agreement with the State Electricity Commission of Victoria is a long-term contractual arrangement based upon a fixed
price commencing May 8, 1997 and terminating October 31, 2016. The State Government of Victoria, Australia guarantees the State Electricity Commission of Victoria's obligations under the
State Hedge. From January 2001 to July 2014, approximately 77% of the plant output sold is hedged under the State Hedge. From August 2014 to October 2016, approximately 56%
of the plant output sold is hedged under the State Hedge. Additionally, the Loy Yang B plant has entered into a number of derivative contracts to further mitigate against price volatility inherent in
the electricity pool. These contracts consist of fixed forward electricity contracts that expire on various dates through December 31, 2004, and a five-year electricity cap contract
expiring December 31, 2006.

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New Zealand.A substantial portion of Contact Energy's generation output is hedged by sales to retail electricity customers
and forward contracts with other wholesale electricity counterparties. Contact Energy has entered into forward contracts and option contracts of varying terms that expire on various dates through
September 30, 2002 and January 31, 2004, respectively. The New Zealand Government commissioned an inquiry into the electricity industry in February 2000. Following the inquiry
report the New Zealand Government released a Government Policy Statement, at the center of which was a call for the industry to rationalize the three existing industry codes, form a single
governance structure and address transmission pricing methodology. The Government Policy Statement also requested a model use of system agreement be agreed, that is a framework by which the retailers
contract for services from each of the distribution networks, and a consumer complaints ombudsman be established. An essential theme throughout the Government Policy Statement was the desire that the
industry retain a private multilateral self-governing structure. During 2001, an amendment to the Electricity Act of 1992 was passed that laid out the form that regulation would take if
the industry does not heed the Government's call. Progress on the single governance code is well underway and the Chairs of the three existing codes report to the Minister of Energy every two months
on progress. The new code is likely to be introduced in July 2002.

Commodity Price Sensitivity Analysis

A 10% increase in pool prices would result in a $91.1 million decrease in the fair market value of electricity rate swap agreements related to Edison
Mission Energy's Loy Yang B project in Australia.
Likewise, the fair market value of these electricity rate swap agreements would increase by $91.1 million from a 10% decrease in pool prices. An electricity rate swap agreement is an exchange
of a fixed price of electricity for a floating price. As a seller of power, Edison Mission Energy receives the fixed price in exchange for a floating price, like the index price associated with
electricity pools. A 10% increase in electricity prices at December 31, 2001 would result in a $0.5 million increase in the fair market value of forward contracts. A 10% decrease in
electricity prices at December 31, 2001 would result in a $0.5 million decrease in the fair market value of forward contracts. A 10% increase in electricity prices at December 31,
2001 would result in a $0.5 million decrease in the fair market value of option contracts. A 10% decrease in electricity prices at December 31, 2001 would result in a $0.3 million
increase in the fair market value of option contracts.

A
10% increase in natural gas and electricity forward prices at December 31, 2001 would result in a $11.4 million decrease in the fair market value of energy contracts
utilized by Edison Mission Energy's domestic trading operations in energy trading and price risk management activities. A 10% decrease in natural gas and electricity forward prices at
December 31, 2001 would result in a $11.4 million increase in the fair market value of energy contracts utilized by Edison Mission Energy's domestic trading operations in energy trading
and price risk management activities.

Interest Rate Risk

We have mitigated the risk of interest rate fluctuations associated with the $385 million term loan due 2006 by arranging for variable rate financing with
two interest rate swaps. The swaps cover interest accrued from January 2, 2002 to January 2, 2003. A 10% fluctuation in market interest rates at December 31, 2001 would change the
fair value of our interest rate swaps by approximately $0.9 million.

Interest
rate changes affect the cost of capital needed to finance the construction and operation of Edison Mission Energy's projects. Edison Mission Energy has mitigated the risk of
interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps, interest rate options or other hedging mechanisms for a number of its project
financings. Interest expense included $17.2 million, $14.6 million and $25.2 million for the years 2001, 2000 and 1999, respectively, as a result of interest rate hedging
mechanisms. Edison Mission Energy has entered into

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several interest rate swap agreements under which the maturity date of the swaps occurs prior to the final maturity of the underlying debt. A 10% increase in market interest rates at
December 31, 2001 would result in an $11 million increase in the fair value of Edison Mission Energy's interest rate hedge agreements. A 10% decrease in market interest rates at
December 31, 2001 would result in an $11.3 million decline in the fair value of Edison Mission Energy's interest rate hedge agreements.

Edison
Mission Energy had short-term obligations of $168.2 million consisting of bank borrowings at December 31, 2001. The fair values of these obligations
approximated their carrying values at December 31, 2001, and would not have been materially affected by changes in market interest rates. The fair market values of long-term fixed
interest rate obligations are subject to interest rate risk. The
fair market value of our total long-term obligations (including current portion) was $7,215.7 million at December 31, 2001. A 10% increase in market interest rates at
December 31, 2001 would result in a decrease in the fair value of total long-term obligations by approximately $191 million. A 10% decrease in market interest rates at
December 31, 2001 would result in an increase in the fair value of total long-term obligations by approximately $199.7 million.

Foreign Exchange Rate Risk

Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of Edison Mission Energy's equity contributions to, and
distributions from, its international projects. At times, Edison Mission Energy has hedged a portion of its current exposure to fluctuations in foreign exchange rates through financial derivatives,
offsetting obligations denominated in foreign currencies, and indexing underlying project agreements to U.S. dollars or other indices reasonably expected to correlate with foreign exchange movements.
In addition, Edison Mission Energy has used statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. Edison Mission Energy cannot assure you,
however, that fluctuations in exchange rates will be fully offset by hedges or that currency movements and the relationship between certain macro economic variables will behave in a manner that is
consistent with historical or forecasted relationships.

The
First Hydro plant in the U.K. and the Loy Yang B plant in Australia have been financed in their local currencies, pounds sterling and Australian dollars, respectively, thus hedging
the majority of their acquisition costs against foreign exchange fluctuations. Furthermore, Edison Mission Energy has evaluated the return on the remaining equity portion of these investments with
regard to the likelihood of various foreign exchange scenarios. These analyses use market-derived volatilities, statistical correlations between specified variables, and long-term
forecasts to predict ranges of expected returns.

During
2001, foreign currencies in Australia, New Zealand and the U.K. decreased in value compared to the U.S. dollar by 8%, 6% and 3%, respectively (determined by the change in the
exchange rates from December 31, 2000 to December 31, 2001). The decrease in value of these currencies was the primary reason for the foreign currency translation loss of
$50.7 million during 2001. A 10% increase or decrease in the exchange rate at December 31, 2001 would result in foreign currency translation gains or losses of $74.4 million.

Contact
Energy enters into foreign currency forward exchange contracts to hedge identifiable foreign currency commitments associated with transactions in the ordinary course of business.
The contracts are primarily in Australian and U.S. dollars with varying maturities through September 2002. At December 31, 2001, the outstanding notional amount of the contracts totaled
$16.9 million and the fair value of the contracts totaled ($158,000). During the period from consolidation of Contact Energy results of operations (June 1, 2001) to December 31,
2001, Contact Energy recognized a foreign exchange gain of $1.1 million related to the contracts that matured during the same period. A 10% increase in exchange rates at December 31,
2001 would result in a $1.5 million decline in the fair value of the contracts. A 10% decrease in the exchange rates at December 31, 2001 would result in a $1.9 million increase
in the fair value of the contracts.

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In
addition, Contact Energy enters into cross currency interest rate swap contracts in the ordinary course of business. These cross currency swap contracts involve swapping
fixed-rate U.S. and Australian dollar loans into floating-rate New Zealand dollar loans with varying maturities through April 2018. At December 31, 2001, Contact
Energy had cross currency swap contracts in place with an approximate net-hedged value of $27.6 million.

Edison
Mission Energy entered into a foreign currency forward exchange contract for a portion of the purchase price related to the potential acquisition of the remaining 49% of Contact
Energy for NZ$479 million. At December 31, 2001, the fair value of the contract totaled ($0.4 million). Following the unsuccessful bid for the remaining shares of Contact Energy,
Edison Mission Energy closed the contracts and recognized a foreign exchange gain of $0.7 million in February 2002.

Edison
Mission Energy will continue to monitor its foreign exchange exposure and analyze the effectiveness and efficiency of hedging strategies in the future.

Non-Trading Derivative Financial Instruments

The following table summarizes the fair values for outstanding derivative financial instruments used for purposes other than trading by risk category and
instrument type:

December 31,2001

2000(in millions)Derivatives:Interest rate:Interest rate swap/cap agreements

(37.1
)
(42.9
)Interest rate options

(1.0
)
Commodity price:Forwards

63.8

(107.5
)Futures

(8.4
)
(11.1
)Options

0.4

1.8Swaps

(137.6
)
15.9Foreign currency forward exchange agreements

(0.6
)
Cross currency interest rate swaps

27.6




In
assessing the fair value of its non-trading derivative financial instruments, Edison Mission Energy uses a variety of methods and assumptions that are based on market
conditions and risk existing at each balance sheet date. The fair value of the commodity price contracts considers quoted marked prices, time value, volatility of the underlying commodities and other
factors.

The
fair value of the electricity rate swaps agreements (included under commodity price-swaps) entered into by the Loy Yang B plant in 2001 and 2000 and the First Hydro plant in 2000 has
been estimated by discounting the future cash flows on the difference between the average aggregate contract price per MW and a forecasted market price per MW, multiplied by the amount of MW sales
remaining under contract.

Energy Trading

On September 1, 2000, Edison Mission Energy acquired the trading operations of Citizens Power LLC. As a result of this acquisition, Edison Mission Energy
has expanded its operations beyond the traditional marketing of its electric power to include trading of electricity and fuels. In conducting its trading activities, Edison Mission Energy seeks to
generate profit from price volatility of electricity and fuels by buying and selling these commodities in wholesale markets. Edison Mission Energy generally balances forward sales and purchases
contracts and manages its exposure through a value at risk

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analysis as described further below. Edison Mission Energy also conducts price risk management activities with third parties not related to its power plants or investments in energy projects,
including the restructuring of power sales and power supply agreements.

The
fair value of the financial instruments, including forwards, futures, options and swaps, related to trading activities as of December 31, 2001 and 2000, which include energy
commodities, are set forth below (in millions):

December 31,2001

2000Assets

Liabilities

Assets

LiabilitiesForward contracts

$
4.6

$
2.9

$
302.0

$
282.1Futures contracts


0.1


0.1


0.1


0.1Option contracts








1.4


3.6Swap agreements


0.2





2.9


4.3Total

$
4.9

$
3.0

$
306.4

$
290.1


Quoted
market prices are used to determine the fair value of the financial instruments related to trading activities.

Risk Factors

Mission Energy Holding is a holding company which has no operations and depends on dividends from Edison Mission Energy.

We depend upon cash flows from Edison Mission Energy to service our debt. Our principal asset is the common stock of Edison Mission Energy. In July 2001,
we issued $800 million of 13.50% senior secured notes due 2008. Concurrently with the consummation of the offering of our senior secured notes, we borrowed $385 million under a term
loan. The senior secured notes and the term loan are secured by a first priority security interest in the common stock of Edison Mission Energy. Any foreclosure on the pledge of the common stock of
Edison Mission Energy by the holders of the senior secured notes or the lenders under the term loan could result in a change of control. A change in control of Edison Mission Energy or its
subsidiaries could require Edison Mission Energy to prepay indebtedness in its or its subsidiaries' debt agreements. For a discussion of the provisions in Edison Mission Energy's formation documents
that contain its ability to pay dividends or distributions to us, see "Management's Discussion and Analysis of Results of Operations and Financial ConditionEdison Mission Energy's Credit
Ratings."

Edison Mission Energy has a substantial amount of indebtedness, including short-term indebtedness and long-term lease
obligations.

As of December 31, 2001, Edison Mission Energy had $2.1 billion of debt which is recourse to Edison Mission Energy and $4 billion of debt
which is non-recourse to Edison Mission Energy but is recourse to Edison Mission Energy's subsidiaries appearing on its consolidated balance sheet. In addition, Edison Mission Energy has
$7.8 billion of long-term lease obligations that are due over a periods ranging up to 33 years.

A
failure to repay, extend or refinance Edison Mission Energy's existing credit facilities as required by their terms could result in an event of default under the credit facilities. An
event of default under the credit facilities would trigger cross-defaults under agreements to which Edison Mission Energy's subsidiaries are party. In addition, the failure of a subsidiary of Edison
Mission Energy to satisfy its obligations under its agreements, including satisfying financial covenants and servicing its debt, could trigger defaults under its agreements. Both cross-defaults and
defaults would have the effect of not permitting distributions from Edison Mission Energy's subsidiaries, which would have a negative impact

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on Edison Mission Energy's liquidity and on Edison Mission Energy's ability to make debt service payments.

Our
ability to honor our obligations under the senior secured notes and the term loan after the two year interest reserve period (which expires July 1, 2003) and to pay overhead
is substantially dependent upon the receipt of dividends from Edison Mission Energy and receipt of tax sharing payments from our parent, The Mission Group. The common stock of Edison Mission Energy
has been pledged to secure all obligations with respect to the senior secured notes and the term loan. Part of the proceeds from the senior secured notes and the term loan were used to fund escrow
accounts to secure the first four interest payments due under the senior secured notes and the interest payments for the first two years under the term loan. During the initial two-year
period, we intend to distribute to The Mission Group any dividends we receive from Edison Mission Energy, less our overhead costs, subject to compliance with limitations in the senior secured notes
indenture and in the term loan. Other than the dividends received from Edison Mission Energy, funds received pursuant to our tax sharing arrangements with our affiliates and the interest reserve
account, we will not have any other source of funds to meet our obligations under the senior secured notes and the term loan. If we are unable to make any payment on the senior secured notes or under
the term loan as that payment becomes due, it would result in a default under the senior secured notes and the term loan and could lead to foreclosure on our ownership interest in the capital stock of
Edison Mission Energy. Dividends from Edison Mission Energy may be limited based on its earnings and cash flow, terms of restrictions contained in Edison Mission Energy's contractual obligations
(including its corporate credit facility), charter documents, business and tax considerations, and restrictions imposed by applicable law.

The
ability of Edison Mission Energy's subsidiary to make payments of interest on the bond financing of First Hydro is dependent on revenues generated by the First Hydro plants, which
depend on market conditions for the sale of energy and ancillary services. These market conditions are beyond Edison Mission Energy's control. The financial covenants included in the First Hydro bonds
require Edison Mission Energy's subsidiary to maintain a minimum interest coverage ratio for each trailing twelve-month period as of June 30 and December 31 of each year. Edison Mission
Energy's subsidiary was in compliance with this ratio for the twelve months ended December 31, 2001. Compliance with this ratio depends on market conditions for the sale of energy and ancillary
services. There is no assurance that these requirements will be met and, if not met, will be waived by the holders of First Hydro's bonds. The bond financing documents stipulate that a breach of a
financial covenant constitutes an immediate event of default and, if the event of default is not waived or cured, the holders of the First Hydro bonds are entitled to enforce their security over First
Hydro's assets, including its power plants.

Edison
Mission Energy's substantial amount of debt and financial obligations presents the risk that Edison Mission Energy might not have sufficient cash to service its indebtedness or
long-term lease
obligations and that Edison Mission Energy's existing corporate, project debt and lease obligations could limit Edison Mission Energy's ability to grow its business, to compete effectively or to
operate successfully under adverse economic conditions.

Edison Mission Energy's credit ratings are subject to change, and a downgrade of Edison Mission Energy's credit rating below investment grade could have
an adverse impact on Edison Mission Energy and its ability to pay us dividends.

In
January 2001, Standard & Poor's and Moody's downgraded Edison Mission Energy's senior unsecured credit ratings to "BBB-" from "A-" and to "Baa3"
from "Baa1", respectively. Edison Mission Energy's credit ratings remain investment grade. Maintaining Edison Mission Energy's investment grade credit ratings is part of Edison Mission Energy's
current operational focus and Edison Mission Energy's long-term strategy. However, Edison Mission Energy's cannot assure you that Standard & Poor's and Moody's will not downgrade
Edison Mission Energy's credit rating below

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investment grade. If Edison Mission Energy's credit ratings are downgraded below investment grade, Edison Mission Energy's could be required to, among other things:



A
downgrade of Edison Mission Energy's credit ratings could result in a downgrade of the credit rating of Edison Mission Midwest Holdings Co., Edison Mission Energy's indirect
subsidiary. In the event of a downgrade of Edison Mission Midwest Holdings below investment grade, provisions in the agreements binding on its subsidiary, Midwest Generation, LLC, would limit the
ability of Midwest Generation to use excess cash flow to make distributions.

A
downgrade in Edison Mission Energy's credit ratings below investment grade could increase its cost of capital, increase its credit support obligations, make efforts to raise capital
more difficult and have
an adverse impact on its subsidiaries. A downgrade in the credit rating of Edison Mission Energy below investment grade would adversely impact its ability to pay us dividends and, to the extent its
situation continued beyond July 1, 2003, it would adversely affect our ability to meet our debt service obligations. In addition, in order to continue to market the power from its Homer City
facilities and First Hydro plants in the United Kingdom as well as purchase natural gas or fuel oil at its Illinois Plants, Edison Mission Energy may be required to provide substantial additional
credit support in the form of letters of credit or cash. In addition, changes in forward market prices and margining requirements could further increase the need for credit support for Edison Mission
Energy's trading and price risk management activities.

Some of Edison Mission Energy's projects operate without long-term power purchase agreements and are or will be subject to market forces
that affect the price of power.

Some of Edison Mission Energy's projects do not have long-term power purchase agreements. Also, projects that Edison Mission Energy may acquire or
develop in the future may not have long-term power purchase agreements. Because their output is not committed to be sold under long-term contracts, these projects are subject
to market forces which determine the amount and price of power that they sell. Edison Mission Energy cannot assure you that these plants will be successful in selling power into their markets. If they
are unsuccessful, they may not be able to generate enough cash to service their own debt or to make distributions to Edison Mission Energy. See "Market Risk
ExposuresCommodity Price Risk."

A substantial amount of Edison Mission Energy's revenues are derived under power purchase agreements with a single customer, and Edison Mission Energy
may be adversely affected if that customer elects not to purchase power from Edison Mission Energy or fails to fulfill its obligations under those power purchase agreements.

During
2001 and 2000, 36% and 42%, respectively, of Edison Mission Energy's electric revenues were derived under three power purchase agreements with Exelon Generation Company, a
subsidiary of Exelon Corporation. These agreements were entered into in connection with Edison Mission Energy's December 1999 acquisition of the Illinois plants. Exelon Corporation is the
holding company of Commonwealth Edison and PECO Energy Company, major utilities located in Illinois and Pennsylvania. Electric revenues attributable to sales to Exelon Generation are earned from
capacity and energy provided by the Illinois plants under three five-year power purchase agreements expiring in

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2004. If Exelon Generation were to fail or become unable to fulfill or choose to terminate some of its obligations under these power purchase agreements, Edison Mission Energy may not be able to find
another customer on similar terms for the output of its power generation assets. Any material failure by Exelon Generation Company to make payments under these power purchase agreements could
adversely affect Edison Mission Energy's results of operations and liquidity.

Under
each of the power purchase agreements, Exelon Generation, upon notice by a given date, has the option in effect to terminate each agreement with respect to all or a portion of the
units subject to it. In October 2001, Exelon Generation exercised the option under one of the power purchase agreements to terminate all of the oil peaker plants (300 megawatts), effective
January 2002, but continued it with respect to all other peaker plants for 2002. In each of 2003 and 2004, Exelon Generation is committed to purchase 1,696 MW of capacity from specific coal
units, but has the option to terminate all or any of the remaining coal units and all of the natural gas and oil-fired units with prior notice as specified under each agreement.

The
energy and capacity from any units which do not remain subject to one of the power purchase agreements with Exelon Generation will be sold under terms, including price and quantity,
to be negotiated with customers or into the so-called spot market. Thus, to the extent that Exelon Generation does not purchase Edison Mission Energy's power for 2003 or 2004, Edison
Mission Energy will be subject to the market risks related to the price of energy and capacity described above. Due to the volatility of market prices for energy and capacity during the past several
years, Edison Mission Energy cannot predict whether or not Exelon Generation will elect to terminate any of the units currently subject to the power purchase agreements for which termination is
permitted and, if they do, whether sales of energy and capacity to other customers and the market will be at prices sufficient to generate cash flow necessary to meet the obligations of Edison Mission
Energy's subsidiary. As of December 31, 2001, Edison Mission Energy had not entered into forward energy sales contracts for the Illinois plants other than those with Exelon Generation.

Restrictions in Edison Mission Energy's articles of incorporation, Edison Mission Energy's credit facilities and our financing documents limit or
prohibit Edison Mission Energy from entering into specified transactions that Edison Mission Energy otherwise may enter into.

The financing documents entered into by us contain financial and investment covenants restricting Edison Mission Energy and its subsidiaries. Edison Mission
Energy's articles of incorporation bind Edison Mission Energy to the provisions in our financing documents by restricting its ability to enter into specified transactions and engage in specified
business activities, as contemplated by our financing documents, without shareholder approval. The instruments governing Edison Mission Energy's indebtedness also contain financial and investment
covenants. Restrictions contained in the documents described in the preceding sentences could affect, and in some cases significantly limit or prohibit, Edison Mission Energy and its subsidiaries'
ability to, among other things, incur and prepay debt, make capital expenditures, pay dividends and make other distributions, make investments, create liens, sell assets, enter into sale and leaseback
transactions, issue equity interests, enter into transactions with affiliates, create restrictions on the ability to pay dividends or make other distributions and engage in mergers and consolidations.

Edison Mission Energy's international projects are subject to risks of doing business in foreign countries.

Edison Mission Energy's international projects are subject to political and business risks, including uncertainties associated with currency exchange rates,
currency repatriation, expropriation, political instability and other issues that have the potential to impair the projects from making dividends or other distributions to Edison Mission Energy and
against which Edison Mission Energy may not be fully capable of insuring. See "Market Risk ExposuresForeign Exchange Rate Risk."

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Generally, the uncertainty of the legal structure in some foreign countries in which Edison Mission Energy may develop or acquire projects could make it more difficult to enforce its
rights under agreements relating to the projects. In addition, the laws and regulations of some countries may limit Edison Mission Energy's ability to hold a majority interest in some of the projects
that Edison Mission Energy may develop or acquire. The economic crisis in Indonesia has raised concerns over the ability of PT PLN, the state-owned electric utility, to meet its obligations under its
power purchase agreement with Edison Mission Energy's Paiton project and has negatively affected and may continue to negatively affect that project's dividends to Edison Mission Energy. See
"Contractual Obligations, Commitments and ContingenciesPaiton."

Competition could adversely affect Edison Mission Energy's business.

The global independent power industry is characterized by numerous strong and capable competitors, some of which may have more extensive operating experience in
the acquisition and development of power projects, larger staffs and greater financial resources than Edison Mission Energy does. Further, in recent years some power markets have been characterized by
strong and increasing competition as a result of regulatory changes and other factors which have contributed to a reduction in market prices for power. These regulatory and other changes may continue
to increase competitive pressures in the markets where Edison Mission Energy operates. Increased competition for new project investment opportunities may adversely affect Edison Mission Energy's
ability to develop or acquire projects on economically favorable terms.

Edison Mission Energy is subject to extensive government regulation.

Edison Mission Energy's operations are subject to extensive regulation by governmental agencies in each of the countries in which it conducts operations. See
"BusinessRegulatory Matters." Edison Mission Energy's domestic projects are subject to energy, environmental and other governmental laws and regulations at the federal, state
and local levels in connection with the development, ownership and operation of the projects. Edison Mission Energy's projects are also subject to federal, state and local laws and regulations that
govern the geographical location, zoning and land use of or with respect to a project. Edison Mission Energy's international projects are subject to the energy, environmental and other laws and
regulations of the foreign jurisdictions in which these projects are located. The degree of regulation varies according to each country and may be materially different from the regulatory regimes in
the United States.

Edison
Mission Energy cannot assure you that the introduction of new laws or other future regulatory developments in countries in which it conducts business will not have a material
adverse effect on its business, results of operations or financial condition, nor can Edison Mission Energy assure you that it will be able to obtain and comply with all necessary licenses, permits
and approvals for its proposed energy projects. Currently, environmental advocacy groups and regulatory agencies in the United States and other countries have been focusing considerable attention on
carbon dioxide emissions from coal-fired power plants and their potential role in the "global-warming" issue. The adoption of laws and regulations to implement the carbon dioxide controls could
adversely affect our coal-fired plants. Also, coal plant emissions of nitrogen and sulphur oxides, mercury and particulates are potentially subject to increased control. See,
"Environmental Matters and Regulations." If Edison Mission Energy cannot comply with all applicable regulations, its business, results of operations and financial condition could be
adversely affected. In addition, if any of Edison Mission Energy's projects were to lose its status as a qualifying facility, eligible facility or foreign utility company under U.S. federal
regulations, Edison Mission Energy could become subject to regulation as a "holding company" under the Public Utility Holding Company Act of 1935. If that were to occur, Edison Mission Energy would be
required to divest all operations not functionally related to the operation of a single integrated utility system and would be required to obtain approval of the Securities and Exchange Commission for
various actions. See "BusinessRegulatory MattersU.S. Federal Energy Regulation."

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General operating risks and catastrophic events may adversely affect Edison Mission Energy's projects.

The operation of power generating plants involves many risks, including start-up problems, the breakdown or failure of equipment or processes,
performance below expected levels of output, the inability to meet expected efficiency standards, operator errors, strikes, work stoppages or labor disputes and catastrophic events such as
earthquakes, landslides, fires, floods, explosions or similar calamities. The occurrence of any of these events could significantly reduce revenues generated by Edison Mission Energy's projects or
increase their generating expenses, thus diminishing distributions by the projects to Edison Mission Energy and, as a result, Edison Mission Energy's ability to meet its obligations under the senior
secured notes. Equipment and plant warranties and insurance obtained by Edison Mission Energy may not be adequate to cover lost revenues or increased expenses and, as a result, a project may be unable
to fund principal and interest payments under its financing obligations and may operate at a loss. A default under a financing obligation of a project entity could cause Edison Mission Energy to lose
its interest in the project.

Edison Mission Energy's future acquisitions and development projects may not be successful.

Edison
Mission Energy's long-term strategy includes the development and acquisition of electric power generation facilities. The development projects and acquisitions in
which Edison Mission Energy has invested, or in which Edison Mission Energy may invest in the future, may be large and complex, and Edison Mission Energy may not be able to complete the development or
acquisition of any particular project. The development of a power project may require Edison Mission Energy to expend significant
sums for preliminary engineering, permitting, legal and other expenses before Edison Mission Energy can determine whether it will win a competitive bid, or whether a project is feasible, economically
attractive or financeable. Moreover, Edison Mission Energy's access to capital for future projects is uncertain. Furthermore, due to the effects of the California power crisis on Edison International
and Southern California Edison, Edison Mission Energy does not expect to receive capital contributions from Edison International in the near future. Edison Mission Energy cannot assure you that it
will be successful in obtaining financing for its projects or that Edison Mission Energy will obtain sufficient additional equity capital, project cash flow or additional borrowings to enable it to
fund the equity commitments required for future projects.

Off-Balance Sheet Transactions

Edison Mission Energy has off-balance sheet transactions in two principal areas: investments in projects accounted for under the equity method and
operating leases resulting from sale-leaseback transactions.

Investments Accounted for Under the Equity Method

Investments in which Edison Mission Energy has a 50% or less ownership interest are accounted for under the equity method in accordance with and as required by
current accounting standards. Under the equity method, the project assets and related liabilities are not consolidated in Edison Mission Energy's consolidated balance sheet. Rather, Edison Mission
Energy's financial statements reflect its investment in each entity and Edison Mission Energy records only its proportionate ownership share of net income or loss. These investments are of three
principal categories.



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Entities
formed to own these projects are generally structured with a management committee or board of directors in which Edison Mission Energy exercises significant influence but cannot
exercise unilateral control over the operating, funding or construction activities of the project entity. Edison Mission Energy's energy projects have generally secured long-term debt to
finance the assets constructed and/or acquired by them. These financings generally are secured by a pledge of the assets of the project entity, but do not provide for any recourse to Edison Mission
Energy. Accordingly, a default on a long-term financing of a project could result in foreclosure on the assets of the project entity resulting in a loss of some or all of Edison Mission
Energy's project investment, but would generally not require Edison Mission Energy to contribute additional capital. At December 31, 2001, entities which Edison Mission Energy has accounted for
under the equity method had indebtedness of $6.1 billion, of which $2.6 billion is proportionate to Edison Mission Energy's ownership interest in these projects.

Sale-Leaseback Transactions

Edison Mission Energy has entered into sale-leaseback transactions related to the Collins, Powerton and Joliet plants in Illinois and the Homer City
Station in Pennsylvania. See "Contractual Obligations, Commitments and ContingenciesSale-Leaseback Commitments." Each of these transactions was completed and
accounted for in accordance with Statement of Financial Accounting Standard No. 98, "Sale-Leaseback Transactions Involving Real Estate" which requires, among other things, that all
the risk and rewards of ownership of assets be transferred to a new owner without continuing involvement in the assets by the former owner other than as normal for a lessee. These transactions were
entered into to provide a source of capital either to fund the original acquisition of the assets or to repay indebtedness previously incurred for the acquisition. In each of these transactions, the
assets (or, in the case of the Collins Station, the rights to purchase them) were sold to and then leased from owner/lessors owned by independent equity investors. In addition to the equity invested
in them, these owner/lessors incurred or assumed long-term debt, referred to as lessor debt, to finance the purchase of the assets. In the case of Powerton and Joliet and Homer City, the
lessor debt takes the form generally referred to as secured lease obligation bonds. In the case of Collins, the lessor debt takes the form of lessor notes as described in the footnote to the table
below.

The
lessor equity and lessor debt associated with the sale leaseback transactions for the Collins, Powerton, Joliet and Homer City assets are summarized in the following table:

Power Station(s)

Acquisition Price

Equity Investor

Original
Equity Investment
in Owner/Lessor

Amount of
Lessor Debt

Maturity Date
of Lessor Debt(in millions)Collins

$
860.0

PSEG

$
116.7

$
774.0

(i)Powerton/Joliet


1,367.0

PSEG/ACI


237.8


333.5
813.5

2009
2016Homer City


1,591.0

GECC


798.0


300.0

2019530.0

2026


PSEGPSEG Resources, Inc.

ACIAssociates
Capital Investments LLC

GECCGeneral
Electric Capital Corporation

---

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The
operating lease payments to be made by each of Edison Mission Energy's subsidiary lessees are structured to service the lessor debt and provide a return to the owner/lessor's equity
investors. Neither the value of the leased assets nor the lessor debt is reflected in Edison Mission Energy's consolidated balance sheet. In accordance with generally accepted accounting principles,
Edison Mission Energy records rent expense on a levelized basis over the terms of the respective leases. To the extent that Edison Mission Energy's cash rent payments exceed the amount levelized over
the term of each lease, Edison Mission Energy records prepaid rent. At December 31, 2001, prepaid rent on these leases was $21 million. To the extent that Edison Mission Energy's cash
rent payments are less than the amount levelized, Edison Mission Energy reduces the amount of prepaid rent.

In
the event of a default under the leases, each lessor can exercise all its rights under the applicable lease, including repossessing the power plant and seeking monetary damages. In
the event of a default, distributions to Edison Mission Energy from its subsidiary may also be prohibited. Each lease sets forth a termination value payable upon termination for default and in certain
other circumstances, which generally declines over time and in the case of default may be reduced by the proceeds arising from the sale of the repossessed power plant. A default under the terms of the
Collins, Powerton and Joliet or Homer City leases could result in a loss of Edison Mission Energy's ability to use such power plant and could have a material adverse effect on Edison Mission Energy's
results of operations and financial position.

In
connection with the above, Edison Mission Energy's subsidiaries, Midwest Generation LLC and EME Homer City LLC, account for these leases as lease financings in their separate,
publicly filed financial statements because of specific guarantees provided by Edison Mission Energy or one of its subsidiary holding companies. Under SFAS No. 98, guarantees provided by Edison
Mission Energy or its subsidiary holding companies (generally referred to as parent company guarantees) constitute "continuing involvement" which precludes Midwest Generation and EME Homer City from
accounting for these leases as operating leases in their separate consolidated financial statements. Instead, in preparing their financial statements, each such subsidiary records the power plants as
assets and the lease obligations as liabilities. In addition, these subsidiaries record depreciation and interest expense in their statements of income in lieu of operating lease expense, which Edison
Mission Energy records on a consolidated basis. The accounting treatment by Edison Mission Energy's subsidiaries does not affect our treatment of these transactions as operating leases because the
relevant guarantees are not
provided by any company outside Edison Mission Energy and its subsidiaries and, as such, do not constitute "continuing involvement" under SFAS No. 98 for purposes of Edison Mission Energy's
consolidated financial statements. The treatment of these leases by Edison Mission Energy as operating leases in its consolidated financial statements, rather than as lease financings as is done by
its subsidiaries, results in an increase in Edison Mission Energy's consolidated net income by $54.6 million in 2001 and $40.4 million in 2000.

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Edison
Mission Energy has also entered into a sale-leaseback of equipment, consisting primarily of Illinois peaker power units for $300 million, with an independent
entity formed by Citibank. Under the terms of this 5-year lease, Edison Mission Energy's subsidiary lessee operates and sells the output of these units, and has the option to repurchase
the units from their current owner/lessor at the end of the lease term for the fixed price of $300 million. Should this option not be exercised, the current owner/lessor can require Edison
Mission Energy, as their agent, to sell the units and, if sold, they would no longer be available to Edison Mission Energy. The lease payments are structured to pay interest and fees of the lease debt
plus a return to the owner/lessor on the equity invested in it. Edison Mission Energy has guaranteed the monthly payments by its subsidiary lessee under the lease and agreed to pay the owner/lessor a
deficiency payment if it does not exercise its purchase option and the proceeds from the sale of the equipment on their behalf is less than $300 million. However, in no event can the deficiency
payment exceed $255 million. In order to finance its purchase of the equipment from Edison Mission Energy, the current owner/lessor obtained an equity investment of $9 million (or 3% of
the acquisition price), and an additional $291 million through its issuance of senior notes in the amount of $255 million and subordinated notes in the amount of $36 million. The
lease has been structured to have the equity investor maintain its $9 million investment at risk for the entire term of the lease. As part of the transaction, Edison Mission Energy purchased
the senior notes from the owner/lessor and Citibank purchased the subordinated notes. Thus, if Edison Mission Energy were to exercise its option to repurchase the equipment at the end of the lease
term, it would effectively need $45 million to fund this purchase as a result of its holding the senior notes. By entering into the sale-leaseback of this equipment, Edison Mission
Energy obtained $45 million of additional capital. As a result of the transaction, Edison Mission Energy's annual depreciation expense is reduced by approximately $15 million
($9 million after tax) during the term of the lease.

Edison
Mission Energy's minimum lease obligations under its power related leases are set forth under "Contractual Obligations, Commitments and
ContingenciesSale-Leaseback Commitments."

Parent Company Obligations to Midwest Generation

The proceeds, in the aggregate amount of approximately $1.4 billion and $300 million, received by Midwest Generation from the sale of the Powerton
and Joliet plants and Illinois peaker power units, respectively, described above under "Sale-Leaseback Transactions" were loaned to Edison Mission Energy. Edison Mission
Energy used the proceeds from these loans to repay corporate indebtedness. Although interest and principal payments made by Edison Mission Energy to Midwest Generation under these intercompany loans
assist in the payment of the lease rental payments owing by Midwest
Generation, the intercompany obligations do not appear on Edison Mission Energy's consolidated balance sheet. These obligations have been disclosed to the credit rating agencies at the time of the
transactions and have been included by them in assessing Edison Mission Energy's credit ratings. The following table summarizes payments due under these intercompany loans:

Years Ending December 31,

Amount(in millions)2003

$
1.62004


1.72005


1.72006


2.7Thereafter


1,659.3Total

$
1,667.0


Edison
Mission Energy funds the interest and principal payments due under these intercompany loans from distributions from its subsidiaries, including Midwest Generation,
cash on hand, and amounts available under corporate lines of credit. A default by Edison Mission Energy in the payment of these intercompany loans could result in a shortfall of cash available by
Midwest Generation to meet its lease and debt obligations. A default by Midwest Generation in meeting its obligations could in turn have a material adverse effect on Edison Mission Energy.

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Master Turbine Lease

In December 2000, Edison Mission Energy entered into a master lease and related agreements which together initially provided for the construction of
several new projects using in total nine turbines on order from Siemens Westinghouse. See "Contractual Obligations, Commitments and ContingenciesEdison Mission Energy Master
Turbine Lease." The master turbines were structured to be off-balance sheet in accordance with EITF 90-15 "Impact of Nonsubstantive Lessors, Residual Value Guarantees, and
Other Provision in Leasing Transaction", including meeting the minimum 3% equity requirement at risk by an independent third party. During the first quarter of 2002, Edison Mission Energy exercised a
purchase option, which effectively terminated the lease. Total assets that will be capitalized as a result of exercising the purchase option will be $61.1 million and will be recorded on our
consolidated balance sheet.

Environmental Matters and Regulations

Edison Mission Energy is subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with
jurisdiction over projects located outside the United States. Edison Mission Energy believes that it is in substantial compliance with environmental regulatory requirements and that maintaining
compliance with current requirements will not materially affect its financial position or results of operation. However, possible future developments, such as the promulgation of more stringent
environmental laws and regulations, and future proceedings that may be initiated by environmental authorities, could affect the costs and the manner in which Edison Mission Energy conducts its
business and could cause Edison Mission Energy to make substantial additional capital expenditures. There is no assurance that Edison Mission Energy would be able to recover these increased costs from
its customers or that its financial position and results of operations would not be materially adversely affected.

Typically,
environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all the
necessary requirements can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital
expenditures.

StateIllinois

Air Quality.In June 2001, Illinois passed legislation mandating the Illinois Environmental Protection Agency to
evaluate and issue a report to the Illinois legislature addressing the need for further emissions controls on fossil fuel-fired electric generating stations, including the potential need
for additional controls on nitrogen oxides, sulfur dioxide and mercury. The study, which is to be submitted between September 30, 2003 and September 30, 2004, also requires an evaluation
of incentives to promote renewable energy and the establishment of a banking system for certifying credits from voluntary reductions of greenhouse gases. The law allows the Illinois Environmental
Protection Agency to propose regulations based on its findings no sooner than ninety days after the issuance of its findings, and requires the Illinois Pollution Control Board to act within one year
on such proposed regulations. Until the Illinois Environmental Protection Agency issues its findings and proposes regulations in accordance with the findings, if such regulations are proposed, Edison
Mission Energy cannot evaluate the potential impact of this legislation on the operations of its facilities.

Water Quality.The Illinois EPA is reviewing the water quality standards for the DesPlaines River adjacent to the Joliet
Station and immediately downstream of the Will County Station to determine if the use classification should be upgraded. One of the limitations for discharges to the river that could be made more
stringent if the existing secondary contact classification is changed would be the allowable temperature of the discharges from Joliet and Will County. At this time no new standards have been
proposed, so Edison Mission Energy cannot estimate the financial impact of this review.

StatePennsylvania

Water Quality.Edison Mission Energy's coal-cleaning plant National Pollutant Discharge Elimination System,
commonly referred to as NPDES, permit was recently renewed by the Pennsylvania

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Department of Environmental Protection, or PADEP, Bureau of Water Management. It now includes water quality-based limits for certain contaminants. Edison Mission Energy is not required to meet these
limits until February 2005 but must conduct toxics reduction evaluation studies in the meantime. These limits may require upgrade of Edison Mission Energy's facilities' wastewater treatment
systems with such approaches as reverse osmosis, ozonation, dechlorination and/or recycling of water. Edison Mission Energy has contested these requirements in an administrative appeal, but hopes to
reach an amicable resolution with PADEP.

The
discharge from the treatment plant receiving the wastewater stream from the Unit 3 flue gas desulfurization system has exceeded the limits for selenium in the station's NPDES permit.
The selenium limits are water-quality-based and require removal to very low levels. Edison Mission Energy is investigating technical alternatives to maximize the level of selenium removal in the
discharge. Edison Mission Energy is also meeting with PADEP to discuss potential modifications to the station's NPDES permit.

Edison
Mission Energy conducts ground water monitoring in a number of areas throughout the site, including active and former ash disposal sites, wastewater and runoff settling and
drainage ponds and a coal refuse disposal site. On September 27, 2001, the Pennsylvania Department of Environmental Protection responded to an Assessment Report by stating that no further
groundwater assessment or abatement is required for the industrial waste treatment ponds.

To
date, PADEP has not requested that any additional remediation actions be performed at the site. Edison Mission Energy's facility has a drinking water treatment system designed to meet
applicable potable water standards. Recent tests indicate that Edison Mission Energy's facilities' drinking water supply meets these standards.

Helvetia Discharges.Edison Mission Energy's generating units were originally constructed as a mine-mouth
generating station, where coal produced from two adjacent deep mines was delivered directly to the units by coal conveyors. The two adjacent deep mines were owned by Helen Mining Company, a subsidiary
of the Quaker State Corporation, and Helvetia, a subsidiary of the Rochester and Pittsburgh Coal Company. Both Helen Mining and Helvetia developed mine refuse sites, water treatment facilities and
other mine related facilities on the site. The Helen Mining mine was closed in the early 1990s, and the mine surface operations and maintenance shop areas were restored before Helen Mining left the
site. Helen Mining has continuing mine water and refuse site leachate treatment obligations and remains obligated to perform any cleanup required with respect to its refuse site. Helvetia's
on-site mine was closed in 1995. As a result of the cessation of its on-site mining activities, Helvetia has continuing mine discharge and refuse site leachate discharge
treatment obligations that it performs using water treatment facilities owned by Helvetia and located on the site. Bonds posted by Helvetia may not be sufficient to fund Helvetia's obligations in the
event of Helvetia's failure to comply with its mine-related permits at the site. Current annual operating costs for Helvetia's treatment systems are estimated to be approximately
$1 million. If Helvetia defaults on its treatment obligations, the government may look to Edison Mission Energy to fund these commitments.

Penn Hill No. 2 and Dixon Run No. 3 Discharges.In connection with Edison Mission Energy's purchase of the
Homer City facilities, Edison Mission Energy acquired the Two Lick Creek Dam and Reservoir. Acid mine drainage discharges from the Penn Hill No. 2 and Dixon Run No. 3 inactive deep mines
were collected and partially treated on the reservoir property by Stanford Mining Company before being pumped off the property for additional treatment at the nearby Chestnut Ridge Treatment Plant.
The mining company filed for bankruptcy, however, it operated the collection and treatment system until May 1999 when its assets were allegedly depleted.

PADEP
initially advised Edison Mission Energy that it was potentially liable for treating the two discharges solely because of Edison Mission Energy's ownership of the property from
which the discharges emanated. Without any admission of its liability, Edison Mission Energy voluntarily entered into a letter agreement to fund the operation of the collection and treatment system
for an interim period until the agency completed its investigation of potentially liable parties and alternatives for

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permanent treatment of the discharges were evaluated. After examining property records, PADEP concluded that Edison Mission Energy is only responsible for treating the Dixon Run No. 3
discharge. The agency completed its investigation of other potentially responsible parties, particularly mining companies that previously operated the two mines, and has notified Edison Mission Energy
that they plan no further action against other parties.

A
draft consent decree agreement that addresses remedial responsibilities for the two discharges has been prepared by PADEP. Under its terms, Edison Mission Energy is responsible for
designing and implementing a permanent system to collect and treat the Dixon Run No. 3 discharge. Edison Mission Energy will continue its funding of the existing collection and treatment system
until the Dixon Run No. 3 treatment system becomes operational. The state has provided funding to the Blacklick Creek Watershed Association to develop and operate a collection and treatment
system for the Penn Hill No. 2 discharge. The Watershed Association has completed construction of the Penn Hill No. 2 system, and it will be fully operational in the next several months.

The
current cost of operating the collection and treatment system is approximately $17,000 per month. Edison Mission Energy expects that the costs of operation will be reduced by 30% to
40% as a result of the completion of the Penn Hill No. 2 system. Edison Mission Energy has evaluated options for permanent treatment of the Dixon Run No. 3 discharge and concluded that
conventional chemical treatment is the most appropriate option. The capital cost of the system is estimated to be $1 million. Its operational costs cannot be determined until design and
permitting are complete.

FederalUnited States of America

Clean Air Act.Edison Mission Energy expects that compliance with the Clean Air Act and the regulations and revised State
Implementation Plans developed as a consequence of the Act will result in increased capital expenditures and operating expenses. For example, Edison Mission Energy expects to spend approximately
$17.8 million for 2002 to install upgrades to the environmental controls at the Homer City facilities to reduce sulfur dioxide and nitrogen oxide emissions. Similarly, Edison Mission Energy
anticipates upgrades to the environmental controls at the Illinois plants to reduce nitrogen oxide emissions to result in expenditures of approximately $367.9 million for the
2002-2005 period.

Mercury MACT Determination.On December 20, 2000, the Environmental Protection Agency issued a regulatory finding that
it is "necessary and appropriate" to regulate emissions of mercury and other hazardous air pollutants from coal-fired power plants. The agency has added coal-fired power plants
to the list of source categories under Section 112(c) of the Clean Air Act for which "maximum available control technology" standards will be developed. Eventually, unless overturned or
reconsidered, the Environmental Protection Agency will issue technology-based standards that will apply to every coal-fired unit owned by us or our affiliates in the United States. This
section of the Clean Air Act provides only for technology-based standards, and does not permit market trading options. Until the standards are actually promulgated, the potential cost of these control
technologies cannot be estimated, and Edison Mission Energy cannot evaluate the potential impact on the operations of its facilities.

National Ambient Air Quality Standards.A new ambient air quality standard was adopted by the Environmental Protection Agency in
July 1997 to address emissions of fine particulate matter. It is widely understood that attainment of the fine particulate matter standard may require reductions in nitrogen oxides and sulfur
dioxides, although, under the time schedule announced by the Environmental Protection Agency when the new standard was adopted, non-attainment areas were not to have been designated until
2002 and control measures to meet the standard were not to have been identified until 2005. In May 1999, the United States Court of Appeals for the District of Columbia Circuit held that
Section 109(b)(1) of the Clean Air Act, the section of the Clean Air Act requiring the promulgation of national ambient air quality standards, as interpreted by the Environmental Protection
Agency, was an unconstitutional delegation of legislative power. The Court of Appeals remanded both the fine particulate matter standard and the revised ozone standard to allow the Environmental
Protection Agency to determine whether it could articulate a constitutional application of

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Section 109(b)(1). On February 27, 2001, the Supreme Court, inWhitman v. American Trucking Associations, Inc., reversed the Circuit
Court's judgment on this issue and remanded the case back to the Court of Appeals to dispose of any other preserved challenges to the particulate matter and ozone standards. On March 26, 2002,
the D.C. Circuit, on remand, held that the revised ozone and fine particulate matter ambient air quality standards were neither arbitrary nor capricious. Further action by the EPA with respect to the
implementation of the revised ozone standard and the promulgation of a new coarse particulate matter standard is required pursuant to the first D.C. Circuit opinion and the Supreme Court's decision in Whitmanv.American Trucking Associations, Inc.Because of the delays resulting from the
litigation over the standards and the additional actions to be undertaken by the EPA, the impact of these standards on Edison Mission Energy's facilities is uncertain at this time.

Edison
Mission Energy believes that its facilities are in material compliance with applicable state and federal air quality requirements. Further reductions in emissions may be required
for the achievement and maintenance of National Ambient Air Quality Standards for ozone and fine particulate matter.

Clean Water Act§ 316(b) Rulemakings.The Environmental Protection Agency proposed rules establishing
standards for the location, design, construction and capacity of cooling water intake structures at new facilities, including steam electric power plants. Under the terms of a consent decree entered
into by the U.S. District Court for the Southern District of New York inRiverkeeper, Inc. v. Whitman,regulations for new facilities were
adopted by November 9, 2001. Pursuant to the consent decree, the agency proposed similar regulations for existing facilities on February 28, 2002, and is required to
finalize those regulations by August 28, 2003. Until the final standards are promulgated, Edison Mission Energy cannot determine their impact on its facilities or estimate the potential cost of
compliance.

Comprehensive Environmental Response, Compensation, and Liability Act.Under various federal, state and local environmental
laws and regulations, a current or previous owner or operator of any facility, including an electric generating facility, may be required to investigate and remediate releases or threatened releases
of hazardous or toxic substances or petroleum products located at that facility, and may be held liable to a governmental entity or to third parties for property damage, personal injury and
investigation and remediation costs incurred by these parties in connection with these releases or threatened releases. Many of these laws, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, impose liability without regard to whether the owner knew of or caused the presence of
the hazardous substances, and courts have interpreted liability under these laws to be strict and joint and several. The cost of investigation, remediation or removal of these substances may be
substantial. In connection with the ownership and operation of Edison Mission Energy's facilities, Edison Mission Energy may be liable for these costs.

In
addition, persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may be liable for the costs of removal or remediation
of a release or threatened release of hazardous or toxic substances at that disposal or treatment facility, whether or not that facility is owned or operated by that person. Some environmental laws
and regulations create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The owner of a contaminated site and persons who
arrange for the disposal of hazardous substances at that site also may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating
from that site. In connection with the ownership and operation of Edison Mission Energy's facilities, Edison Mission Energy may be liable for these costs.

With
respect to Edison Mission Energy's liabilities arising under CERCLA or similar laws for the investigation and remediation of contaminated property, Edison Mission Energy accrues a
liability to the extent the costs are probable and can be reasonably estimated. Generally, Edison Mission Energy does not believe the costs for environmental remediation can be reasonably estimated
before a

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remedial investigation has been completed for a particular site. In connection with due diligence conducted for the acquisition of its Illinois plants, Edison Mission Energy engaged a third party
consultant to conduct an assessment of the potential costs for environmental remediation of the plants. This assessment, which was based on information provided to Edison Mission Energy by the former
owner of these plants, was less rigorous than a remedial investigation conducted in the course of a voluntary or required site cleanup. Accordingly, Edison Mission Energy has not recorded a liability
for environmental remediation at these sites. Edison Mission Energy plans to perform or update individual site assessments as it believes is appropriate. As these assessments are completed, Edison
Mission Energy will determine whether remedial investigation is needed.

Enforcement Issues.Edison Mission Energy owns an indirect 50% interest in EcoEléctrica, L.P., a limited
partnership which owns and operates a liquefied natural gas import terminal and cogeneration project at Peñuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued
to EcoEléctrica a notice of violation ("NOV") and a compliance order alleging violations of the Federal Clean Air Act primarily related to start-up activities.
Representatives of EcoEléctrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoEléctrica has not
been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency.

On
November 3, 1999, the United States Department of Justice filed suit against a number of electric utilities for alleged violations of the Clean Air Act's new source review, or
NSR, requirements related to modifications of air emissions sources at electric generating stations located in the southern and midwestern regions of the United States. Several states have joined
these lawsuits. In addition, the United States Environmental Protection Agency has also issued administrative notices of violation alleging similar violations at additional power plants owned by some
of the same utilities named as defendants in the Department of Justice lawsuit, as well as other utilities, and also issued an administrative order to the Tennessee Valley Authority for similar
violations at certain of its power plants. The Environmental Protection Agency has also issued requests for information pursuant to the Clean Air Act to numerous other electric utilities, including
the prior owners of the Homer City facilities, seeking to determine whether these utilities also engaged in activities that may have been in violation of the Clean Air Act's new source review
requirements.

To
date, several utilities have reached formal agreements with the United States (or reached agreements-in-principle) to resolve alleged NSR violations. All of
the settlements have included the installation of additional pollution controls, supplemental environment projects, and the payment of civil penalties. Some of the settlements have also included the
retirement or repowering of coal-fired generating units. The agreements provide for a phased approach to achieving required emission reductions over the next 10 to 15 years. The
total cost of some of these settlements exceeds $1 billion; the civil penalties agreed to by these utilities range between $1 million and $10 million. Because of the uncertainty
created by the Bush Administration's review of the NSR regulations and NSR enforcement proceedings, some of the settlements referred to above have not been finalized.

In
May 2001, President Bush issued a directive for a 90-day review of NSR "interpretation and implementation" by the Administrator of the Environmental Protection
Agency and the Secretary of the U.S. Department of Energy. The results of the review have been postponed with release likely sometime during the first half of 2002. President Bush also directed the
Attorney General to review ongoing NSR legal actions to "ensure" they are "consistent with the Clean Air Act and its regulations." The DOJ review was released in January 2002 and concluded "EPA
has a reasonable basis for arguing that the enforcement actions are consistent with both the Clean Air Act and the Administrative Procedure Act."

Prior
to Edison Mission Energy's purchase of the Homer City facilities, the Environmental Protection Agency requested information from the prior owners of the plant concerning physical
changes at the plant. Other than with respect to the Homer City facilities, no proceedings have been initiated or requests for information issued with respect to any of Edison Mission Energy's United
States facilities. However, Edison Mission Energy has been in informal voluntary discussions with the

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Environmental Protection Agency relating to these facilities, which may result in the payment of civil fines. Edison Mission Energy cannot assure you that it will reach a satisfactory agreement or
that these facilities will not be subject to proceedings in the future. Depending on the outcome of the proceedings, Edison Mission Energy could be required to invest in additional pollution control
requirements, over and above the upgrades Edison Mission Energy is planning to install, and could be subject to fines and penalties. Edison Mission Energy cannot estimate the outcome of these
discussions or the potential costs of investing in additional pollution control requirements, fines or penalties at this time.

International

United Nations Framework Convention on Climate Change.Since the adoption of the United Nations Framework Convention on
Climate Change in 1992, there has been worldwide attention with respect to greenhouse gas emissions. In December 1997, the Clinton administration participated in the Kyoto, Japan negotiations,
where the basis of a Climate Change treaty was formulated. Under the treaty, known as the Kyoto Protocol, the United States would be required, by 2008-2012, to reduce its greenhouse gas
emissions by 7% from 1990 levels.

The
Kyoto Protocol has yet to be submitted to the U.S. Senate for ratification. In March 2001, the Bush administration announced that the United States would not ratify the Kyoto
Protocol, but would instead offer an alternative. On February 14, 2002, President Bush announced objectives to slow the growth of greenhouse gas emissions by reducing the amount of greenhouse
gas emissions per unit of economic output by 18% by 2012 and to provide funding for climate-change related programs. The President's proposed program does not include mandatory reductions of
greenhouse gas emissions. However, various bills have been, or are expected to be, introduced in Congress to require greenhouse gas emissions reductions and to address other issues related to climate
change. Apart from the Kyoto Protocol, we may be impacted by future federal or state legislation relating to controlling greenhouse gas emissions.

Notwithstanding
the Bush administration position, environment ministers from around the world have reached a compromise agreement on the mechanics and rules of the Kyoto Protocol. The
compromise agreement is believed to clear the way for countries to begin the treaty ratification process.

Edison
Mission Energy either has an equity interest in or owns and operates generating plants in the following countries:

 Australia

 Spain Indonesia

 Thailand Italy

 Turkey New Zealand

 The United Kingdom Philippines

 The United States


With the exception of Turkey, all of the countries identified have ratified the UN Framework Convention on Climate Change, as well as signed the Kyoto Protocol. None of the countries have ratified the
Kyoto Protocol, but, with the exception of the United States, all are expected to do so by the end of 2002. For the treaty to come into effect, approximately 55 countries that also represent at least
55% of the greenhouse gas emissions of the developed world must ratify it.

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All of the countries, with the exception of Indonesia, the Philippines and Thailand, are classified as Annex 1 or "developed" countries and are subject to national greenhouse gas
emission reduction targets during the period of 2008-2012 (e.g., Phase 1). Each nation is actively developing policies and measures meant to assist it with meeting the individual national
emission targets as set out within the Kyoto Protocol.

If
Edison Mission Energy does become subject to limitations on emissions of carbon dioxide from its fossil fuel-fired electric generating plants, these requirements could
have a significant economic impact on its operations.

Critical Accounting Policies

The accounting policies described below are viewed by Edison Mission Energy's management as "critical" because their correct application requires the use of
material estimates and have a material impact on Edison Mission Energy's financial results and position.

Derivative Instruments and Hedging Activities

Edison Mission Energy engages in price risk management activities for both trading and non-trading purposes. Derivative financial instruments are
mainly utilized by Edison Mission Energy to manage exposure from changes in electricity and fuel prices, interest rates, and fluctuations in foreign currency exchange rates. Edison Mission Energy
segregates all of its trading and non-trading activities upon entering into each transaction.

Effective
January 1, 2001, Edison Mission Energy adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). This Statement establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either assets or liabilities measured at
their fair value unless they meet an exception. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. For derivatives that qualify for hedge accounting, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets,
liabilities or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings.

Management's
judgment is required to determine if transactions meet the definition of a derivative and if they do, whether the normal sales and purchases exception applies or whether
individual transactions qualify for hedge accounting treatment. The majority of Edison Mission Energy's power sales and fuel supply agreements related to its generation activities qualify as normal
purchases and sales under SFAS No. 133 or do not meet the definition of a derivative as they are not readily convertible to cash and are, therefore, recorded on an accrual basis.

Revenue Recognition

Edison Mission Energy derives the substantial portion of its revenues from sales of physical power in the wholesale electricity market as well as from energy
marketing and risk management activities. With respect to physical power sales, Edison Mission Energy considers revenue earned upon output, delivery or satisfaction of specific targets, all as
specified by contractual terms, unless Edison Mission Energy is subject to SFAS No. 133 and does not qualify for the normal sales and purchases exception. Revenues under long-term
power sales arrangements are generally recognized on an accrual basis. For its long-term power contracts that provide for higher pricing in the early years of the contract, revenue is
recognized in accordance with Emerging Issues Task Force Issued Number 91-6 "Revenue Recognition of Long-Term Sales Contract," which results in a deferral and levelization of
revenues

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being recognized. Also included in deferred revenues is the deferred gain from the termination of the Loy Yang B power sales agreement.

Energy Trading

Derivative financial instruments that are utilized for trading purposes are accounted for using the fair value method under SFAS No. 133 and as provided
for under EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Under this method, forwards, futures, options, swaps and other financial
instruments with third parties are reflected at market value and are included in the balance sheet as assets or liabilities from energy trading activities. In the absence of quoted market prices,
financial instruments are valued at fair value, considering time value, volatility of the underlying commodity, and other factors as determined by Edison Mission Energy. Resulting gains and losses are
recognized in net gains (losses) from energy trading and price risk management in the accompanying Consolidated Income Statements in the period of change. Assets from energy trading and price risk
management activities include the fair value of open financial positions related to trading activities and the present value of net amounts receivable from structured transactions. Liabilities from
energy trading and price risk management activities include the fair value of open financial positions related to trading activities of open financial positions related to trading activities and the
present value of net amounts payable from structured transactions.

Impairment

Edison Mission Energy follows Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144). This Statement establishes accounting and reporting standards for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121) but retains the requirements to recognize
an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the
carrying amount and fair value of the asset less cost to sell, whether reported in continuing operations or in discontinued operations.

Factors
Edison Mission Energy considers important, which could trigger an impairment, include operating losses from a project, projected future operating losses, or significant negative
industry or economic trends. The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows from the assets, as compared to the carrying value of the
assets. If an impairment has occurred, the amount of the impairment loss recognized would be determined by estimating the fair value of the assets and recording a loss if the fair value was less than
the book value. Edison Mission Energy also records an impairment if it makes a decision (which generally occurs if Edison Mission Energy reaches an agreement to sell an asset) to dispose of an asset
and the fair value is less than its book value. During the third quarter of 2001, Edison Mission Energy recorded $1.9 billion impairment of its Ferrybridge and Fiddler's Ferry power plants. See
"Discontinued Operations", for further discussion. Edison Mission Energy also recorded $33.7 million impairment of investment in partnerships in which Edison Mission Energy had
reached an agreement to sell its investments during 2001.

Off Balance Sheet Financing

Edison Mission Energy has entered into sale-leaseback transactions related to the Collins, Powerton and Joliet plants in Illinois and the Homer City
Station in Pennsylvania. See "Contractual Obligations, Commitments and ContingenciesSale-Leaseback Commitments." Each of these transactions was completed and
accounted for by us as an operating lease in our consolidated financial statements in accordance with Statement of Financial Accounting Standard No. 98 "Sale-Leaseback Transactions
Involving Real Estate" (SFAS No. 98), which requires, among other things, that all of the

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risk and rewards of ownership of assets be transferred to a new owner without continuing involvement in the assets by the former owner other than as normal for a lessee. These transactions were
entered into to provide a source of capital either to fund the original acquisition of the assets or to repay indebtedness previously incurred for the acquisition. Edison Mission Energy has also
entered into a sale-leaseback of equipment, consisting primarily of Illinois peaker power units. Each of these leases uses special purpose entities.

Based
on existing accounting guidance, Edison Mission Energy believes that it is appropriate to keep its obligations under these leases off of its consolidated balance sheet. However,
the Financial Accounting Standards Board and others have initiated discussions to re-evaluate the accounting for transactions involving special purpose entities. Key issues that are being
addressed include equity at risk requirements (increasing the current 3% requirement to 10%) as well as the identification of the sponsor or beneficiary of the special purpose entities activities. It
is likely that changes to the existing accounting guidance would result in requiring Edison Mission Energy's equipment lease with respect to the Illinois peaker units to be recorded on its balance
sheet. This would result in Edison Mission Energy's recording additional depreciation expense.

Income Taxes

SFAS No. 109, "Accounting for Income Taxes," requires the asset and liability approach for financial accounting and reporting for deferred income taxes.
Edison Mission Energy uses the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. See, "Mission
Energy Holding Company and Subsidiaries Notes to Consolidated Financial StatementsNote 12. Income Taxes" for additional details.

As
part of the process of preparing its consolidated financial statements Edison Mission Energy is required to estimate its income taxes in each of the jurisdictions in which it
operates. This process involves us estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax
and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within its consolidated balance sheet. In accordance with SFAS No. 109, Edison
Mission Energy has not recorded deferred taxes on undistributed earnings of foreign subsidiaries if those earnings are to be repatriated to the United States.

For
additional information regarding Edison Mission Energy's accounting policies, see, "Mission Energy Holding Company and Subsidiaries Notes to Consolidated Financial
StatementsNote 2. Summary of Significant Accounting Policies".

New Accounting Standards

Currently, Edison Mission Energy is using the normal sales and purchases exception for some of its fuel supply agreements. However, in October 2001, the
Derivative Implementation Group of the Financial Accounting Standards Board under Statement No. 133 Implementation Issue Number C16 issued guidance that precludes contracts that have variable
quantities from qualifying under the normal sales and purchases exception unless such quantities are contractually limited to use by the purchaser. Accordingly, Edison Mission Energy is evaluating the
impact of this implementation guidance, which will be effective on April 1, 2002.

In
October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." The Statement establishes accounting and reporting standards for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" but retains SFAS No. 121 requirements to recognize an
impairment loss only if the carrying amount of a long-lived asset is not

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recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset less cost to sell, whether reported in
continuing operations or in discontinued operations. In addition, SFAS No. 144 broadens the reporting of discontinued operations to include a component of an entity (rather than a segment of a
business) that has been disposed of or is classified as held for sale. The standard, effective on January 1, 2002, was adopted by Edison Mission Energy in the fourth quarter of 2001, which
required the sale of the Ferrybridge and Fiddler's Ferry power plants to be accounted for as discontinued operations. See "Discontinued Operations," for further discussion.

In
August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which
will be effective on January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred.
When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased to its
present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. Edison Mission Energy is studying the effects of the new standard.

Effective
January 1, 2002, Edison Mission Energy adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
establishes accounting and reporting standards requiring goodwill not to be amortized but rather tested for impairment at least annually at the reporting unit level. A benchmark assessment for
goodwill is required no later than June 30, 2002. The Statement requires that goodwill should be tested for impairment using a two-step approach. The first step used to identify a
potential impairment compares the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, the second step
of the impairment test is performed to measure the amount of the impairment loss. The second step of the impairment test is a comparison of the implied fair value of goodwill to its carrying amount.
The impairment loss is equal to the excess carrying amount of the goodwill over the implied fair value. Goodwill on Edison Mission Energy's consolidated balance sheet at December 31, 2001
totaling $631.7 million is comprised of $359.5 million related to Edison Mission Energy's acquisition of Contact Energy, $247.4 million related to Edison Mission Energy's
acquisition of First Hydro and $24.8 million related to Edison Mission Energy's acquisition of Citizens Power LLC. Edison Mission Energy has not completed its assessment of the effects of
adopting SFAS No. 142.

Recent Developments

On February 10, 2002, the ductwork and bypass associated with the selective catalytic reduction system of one of the units at the Homer City facilities,
known as Unit 3, collapsed. No fire occurred and no injuries were reported as a result of the event.

Edison
Mission Energy has now completed a preliminary investigation of the event and currently projects that Unit 3 will return to service in mid-April 2002. Edison Mission Energy also
believes that the costs to repair the damage to Unit 3 will be covered by insurance and by contractual obligations of the contractor who installed the selective catalytic reduction system. Further,
for events of this kind Edison Mission Energy maintains business interruption insurance that provides for lost revenues, net of costs, for outage periods beyond 60 days. A more
in-depth analysis of the root causes of the event is required to determine the extent to which insurers and/or the contractor will cover the resulting costs of property damage and repair.
This investigation continues.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information responding to Item 7A is filed with this report under Item 7. "Management's Discussion and Analysis of Results of Operations and Financial Condition."

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                      |                                                                                                             | Page
|--------------------- | ----------------------------------------------------------------------------------------------------------- | ----
|Financial Statements: |                                                                                                             |     
|                      | Report of Independent Public Accountants                                                                    |     
|                      | Consolidated Statements of Income (Loss) for the years ended December 31, 2001, 2000 and 1999               |     
|                      | Consolidated Balance Sheets at December 31, 2001 and 2000                                                   |     
|                      | Consolidated Statements of Shareholder's Equity for the years ended December 31, 2001, 2000 and 1999        |     
|                      | Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2001, 2000 and 1999 |     
|                      | Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                  |     
|                      | Notes to Consolidated Financial Statements                                                                  |     

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors of Mission Energy Holding Company:

We
have audited the accompanying consolidated balance sheets of Mission Energy Holding Company (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income (loss), comprehensive income (loss), shareholder's equity and cash flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mission Energy Holding Company and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.

As
explained in Note 2 to the financial statements, effective January 1, 2001, Mission Energy Holding Company has changed its method of accounting for derivative
instruments and hedging activities in accordance with SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities," and its
method of accounting for the impairment or disposal of long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets."

Our
audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for
purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements
taken as a whole.



Orange
County, California
March 25, 2002

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF INCOME (LOSS)        (In thousands)

|                                                                                                                                   |                                                                             | Years Ended December 31,     |           
|---------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------- | ----------
|
|Operating Revenues                                                                                                                 |                                                                             |                              |           
|                                                                                                                                   | Electric revenues                                                           |                              | $         
|                                                                                                                                   | Equity in income from energy projects                                       |                              |           
|                                                                                                                                   | Equity in income from oil and gas investments                               |                              |           
|                                                                                                                                   | Net gains (losses) from energy trading and price risk management            |                              |           
|                                                                                                                                   | Operation and maintenance services                                          |                              |           
|                                                                                                                                   |                                                                             |                              |           
|                                                                                                                                   |                                                                             | Total operating revenues     |           
|                                                                                                                                   |                                                                             |                              |           
|Operating Expenses                                                                                                                 |                                                                             |                              |           
|                                                                                                                                   | Fuel                                                                        |                              |           
|                                                                                                                                   | Plant operations                                                            |                              |           
|                                                                                                                                   | Plant operating leases                                                      |                              |           
|                                                                                                                                   | Operation and maintenance services                                          |                              |           
|                                                                                                                                   | Depreciation and amortization                                               |                              |           
|                                                                                                                                   | Long-term incentive compensation                                            |                              |           
|                                                                                                                                   | Asset impairment and other charges                                          |                              |           
|                                                                                                                                   | Administrative and general                                                  |                              |           
|                                                                                                                                   |                                                                             |                              |           
|                                                                                                                                   |                                                                             | Total operating expenses     |           
|                                                                                                                                   |                                                                             |                              |           
|                                                                                                                                   | Operating income                                                            |                              |           
|                                                                                                                                   |                                                                             |                              |           
|Other Income (Expense)                                                                                                             |                                                                             |                              |           
|                                                                                                                                   | Interest and other income                                                   |                              |           
|                                                                                                                                   | Gain on sale of assets                                                      |                              |           
|                                                                                                                                   | Interest expense                                                            |                              |           
|                                                                                                                                   | Dividends on preferred securities                                           |                              |           
|                                                                                                                                   |                                                                             |                              |           
|                                                                                                                                   |                                                                             | Total other income (expense) |           
|                                                                                                                                   |                                                                             |                              |           
|                                                                                                                                   | Income from continuing operations before income taxes and minority interest |                              |           
|                                                                                                                                   | Provision (benefit) for income taxes                                        |                              |           
|                                                                                                                                   | Minority interest                                                           |                              |           
|                                                                                                                                   |                                                                             |                              |           
|Income From Continuing Operations                                                                                                  |                                                                             |                              | 43,771    
|Income (loss) from operations of discontinued foreign subsidiary (including loss on disposal of $1.1 billion), net of tax (Note 6) |                                                                             |                              | (1,234,270
|                                                                                                                                   |                                                                             |                              |           
|Income (Loss) Before Accounting Change and Extraordinary Gain                                                                      |                                                                             |                              | (1,190,499
|Cumulative effect of change in accounting, net of tax (Note 2)                                                                     |                                                                             |                              | 15,146    
|Extraordinary gain on early extinguishment of debt, net of income tax expense of $4.4 million                                      |                                                                             |                              | 5,701     
|                                                                                                                                   |                                                                             |                              |           
|Net Income (Loss)                                                                                                                  |                                                                             | $                            | (1,169,652
|                                                                                                                                   |                                                                             |                              |           

The
accompanying notes are an integral part of these combined financial statements.

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands)

|                                  |                                                                                   | December 31,                     
|--------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------
|
|Assets                            |                                                                                   |                                  
|Current Assets                    |                                                                                   |                                  
|                                  | Cash and cash equivalents                                                         |                                  
|                                  | Accounts receivabletrade, net of allowance of $14,603 in 2001 and $1,126 in 2000 |                                  
|                                  | Accounts receivableaffiliates                                                    |                                  
|                                  | Assets under energy trading and price risk management                             |                                  
|                                  | Inventory                                                                         |                                  
|                                  | Prepaid expenses and other                                                        |                                  
|                                  |                                                                                   |                                  
|                                  |                                                                                   | Total current assets             
|                                  |                                                                                   |                                  
|Investments                       |                                                                                   |                                  
|                                  | Energy projects                                                                   |                                  
|                                  | Oil and gas                                                                       |                                  
|                                  |                                                                                   |                                  
|                                  |                                                                                   | Total investments                
|                                  |                                                                                   |                                  
|Property, Plant and Equipment     |                                                                                   |                                  
|                                  | Less accumulated depreciation and amortization                                    |                                  
|                                  |                                                                                   |                                  
|                                  |                                                                                   | Net property, plant and equipment
|                                  |                                                                                   |                                  
|Other Assets                      |                                                                                   |                                  
|                                  | Long-term receivables                                                             |                                  
|                                  | Goodwill                                                                          |                                  
|                                  | Deferred financing costs                                                          |                                  
|                                  | Long-term assets under energy trading and price risk management                   |                                  
|                                  | Restricted cash and other                                                         |                                  
|                                  |                                                                                   |                                  
|                                  |                                                                                   | Total other assets               
|                                  |                                                                                   |                                  
|Assets of Discontinued Operations |                                                                                   |                                  
|                                  |                                                                                   |                                  
|Total Assets                      |                                                                                   | $                                
|                                  |                                                                                   |                                  

The
accompanying notes are an integral part of these combined financial statements.

93

---



MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands)

|                                                      |                                                                                                   | December 31,                         |           
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------ | ----------
|
|Liabilities and Shareholder's Equity                  |                                                                                                   |                                      |           
|Current Liabilities                                   |                                                                                                   |                                      |           
|                                                      | Accounts payableaffiliates                                                                       |                                      | $         
|                                                      | Accounts payable and accrued liabilities                                                          |                                      |           
|                                                      | Liabilities under energy trading and price risk management                                        |                                      |           
|                                                      | Interest payable                                                                                  |                                      |           
|                                                      | Short-term obligations                                                                            |                                      |           
|                                                      | Current portion of long-term incentive compensation                                               |                                      |           
|                                                      | Current maturities of long-term obligations                                                       |                                      |           
|                                                      |                                                                                                   |                                      |           
|                                                      |                                                                                                   | Total current liabilities            |           
|                                                      |                                                                                                   |                                      |           
|Long-Term Obligations Net of Current Maturities       |                                                                                                   |                                      | 6,907,170 
|                                                      |                                                                                                   |                                      |           
|Long-Term Deferred Liabilities                        |                                                                                                   |                                      |           
|                                                      | Deferred taxes and tax credits                                                                    |                                      |           
|                                                      | Deferred revenue                                                                                  |                                      |           
|                                                      | Long-term incentive compensation                                                                  |                                      |           
|                                                      | Long-term liabilities under energy trading and price risk management                              |                                      |           
|                                                      | Other                                                                                             |                                      |           
|                                                      |                                                                                                   |                                      |           
|                                                      |                                                                                                   | Total long-term deferred liabilities |           
|                                                      |                                                                                                   |                                      |           
|Liabilities of Discontinued Operations                |                                                                                                   |                                      | 55,845    
|                                                      |                                                                                                   |                                      |           
|Total Liabilities                                     |                                                                                                   |                                      | 9,780,101 
|                                                      |                                                                                                   |                                      |           
|Minority Interest                                     |                                                                                                   |                                      | 344,092   
|                                                      |                                                                                                   |                                      |           
|Preferred Securities of Subsidiaries                  |                                                                                                   |                                      |           
|                                                      | Company-obligated mandatorily redeemable security of partnership holding solely parent debentures |                                      |           
|                                                      | Subject to mandatory redemption                                                                   |                                      |           
|                                                      |                                                                                                   |                                      |           
|                                                      | Total preferred securities of subsidiaries                                                        |                                      |           
|                                                      |                                                                                                   |                                      |           
|Commitments and Contingencies(Notes 9, 10, 15 and 16) |                                                                                                   |                                      |           
|Shareholder's Equity                                  |                                                                                                   |                                      |           
|                                                      | Common stock, $.01 par value; 1,000 shares authorized; 1,000 shares issued and outstanding        |                                      |           
|                                                      | Additional paid-in capital                                                                        |                                      |           
|                                                      | Retained earnings (deficit)                                                                       |                                      |           
|                                                      | Accumulated other comprehensive loss                                                              |                                      |           
|                                                      |                                                                                                   |                                      |           
|Total Shareholder's Equity                            |                                                                                                   |                                      | 716,854   
|                                                      |                                                                                                   |                                      |           
|Total Liabilities and Shareholder's Equity            |                                                                                                   | $                                    | 11,094,997
|                                                      |                                                                                                   |                                      |           

The
accompanying notes are an integral part of these combined financial statements.

94

---



MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY        (In thousands)

|                             |                                                      | Additional
Paid-in
Capital |           | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income |            | Shareholder's
Equity |         
|---------------------------- | ---------------------------------------------------- | -------------------------- | --------- | ----------------- | - | -------------------------------------- | ---------- | -------------------- | --------
|Balance at December 31, 1998 |                                                      | $                          | 693,536   |                   | $ | 234,345                                |            | $                    | 29,679  
|                             | Net income                                           |                            |           |                  |   |                                        | 130,277    |                      |         
|                             | Other comprehensive loss                             |                            |           |                  |   |                                        |           |                      |         
|                             | Contributions                                        |                            |           | 2,000,000         |   |                                        |           |                      |         
|                             | Stock option price appreciation on options exercised |                            |           |                  |   |                                        | (188       | )                    |         
|                             |                                                      |                            |           |                   |   |                                        |            |                      |         
|Balance at December 31, 1999 |                                                      |                            | 2,693,536 |                   |   | 364,434                                |            |                      | 10,507  
|                             | Net income                                           |                            |           |                  |   |                                        | 125,252    |                      |         
|                             | Other comprehensive loss                             |                            |           |                  |   |                                        |           |                      |         
|                             | Cash dividends to parent                             |                            |           |                  |   |                                        | (88,000    | )                    |         
|                             | Stock option price appreciation on options exercised |                            |           |                  |   |                                        | (290       | )                    |         
|                             |                                                      |                            |           |                   |   |                                        |            |                      |         
|Balance at December 31, 2000 |                                                      |                            | 2,693,536 |                   |   | 401,396                                |            |                      | (146,748
|                             | Net loss                                             |                            |           |                  |   |                                        | (1,169,652 | )                    |         
|                             | Other comprehensive loss                             |                            |           |                  |   |                                        |           |                      |         
|                             | Cash dividends to parent                             |                            |           | (479,331          | ) |                                        | (428,388   | )                    |         
|                             | Other stock transactions, net                        |                            |           | 1,920             |   |                                        |           |                      |         
|                             |                                                      |                            |           |                   |   |                                        |            |                      |         
|Balance at December 31, 2001 |                                                      | $                          | 2,216,125 |                   | $ | (1,196,644                             | )          | $                    | (302,627
|                             |                                                      |                            |           |                   |   |                                        |            |                      |         

95

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)        (In thousands)

|                                                  |                                                                         | Years Ended December 31,                                                                                                               |           
|------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ----------
|
|Net Income (Loss)                                 |                                                                         | $                                                                                                                                      | (1,169,652
|Other comprehensive income (expense), net of tax: |                                                                         |                                                                                                                                        |           
|                                                  | Foreign currency translation adjustments:                               |                                                                                                                                        |           
|                                                  |                                                                         | Foreign currency translation adjustments, net of income tax benefit of $1,349, $3,934 and $1,678 for 2001, 2000 and 1999, respectively |           
|                                                  |                                                                         | Reclassification adjustments for sale of investment in a foreign subsidiary                                                            |           
|                                                  | Unrealized gains (losses) on derivatives qualified as cash flow hedges: |                                                                                                                                        |           
|                                                  |                                                                         | Cumulative effect of change in accounting for derivatives, net of income tax benefit of $124.4 million                                 |           
|                                                  |                                                                         | Other unrealized holding gains arising during period, net of income tax expense of $62.5 million                                       |           
|                                                  |                                                                         | Reclassification adjustments included in net income (loss), net of income tax benefit of $7.8 million                                  |           
|                                                  |                                                                         |                                                                                                                                        |           
|Other comprehensive expense                       |                                                                         |                                                                                                                                        | (155,879  
|                                                  |                                                                         |                                                                                                                                        |           
|Comprehensive Income (Loss)                       |                                                                         | $                                                                                                                                      | (1,325,531
|                                                  |                                                                         |                                                                                                                                        |           

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

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                                        |                                                                                             | Years Ended December 31,                                        |         
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------
|
|Cash Flows From Operating Activities                                    |                                                                                             |                                                                 |         
|                                                                        | Income from continuing operations, after accounting change, net and extraordinary gain, net |                                                                 | $       
|                                                                        | Adjustments to reconcile income to net cash provided by (used in) operating activities:     |                                                                 |         
|                                                                        |                                                                                             | Equity in income from energy projects                           |         
|                                                                        |                                                                                             | Equity in income from oil and gas investments                   |         
|                                                                        |                                                                                             | Distributions from energy projects                              |         
|                                                                        |                                                                                             | Dividends from oil and gas                                      |         
|                                                                        |                                                                                             | Depreciation and amortization                                   |         
|                                                                        |                                                                                             | Amortization of discount on short-term obligations              |         
|                                                                        |                                                                                             | Deferred taxes and tax credits                                  |         
|                                                                        |                                                                                             | Gain on sale of assets                                          |         
|                                                                        |                                                                                             | Asset impairment and other charges                              |         
|                                                                        |                                                                                             | Cumulative effect of change in accounting, net of tax           |         
|                                                                        |                                                                                             | Extraordinary gain on early extinguishment of debt, net of tax  |         
|                                                                        | Changes in operating assets and liabilities:                                                |                                                                 |         
|                                                                        |                                                                                             | Decrease (increase) in accounts receivable                      |         
|                                                                        |                                                                                             | Decrease (increase) in inventory                                |         
|                                                                        |                                                                                             | Decrease (increase) in prepaid expenses and other               |         
|                                                                        |                                                                                             | Increase (decrease) in accounts payable and accrued liabilities |         
|                                                                        |                                                                                             | Increase in interest payable                                    |         
|                                                                        |                                                                                             | Increase (decrease) in long-term incentive compensation         |         
|                                                                        |                                                                                             | Decrease in net assets under risk management                    |         
|                                                                        | Other operating, net                                                                        |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             |                                                                 | 1,798   
|                                                                        | Operating cash flow from discontinued operations                                            |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             | Net cash provided by (used in) operating activities             |         
|                                                                        |                                                                                             |                                                                 |         
|Cash Flows From Financing Activities                                    |                                                                                             |                                                                 |         
|                                                                        | Borrowing on long-term obligations                                                          |                                                                 |         
|                                                                        | Payments on long-term obligations                                                           |                                                                 |         
|                                                                        | Short-term financing, net                                                                   |                                                                 |         
|                                                                        | Cash dividends to parent                                                                    |                                                                 |         
|                                                                        | Capital contributions from parent                                                           |                                                                 |         
|                                                                        | Issuance of preferred securities                                                            |                                                                 |         
|                                                                        | Redemption of preferred securities                                                          |                                                                 |         
|                                                                        | Financing costs                                                                             |                                                                 |         
|                                                                        | Funds provided to discontinued operations                                                   |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             |                                                                 | (172,745
|                                                                        | Financing cash flow from discontinued operations                                            |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             | Net cash provided by (used in) financing activities             |         
|                                                                        |                                                                                             |                                                                 |         
|Cash Flows From Investing Activities                                    |                                                                                             |                                                                 |         
|                                                                        | Investments in and loans to energy projects                                                 |                                                                 |         
|                                                                        | Purchase of generating stations                                                             |                                                                 |         
|                                                                        | Purchase of common stock of acquired companies                                              |                                                                 |         
|                                                                        | Capital expenditures                                                                        |                                                                 |         
|                                                                        | Proceeds from sale-leaseback transactions                                                   |                                                                 |         
|                                                                        | Proceeds from loan repayments                                                               |                                                                 |         
|                                                                        | Proceeds from sale of assets                                                                |                                                                 |         
|                                                                        | Increase in restricted cash                                                                 |                                                                 |         
|                                                                        | Investments in other assets                                                                 |                                                                 |         
|                                                                        | Other, net                                                                                  |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             |                                                                 | (54,311 
|                                                                        | Investing cash flow from discontinued operations                                            |                                                                 |         
|                                                                        |                                                                                             |                                                                 |         
|                                                                        |                                                                                             | Net cash provided by (used in) investing activities             |         
|                                                                        |                                                                                             |                                                                 |         
|Effect of exchange rate changes on cash                                 |                                                                                             |                                                                 | (20,084 
|                                                                        |                                                                                             |                                                                 |         
|Net increase (decrease) in cash and cash equivalents                    |                                                                                             |                                                                 | (527,674
|Cash and cash equivalents at beginning of period                        |                                                                                             |                                                                 | 962,865 
|                                                                        |                                                                                             |                                                                 |         
|Cash and cash equivalents at end of period                              |                                                                                             |                                                                 | 435,191 
|Cash and cash equivalents classified as part of discontinued operations |                                                                                             |                                                                 | (62,110 
|                                                                        |                                                                                             |                                                                 |         
|Cash and cash equivalents of continuing operations                      |                                                                                             | $                                                               | 373,081 
|                                                                        |                                                                                             |                                                                 |         

The accompanying notes are an integral part of these combined financial statements.

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MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (Dollars in millions)

Note 1. General

Organization

Mission Energy Holding Company is a wholly-owned subsidiary of The Mission Group, a wholly-owned, non-utility subsidiary of Edison International, the
parent holding company of Southern California Edison Company. We were formed on June 8, 2001 to engage in the financings described in Note 9Financial
InstrumentsLong-Term Obligations. Prior to July 2, 2001, The Mission Group owned Edison Mission Energy. On July 2, 2001, The Mission Group contributed to us all
of the outstanding common stock of Edison Mission Energy. The contribution of the common stock of Edison Mission Energy to us has been accounted for as a transfer of ownership of companies under
common control, which is similar to a pooling of interest. This means that our historical financial results of operations and financial position include the historical financial results and results of
operations of Edison Mission Energy and its subsidiaries as though we had such ownership throughout the periods presented. We do not have any substantive operations other than through Edison Mission
Energy and its subsidiaries and other investments. Through our ownership of Edison Mission Energy and its subsidiaries, we are engaged in the business of developing, acquiring, owning or leasing and
operating electric power generation facilities worldwide. Through Edison Mission Energy, we also conduct energy trading and price risk management activities in power markets open to competition. The
inclusion in this Report of information pertaining to Edison Mission Energy or any of its subsidiaries should not be understood to mean that Edison Mission Energy or any of its subsidiaries has agreed
to pay or become liable for any debt of Mission Energy Holding. Edison Mission Energy and Mission Energy Holding are separate entities with separate operations and obligations.

On
October 26, 2001, Edison Mission Energy changed its corporate domicile from California to Delaware. The change in domicile was accomplished through a merger between Edison
Mission Energy, a corporation incorporated under the laws of the State of California, and Edison Mission Energy, a Delaware corporation newly formed for this purpose, with the Delaware corporation as
the surviving corporation. As a result, the Delaware corporation succeeded to and assumed all rights and obligations of the California corporation. Apart from the change in Edison Mission Energy's
state of incorporation, the change in corporate domicile had no effect on its business, management, employees, fiscal year, assets or liabilities, or locations of its facilities, including its
corporate headquarters, and did not result in any relocation of its management or other employees. On October 26, 2001, each outstanding share of the California corporation's common stock
converted into one share of the Delaware corporation's common stock. Therefore, immediately following the change in corporate domicile, all of the outstanding common stock of the Delaware corporation
continued to be owned by us, a Delaware corporation.

Note 2. Summary of Significant Accounting Policies

Consolidations

The consolidated financial statements include Mission Energy Holding Company and its majority-owned subsidiaries, partnerships and a special purpose corporation.
All significant intercompany transactions have been eliminated. Certain prior year reclassifications have been made to conform to the current year financial statement presentation. Except as
indicated, amounts reflected in the notes to the consolidated financial statements relate to continuing operations of Mission Energy Holding Company.

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Management's Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents include time deposits and other investments totaling $231.3 million and $226.4 million at December 31, 2001 and 2000,
respectively, with maturities of three months or less. All investments are classified as available-for-sale.

Investments

Investments in energy projects and oil and gas investments with 50% or less voting stock are accounted for by the equity method. The majority of energy projects
and all investments in oil and gas are accounted for under the equity method at December 31, 2001 and 2000. The equity method of accounting is generally used to account for the operating
results of entities over which we have a significant influence but in which we do not have a controlling interest.

Property, Plant and Equipment

Property, plant and equipment, including leasehold improvements and construction in progress, are capitalized at cost and are principally comprised of our
majority-owned subsidiaries' plants and related facilities. Depreciation and amortization are computed by using the straight-line method over the useful life of the property, plant and
equipment and over the lease term for leasehold improvements.

As
part of the acquisition of the Illinois plants and the Homer City facilities, Edison Mission Energy acquired emission allowances under the Environmental Protection Agency's Acid Rain
Program. Although the emission allowances granted under this program are freely transferable, Edison Mission Energy intends to use substantially all the emission allowances in the normal course of its
business to generate electricity. Accordingly, we have classified emission allowances expected to be used by Edison Mission Energy to generate power as part of property, plant and equipment. Acquired
emission allowances will be amortized over the estimated lives of the plants on a straight-line basis.

Useful
lives for property, plant, and equipment are as follows:

Furniture and office equipment

3    33 yearsBuilding, plant and equipment

3   100 yearsEmission allowances

25   40 yearsCivil works

40  100 yearsCapitalized leased equipment

25   30 yearsLeasehold improvements

Life of lease


99

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Goodwill

Goodwill represents the cost incurred in excess of the fair value of net assets acquired in a purchase transaction. The amounts are being amortized on a
straight-line basis over periods ranging from 20 to 40 years. Accumulated amortization was $65.7 million and $38.8 million at December 31, 2001 and 2000,
respectively. On January 1, 2002, the amortization of goodwill ceased upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." See
"New Accounting Standards" for further discussion.

Impairment of Investments and Long-Lived Assets

We periodically evaluate the potential impairment of our investments in projects and other long-lived assets based on a review of estimated future
cash flows expected to be generated. If the carrying amount of the investment or asset exceeds the amount of the expected future cash flows, undiscounted and without interest charges, then an
impairment loss for our investments in projects and other long-lived assets is recognized in accordance with Accounting Principles Board Opinion No. 18 "The Equity Method of
Accounting for Investments in Common Stock" and Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," respectively.

Capitalized Interest

Interest incurred on funds borrowed by us to finance project construction is capitalized. Capitalization of interest is discontinued when the projects are
completed and deemed operational. Such capitalized interest is included in investment in energy projects and property, plant and equipment.

Capitalized
interest is amortized over the depreciation period of the major plant and facilities for the respective project.

Years Ended December 31,2001

2000

1999Interest incurred

$
643.8

$
572.7

$
335.2Interest capitalized


(14.1
)

(14.3
)

(27.4
)$
629.7

$
558.4

$
307.8


Income Taxes

We are included in the consolidated federal income tax and combined state franchise tax returns of Edison International. We calculate our income tax provision on
a separate company basis under a tax sharing arrangement with The Mission Group, which in turn has an agreement with Edison International. Tax benefits generated by us and used in the Edison
International consolidated tax return are recognized by us without regard to separate company limitations.

We
account for income taxes using the asset-and-liability method, wherein deferred tax assets and liabilities are recognized for future tax consequences of
temporary differences between the carrying

100

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amounts and the tax bases of assets and liabilities using enacted rates. Investment and energy tax credits are deferred and amortized over the term of the power purchase agreement of the respective
project. Income tax accounting policies are discussed further in Note 12Income Taxes.

Maintenance Accruals

Certain of our plant facilities' major pieces of equipment require major maintenance on a periodic basis. These costs are expensed as incurred. Through
December 31, 1999, we accrued for major maintenance costs incurred during the period between turnarounds (referred to as "accrue in advance" accounting method). In March 2000, we
voluntarily decided to change our accounting policy to record major maintenance costs as an expense as incurred. This change in accounting policy is considered preferable based on guidance provided by
the Securities and Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," we recorded a $21.8 million, after tax, increase to income
from continuing operations, as the cumulative effect of change in the accounting for major maintenance costs during the quarter ended March 31, 2000. Pro forma data have not been provided for
prior periods, as the impact would not be material.

Project Development Costs

We capitalize only the direct costs incurred in developing new projects subsequent to being awarded a bid. These costs consist of professional fees, salaries,
permits, and other directly related development costs incurred by us. The capitalized costs are amortized over the life of operational projects or charged to expense if management determines the costs
to be unrecoverable.

Deferred Financing Costs

Bank, legal and other direct costs incurred in connection with obtaining financing are deferred and amortized as interest expense on a basis which approximates
the effective interest rate method over the term of the related debt. Accumulated amortization of these costs amounted to $48.0 million in 2001 and $24.4 million in 2000.

Derivative Instruments and Hedging Activities

Edison Mission Energy's primary market risk exposures arise from changes in electricity and fuel prices, interest rates and fluctuations in foreign currency
exchange rates. Edison Mission Energy manages
these risks in part by using derivative financial instruments in accordance with established policies and procedures. Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). This Statement establishes accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either assets or liabilities measured at their fair value unless they meet an exception. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives that qualify for hedge accounting, depending on the nature of the hedge,
changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings.

101

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Effective
January 1, 2001, we recorded all derivatives at fair value unless the derivatives qualified for the normal sales and purchases exception. This exception applies to
physical sales and purchases of power or fuel where it is probable that physical delivery will occur, the pricing provisions are clearly and closely related to the contracted prices and the
documentation requirements of SFAS No. 133 are met.

Accounting
for derivatives under SFAS No. 133 is very complex. Each transaction requires an assessment of whether it is a derivative according to the definition under SFAS
No. 133, including amendments and interpretations. Transactions that do not meet the definition of a derivative are accounted by us on the accrual basis, unless they relate to Edison Mission
Energy's trading operations, in which case they are accounted for using the fair value method under EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities". The majority of Edison Mission Energy's physical long-term power and fuel contracts, and the similar business activities of its affiliates, either do not meet the definition
of a derivative or qualify for the normal purchases and sales exception.

As
a result of the adoption of SFAS No. 133, we expect our quarterly earnings will be more volatile than earnings reported under the prior accounting policy.



On January 1, 2001, Edison Mission Energy recorded a $0.2 million, after tax, increase to income from continuing operations and a
$230.2 million, after tax, decrease to other comprehensive income as the cumulative effect of the adoption of SFAS No. 133. The following material items were recorded at fair value:



102

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Effective July 1, 2001, the Derivative Implementation Group of the Financial Accounting Standards Board under Statement No. 133 Implementation Issue
Number C15 modified the normal sales and purchases exception to include electricity contracts which include terms that require physical delivery by the seller in quantities that are expected to be
sold in the normal course of business. This modification had two significant impacts:



Under
SFAS No. 133, the portion of a cash flow hedge that does not offset the change in value of the transaction being hedged, which is commonly referred to as the ineffective
portion, of a derivative's change in fair value is immediately recognized in earnings. Edison Mission Energy recorded a net loss of $1.4 million in 2001, representing the amount of cash flow
hedges' ineffectiveness, reflected in net gains (losses) from energy trading and price risk management in its consolidated income statement.

Revenue Recognition

Edison Mission Energy records revenue and related costs as electricity is generated or services are provided unless it is subject to SFAS No. 133 and does
not qualify for the normal sales and purchases exception. For Edison Mission Energy's long-term power contracts that provide for higher pricing in the early years of the contract, revenue
is recognized in accordance with Emerging Issues Task Force Issued Number 91-6 "Revenue Recognition of Long-Term Sales Contract," which results in a deferral

103

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and levelization of revenues being recognized. Also included in deferred revenues is the deferred gain from the termination of the Loy Yang B power sales agreement.

Energy Trading

Derivative financial instruments that are utilized for trading purposes are accounted for using the fair value method under EITF 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities." Under this method, forwards, futures, options, swaps and other financial instruments with third parties are reflected at
market value and are included in the balance sheet as assets or liabilities from energy trading activities. In the absence of quoted market prices, financial instruments are valued at fair value,
considering time value, volatility of the underlying commodity, and other factors as determined by Edison Mission Energy. Resulting gains and losses are recognized in net gains (losses) from energy
trading and price risk management in the accompanying Consolidated Income Statements in the period of change. Assets from energy trading and price risk management activities include the fair value of
open financial positions related to trading activities and the present
value of net amounts receivable from structured transactions. Liabilities from energy trading and price risk management activities include the fair value of open financial positions related to trading
activities of open financial positions related to trading activities and the present value of net amounts payable from structured transactions.

Translation of Foreign Financial Statements

Assets and liabilities of most foreign operations are translated at end of period rates of exchange, and the income statements are translated at the average rates
of exchange for the year. Gains or losses from translation of foreign currency financial statements are included in comprehensive income in shareholder's equity. Gains or losses resulting from foreign
currency transactions are normally included in other income in the consolidated statements of income. Foreign currency transaction gains/(losses) amounted to $7.1 million, $12.8 million
and ($1.7) million for 2001, 2000 and 1999, respectively.

Stock-based Compensation

We measure compensation expense relative to stock-based compensation by the intrinsic-value method.

New Accounting Standards

Currently, Edison Mission Energy is using the normal sales and purchases exception for some of its fuel supply agreements. However, in October 2001, the
Derivative Implementation Group of the Financial Accounting Standards Board under Statement No. 133 Implementation Issue Number C16 issued guidance that precludes contracts that have variable
quantities from qualifying under the normal sales and purchases exception unless such quantities are contractually limited to use by the purchaser. Accordingly, Edison Mission Energy is evaluating the
impact of this implementation guidance, which will be effective on April 1, 2002.

In
October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."

104

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The Statement establishes accounting and reporting standards for the impairment or disposal of long-lived assets. The Statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" but retains SFAS No. 121 requirements to recognize an impairment loss only if the carrying
amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset
less cost to sell, whether reported in continuing operations or in discontinued operations. In addition, SFAS No. 144 broadens the reporting of
discontinued operations to include a component of an entity (rather than a segment of a business) that has been disposed of or is classified as held for sale. The standard, effective on
January 1, 2002, was adopted by Edison Mission Energy in the fourth quarter of 2001, which required the sale of the Ferrybridge and Fiddler's Ferry power plants to be accounted for as
discontinued operations. See "Discontinued Operations" for further discussion.

In
August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which
will be effective on January 1, 2003. The Statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased to its present value
each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. Edison Mission Energy is studying the effects of the new standard.

Effective
January 1, 2002, Edison Mission Energy adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." The Statement
establishes accounting and reporting standards requiring goodwill not to be amortized but rather tested for impairment at least annually at the reporting unit level. A benchmark assessment for
goodwill is required no later than June 30, 2002. The Statement requires that goodwill should be tested for impairment using a two-step approach. The first step used to identify a
potential impairment compares the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, the second step
of the impairment test is performed to measure the amount of the impairment loss. The second step of the impairment test is a comparison of the implied fair value of goodwill to its carrying amount.
The impairment loss is equal to the excess carrying amount of the goodwill over the implied fair value. Goodwill on our consolidated balance sheet at December 31, 2001 totaling
$631.7 million is comprised of $359.5 million related to Edison Mission Energy's acquisition of Contact Energy, $247.4 million related to Edison Mission Energy's acquisition of
First Hydro and $24.8 million related to Edison Mission Energy's acquisition of Citizens Power LLC. Edison Mission Energy has not completed its assessment of the effects of adopting SFAS
No. 142.

105

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Note 3. Inventory

Inventory is stated at the lower of weighted average cost or market. Inventory at December 31, 2001 and December 31, 2000 consisted of the
following:

2001

2000Coal and fuel oil

$
110.1

$
56.8Spare parts, materials and supplies


57.3


56.2Total

$
167.4

$
113.0


Note 4. Accumulated Other Comprehensive Income (Loss)

Accumulated
other comprehensive income (loss), including the discontinued operations of the Ferrybridge and Fiddler's Ferry power plants, consisted of the following:

|                             |  | Currency
Translation
Adjustments |        | Unrealized Gains
(Losses) on Cash
Flow Hedges |   | Accumulated Other
Comprehensive
Income (Loss) |  
|---------------------------- |  | -------------------------------- | ------ | --------------------------------------------- | - | --------------------------------------------- | -
|Balance at December 31, 2000 |  | $                                | (146.7 | )                                             | $ |                                              |  
|Current period change        |  |                                  | 13.3   |                                               |   | (169.2                                        | )
|                             |  |                                  |        |                                               |   |                                               |  
|Balance at December 31, 2001 |  | $                                | (133.4 | )                                             | $ | (169.2                                        | )
|                             |  |                                  |        |                                               |   |                                               |  

Unrealized
gains (losses) on cash flow hedges at December 31, 2001 included interest rate swaps of Edison Mission Energy's affiliates and the Loy Yang B project and the hedge
agreement Edison Mission Energy has with the State Electricity Commission of Victoria for electricity prices from its Loy Yang B project in Australia. This contract could not qualify under the normal
sales and purchases exception because financial settlement of the contract occurs without physical delivery. Approximately 57% of our accumulated other comprehensive loss at December 31, 2001
related to unrealized losses on the cash flow hedge resulting from this contract. These losses arise from current forecasts of future electricity prices in these markets greater than Edison Mission
Energy's contract prices. Although the contract prices are below the current market prices, Edison Mission Energy believes that prices included in its contracts mitigate price risk associated with
future changes in market prices and are at prices that meet its profit objectives. Assuming the long-term contract with the State Electricity Commission of Victoria continues to qualify as
a cash flow hedge, future changes in the forecast of market prices for contract volumes included in this agreement will increase or decrease our other comprehensive income without significantly
affecting our net income.

As
Edison Mission Energy's hedged positions are realized, approximately $13 million, after tax, of the net unrealized gains on cash flow hedges will be reclassified into earnings
during 2002. Edison Mission Energy's management expects that these net unrealized gains will be offset when the hedged items are recognized in earnings. The maximum period over which a cash flow hedge
is designated, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is 15 years.

Interest
rate swaps entered into to hedge the floating interest rate risk on the $385 million term loan due 2006 qualify for treatment under SFAS No. 133 as cash flow
hedges with appropriate

106

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adjustments made to other comprehensive income. At December 31, 2001, we recorded a $0.8 million, after tax, decrease to other comprehensive income resulting from unrealized holding
losses on these contracts.

Note 5. Acquisitions and Dispositions

Acquisitions

Acquisition of Interest in CBK Power Co. Ltd

In February 2001, a subsidiary of Edison Mission Energy completed the acquisition of a 50% interest in CBK Power Co. Ltd. in exchange for
$20 million. CBK Power has entered into a 25-year build-rehabilitate-transfer-and-operate agreement with National Power Corporation related to the 728 MW
Caliraya-Botocan-Kalayaan (CBK) hydroelectric project located in the Philippines. Financing for this $460 million project comprises equity commitments of $110.6 million, of which Edison
Mission Energy's 50% share is $55.3 million, and debt financing which is in place for the remainder of the cost for this project. As of December 31, 2001, Edison Mission Energy has made
equity contributions of $10 million. For a more detailed discussion of the commitment to contribute project equity, refer to "Commitments and ContingenciesFirm
Commitments to Contribute Project Equity."

Acquisition of Sunrise Project

On November 17, 2000, a subsidiary of Edison Mission Energy completed a transaction with Texaco Power & Gasification Holdings Inc. to
purchase a proposed 560 MW gas-fired combined cycle project to be located in Kern County, California, referred to as the Sunrise project. The acquisition included all rights, title and
interest held by Texaco in the Sunrise project, except that Texaco had an option to repurchase, at cost, a 50% interest in the project prior to its commercial operation, which commenced on
June 27, 2001. On June 25, 2001, Texaco exercised its option and repurchased a 50% interest for $84 million. As part of Edison Mission Energy's acquisition of the Sunrise project,
it also: (i) acquired from Texaco two gas turbines for the project and (ii) granted Texaco an option to acquire a 50% interest in 1,000 MW of future power plant projects Edison Mission
Energy designates. The Sunrise project consists of two phases, with Phase I, a simple-cycle gas-fired facility (320 MW), completed on June 27, 2001, and Phase II, conversion to a
combined-cycle gas-fired facility (560 MW), currently scheduled to be completed in July 2003. Edison Mission Energy entered into a long-term power purchase agreement
with the California Department of Water Resources on June 25, 2001.

The
total purchase price of the Sunrise project from Texaco was $27 million. Edison Mission Energy funded the purchase with cash. The total estimated construction cost of this
project through 2003 is approximately $459 million. The project intends to obtain project financing for a portion of the capital costs.

Acquisition of Trading Operations of Citizens Power LLC

On September 1, 2000, a subsidiary of Edison Mission Energy completed a transaction with P&L Coal Holdings Corporation and Gold Fields Mining Corporation
(Peabody) to acquire the trading operations of Citizens Power LLC and a minority interest in structured transaction investments relating

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to long-term power purchase agreements. The purchase price of $44.9 million was based on the sum of: (a) fair market value of the trading portfolio and the structured
transaction investments at the date of the acquisition and (b) $25 million. The acquisition was funded with cash. As a result of this acquisition, Edison Mission Energy has expanded its
trading operations beyond the traditional marketing of its electric power, although this represents a small portion of its consolidated operations. By the end of the third quarter of 2000, the
Citizens trading operations were merged into Edison Mission Energy's own marketing operations under Edison Mission Marketing & Trading, Inc.

Acquisition of Interest in Italian Wind Project

On March 15, 2000, a subsidiary of Edison Mission Energy completed a transaction with UPC International Partnership CV II to acquire Edison Mission Wind
Power Italy B.V., formerly known as Italian Vento Power Corporation Energy 5 B.V., which owns a 50% interest in a series of power projects that are in operation or under development in Italy. All the
projects use wind to generate electricity from turbines which is sold under fixed-price, long-term tariffs. At December 31, 2001, 230 MW have been commissioned and are operational.
Assuming all the projects under construction at December 31, 2001 are completed, currently scheduled for 2002, the total capacity of these projects will be 283 MW. The total purchase price is
90 billion Italian Lira, with equity contribution obligations of up to 33 billion Italian Lira, depending on the number of projects that are ultimately developed. As of
December 31, 2001, Edison Mission Energy's payments in respect of these projects included 77 billion Italian Lira ($37.4 million) toward the purchase price and 33 billion
Italian Lira ($16.3 million), which funded Edison Mission Energy's entire equity contribution obligation.

Acquisition of Illinois Plants

On December 15, 1999, a subsidiary of Edison Mission Energy completed a transaction with Commonwealth Edison, now a subsidiary of Exelon Corporation, to
acquire Commonwealth Edison's fossil-fuel power generating plants located in Illinois, which are collectively referred to as the Illinois plants. These plants are located in the
Mid-America Interconnected Network which has transmission connections to the East Central Area Reliability Council and other regional markets. In connection with this transaction, Edison
Mission Energy entered into three power purchase agreements with Commonwealth Edison with terms of up to five years expiring in 2004, pursuant to which Commonwealth Edison purchases capacity and has
the right to purchase energy generated by the plants. Subsequently, Commonwealth Edison assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC.
Exelon Generation provided Edison Mission Energy notice to continue the agreement related to the coal units and the Collins Station for
2002. In October 2001, Exelon Generation terminated the power purchase agreement for the peaker units with respect to 300 megawatts of oil peakers, effective January 2002, but continued the agreement
for all other peaker plants for 2002. In each of 2003 and 2004, Exelon Generation is committed to purchase 1,696 MW of capacity from specific coal units, but has the option to terminate all or any of
the remaining coal units and all of the natural gas and oil-fired units with prior notice as specified under each agreement.

Concurrently
with the acquisition of the Illinois plants, Edison Mission Energy assigned its right to purchase the Collins Station, a 2,698 MW gas and oil-fired generating
station located in Illinois, to

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third-party lessors. After this assignment, Edison Mission Energy entered into leases of the Collins Station with terms of 33.75 years. The aggregate MW either purchased or leased as a result
of these transactions with Commonwealth Edison and the third party lessors is 9,539 MW.

Consideration
for the Illinois plants, excluding $860 million paid by the third-party lessors to acquire the Collins Station, consisted of a cash payment of approximately
$4.1 billion. The acquisition was funded primarily with a combination of approximately $1.6 billion of non-recourse debt secured by a pledge of the stock of specified
subsidiaries, $1.3 billion of Edison Mission Energy's debt and $1.2 billion in equity contributions to Edison Mission Energy from Edison International.

Acquisition of Interest in Contact Energy

On May 14, 1999, a subsidiary of Edison Mission Energy completed a transaction with the New Zealand government to acquire 40% of the shares of Contact
Energy Limited. The remaining 60% of Contact Energy's shares were sold in a New Zealand and overseas public offering, resulting in widespread ownership among the citizens of New Zealand and offshore
investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. Contact Energy owns and operates hydroelectric, geothermal and natural gas fired power generating plants
primarily in New Zealand with a total current generating capacity of 2,302 MW.

Consideration
for Edison Mission Energy's interest in Contact Energy consisted of a cash payment of approximately $635 million (NZ$1.2 billion), which was financed by
$120 million of preferred securities, a $214 million (NZ$400 million at the time of the acquisition) credit facility, a $300 million equity contribution to Edison Mission
Energy from Edison International and cash. The credit facility was subsequently paid off with proceeds from the issuance of additional preferred securities.

During
2000, Edison Mission Energy increased its share of ownership in Contact Energy to 42.6%. Subsequently, during the second quarter of 2001, a subsidiary of Edison Mission Energy
completed the purchase of additional shares of Contact Energy for NZ$152 million, thereby increasing Edison Mission Energy's ownership interest from 42.6% to 51.2%. Due to acquisition of a
controlling interest, Edison
Mission Energy began accounting for Contact Energy on a consolidated basis effective June 1, 2001. Prior to June 1, 2001, Edison Mission Energy used the equity method of accounting for
Contact Energy. In order to finance the purchase of additional shares, the subsidiary obtained a NZ$135 million, 364-day bridge loan from an investment bank under a credit facility
which was syndicated by the bank. In addition to other security arrangements, a security interest over all Contact Energy shares held by Edison Mission Energy has been provided as collateral. On
July 2, 2001, Edison Mission Energy redeemed NZ$400 million preferred securities issued by one of Edison Mission Energy's subsidiaries, EME Taupo. Funding for the redemption of the
existing preferred securities was provided by a NZ$400 million credit facility scheduled to mature in July 2005. The financing documents provide that the credit facility may be funded
under either, or a combination of, a letter of credit facility or a revolving credit facility. The NZ$400 million was originally funded as a revolving credit facility. From June 2001 to
October 2001, Edison Mission Energy issued NZ$250 million of new preferred securities through one of its subsidiaries. The proceeds were used to repay borrowings outstanding under the
NZ$400 million credit facility and to repay the bridge loan.

109

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On
October 12, 2001, Edison Mission Energy announced its intention to acquire the remaining 48.8% of Contact Energy that it does not own, thereby increasing its ownership interest
to 100%. Edison Mission Energy proposed an offer of NZ$4.25 per share, including an interim dividend of NZ$0.11 per share, to the minority shareholders payable in cash. The offer commenced on
November 6, 2001 and was extended until February 3, 2002. The offer was conditioned on Edison Mission Energy's acquiring a 90% interest in Contact Energy, which would have enabled it to
acquire the remaining minority interests through a merger. On February 4, 2002, Edison Mission Energy announced that it did not receive the necessary level of acceptances required to complete
the transaction, and, therefore, Edison Mission Energy currently plans to continue with its current 51.2% ownership interest.

Acquisition of Homer City facilities

On March 18, 1999, a subsidiary of Edison Mission Energy completed a transaction with GPU, Inc., New York State Electric & Gas Corporation
and their respective affiliates to acquire the 1,884 MW Homer City Electric Generating Station. This facility is a coal-fired plant in the mid-Atlantic region of the United
States and has direct, high voltage interconnections to both the New York Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is
commonly known as the NYISO, and the Pennsylvania-New Jersey-Maryland Power Pool, which is commonly known as the PJM.

Consideration
for the Homer City facilities consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined
with Edison Mission Energy's revolver borrowings and cash.

Accounting Treatment of Acquisitions

Each of the acquisitions described above has been accounted for utilizing the purchase method. The purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair market values. Amounts in excess of the fair value of the net assets acquired have been assigned to goodwill. Our consolidated statement of income
reflects the operations of Sunrise beginning July 1, 2001, Citizens beginning September 1, 2000, Italian Wind beginning April 1, 2000, the Homer City facilities beginning
March 18, 1999, Contact Energy beginning May 1, 1999, and the Illinois plants beginning December 15, 1999. Edison Mission Energy began accounting for Contact Energy on a
consolidated basis effective June 1, 2001, upon acquisition of a controlling interest.

Pro Forma Data

Pro forma data has not been provided for the acquisitions of the Homer City facilities and the Illinois plants because these plants were previously operated as
part of an integrated, regulated utility whose primary business was the sale of power bundled with transmission, distribution and customer support to retail customers. Accordingly, historical
financial results of these plants would not be meaningful and are not required due to the acquisitions not being considered business combinations. Pro forma financial information is not presented for
the acquisition of trading operations of Citizens Power LLC as the effect of this acquisition was not material to our results of operations or financial position.

110

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The
table below summarizes additional acquisitions by Edison Mission Energy or its wholly-owned subsidiaries from 1999 through 2001.

Date

Acquisition

Percentage
Acquired

Purchase PriceEnergy ProjectsOctober 5, 1999

Pride Hold Limited (Roosecote)

20.0%

$
16.0Oil and GasDecember 19, 2001

Four Star Oil & Gas Company

1.4%


7.4July 28, 2000

Four Star Oil & Gas Company

1.7%


1.4May 15, 2000

Four Star Oil & Gas Company

1.7%


1.8December 17, 1999

Four Star Oil & Gas Company

0.6%


2.3


Dispositions

On December 21, 2001, Edison Mission Energy completed the sale of the Ferrybridge and Fiddler's Ferry coal-fired power plants located in the
United Kingdom to two wholly-owned subsidiaries of American Electric Power. In addition, as part of the transactions, the purchasers acquired other assets and assumed specified liabilities associated
with the plants. Edison Mission Energy acquired the plants in 1999 from PowerGen UK plc for £1.3 billion. In accordance with SFAS No. 144, the results of Ferrybridge and
Fiddler's Ferry have been reflected as discontinued operations in the consolidated financial statements. See "Discontinued Operations." The loss from operations of Ferrybridge and
Fiddler's Ferry in 2001 includes $1.9 billion ($1.148 billion after tax) related to the loss on disposal. Net proceeds from the sales of £643 million were used to
repay borrowings outstanding under the existing debt facility related to the acquisition of the power plants.

During
2001, Edison Mission Energy sold its 50% interest in the Nevada Sun-Peak project, 50% interest in the Saguaro project and 25% interest in the Hopewell project for a
total gain on sale of $45 million
($24.4 million after tax). In addition, Edison Mission Energy entered into agreements, subject to obtaining consents from third parties and other conditions precedent to closing, for the sale
of its interests in the Commonwealth Atlantic, Gordonsville, EcoEléctrica, Harbor and James River projects. During 2001, Edison Mission Energy recorded asset impairment charges of
$33.7 million related to the Commonwealth Atlantic, Gordonsville, Harbor and James River projects based on the expected sales proceeds. Subsequent to December 31, 2001, Edison Mission
Energy completed the sales of its 50% interests in the Commonwealth Atlantic and James River projects and its 30% interest in the Harbor project for $47.7 million. The sales of Edison Mission
Energy's interests in the EcoEléctrica and Gordonsville projects have not closed, and in each case the sale agreement has terminated and Edison Mission Energy has recommenced marketing
efforts. On March 8, 2002, Edison Mission Energy filed a complaint against Mirant Corporation and two of its affiliates, alleging that Mirant wrongfully terminated the sale agreement for the
purchase of the EcoEléctrica project. Edison Mission Energy is currently offering for sale its interest in the Brooklyn Navy Yard, EcoEléctrica and Gordonsville projects.

On
June 25, 2001, Edison Mission Energy completed the sale of a 50% interest in the Sunrise project to Texaco Power & Gasification Holdings Inc. Proceeds from the
sale were $84 million.

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On
August 16, 2000, Edison Mission Energy completed the sale of 30% of its interest in the Kwinana cogeneration plant to SembCorp Energy. Edison Mission Energy retains the
remaining 70% ownership interest in the plant. Proceeds from the sale were $12 million. Edison Mission Energy recorded a gain on the sale of $8.5 million ($7.7 million after tax).

On
June 30, 2000, Edison Mission Energy completed the sale of its 50% interest in the Auburndale project to the existing partner. Proceeds from the sale were $22 million.
Edison Mission Energy recorded a gain on the sale of $17 million ($10.5 million after tax).

Note 6. Discontinued Operations

On December 21, 2001, Edison First Power Limited completed the sale of the Ferrybridge and Fiddler's Ferry coal-fired power plants located in
the United Kingdom to two wholly-owned subsidiaries of American Electric Power. In addition, as part of the transactions, the purchasers acquired other assets and assumed specified liabilities
associated with the plants. The sale is the result of a competitive bidding process. Edison Mission Energy acquired the plants in 1999 from PowerGen UK plc for £1.3 billion. In
accordance with SFAS No. 144, the results of Ferrybridge and Fiddler's Ferry have been reflected as discontinued operations in the consolidated financial statements. The consolidated financial
statements have been restated to conform to discontinued operations treatment for all historical periods presented.

Net
proceeds from the sales of £643 million were used to repay borrowings outstanding under the existing debt facility related to the acquisition of the power plants.
The early repayment of the projects' existing debt facility of £682.2 million at December 21, 2001 resulted in an extraordinary loss of $28 million, after tax,
attributable to the write-off of unamortized debt issue costs.

Effective
January 1, 2001, Edison Mission Energy recorded a $5.8 million, after tax, increase to income (loss) from discontinued operations, as the cumulative effect of
change in accounting for derivatives. The majority of Edison Mission Energy's activities related to the Ferrybridge and Fiddler's Ferry power plants did not qualify for either the normal purchases and
sales exception or as cash flow hedges under SFAS No. 133. Edison Mission Energy could not conclude, based on information available at December 31, 2000, that the timing of generation
from these power plants met the probable requirement for a specific forecasted transaction under SFAS No. 133. Accordingly, the majority of these contracts were recorded at fair value with
subsequent changes in fair value recorded through the income statement.

Effective
January 1, 2000, Edison Mission Energy recorded a $4.1 million, after tax, decrease to income (loss) from discontinued operations, as the cumulative effect of
change in accounting for major maintenance costs. Through December 31, 1999, Edison Mission Energy accrued for major maintenance costs incurred during the period at the Ferrybridge and
Fiddler's Ferry power plants between turnarounds (referred to as "accrue in advance" accounting method). In March 2000, Edison Mission Energy voluntarily decided to change its accounting policy
to record major maintenance costs as an expense as incurred.

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Note 6. Discontinued Operations (Continued)

Summarized
results of discontinued operations are as follows:

|                                                                                                                                              |  | Years Ended December 31,
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|
|Total operating revenues                                                                                                                      |  | $                       
|Income (loss) before income taxes                                                                                                             |  |                         
|Income (loss) before accounting change and extraordinary loss                                                                                 |  |                         
|Cumulative effect of change in accounting, net of income expense (benefit) of $2.5 million and $(1.8) million for 2000 and 1999, respectively |  |                         
|Extraordinary loss on early extinguishment of debt                                                                                            |  |                         
|Income (loss) from operations of discontinued foreign subsidiary                                                                              |  |                         

The
loss from operations of Ferrybridge and Fiddler's Ferry in 2001 includes $1.9 billion ($1.148 billion after tax) related to the loss on disposal.
Included in the loss on disposal is the asset impairment charge of $1.9 billion ($1.154 billion after tax) Edison Mission Energy recorded in the third quarter of 2001 to reduce the
carrying amount of the power plants to reflect the estimated fair value less the cost to sell and related currency adjustments.

The
following summarizes the balance sheet information of the discontinued operations:

December 31,2001

2000Cash and cash equivalents

$
62.1

$
365.1Accounts receivabletrade, net of allowance of $1.4 million in 2001


88.4


74.9Inventory





166.8Other current assets


1.5


19.8Total current assets


152.0


626.6Net property, plant and equipment





2,748.8Other assets


1.6


35.5Total long-term assets


1.6


2,784.3Assets of discontinued operations

$
153.6

$
3,410.9Accounts payable and accrued liabilities

$
51.6

$
127.9Interest payable


4.2


42.1Short-term obligations





28.7Current maturities of long-term obligations





1,331.0Total current liabilities


55.8


1,529.7Deferred taxes and tax credits





778.2Other long-term liabilities





60.2Liabilities of discontinued operations

$
55.8

$
2,368.1


Net
operating and capital loss carryforwards totaled approximately $1.4 billion at December 31, 2001. Although there are no expiration dates related to the
use of these loss carryforwards, Edison Mission Energy's ability to offset taxable income with these carryforwards is subject to substantial restrictions and limitations under U.K. tax regulations.
Accordingly, no income tax benefits have been recognized for these tax loss carryforwards.

113

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Note 7. Investments

Investments in Energy Projects

Investments in energy projects, generally 50% or less owned partnerships and corporations, are accounted for by the equity method. The difference between the
carrying value of energy project investments and the underlying equity in the net assets amounted to $257.1 million at December 31, 2001. The differences are being amortized over the
life of the projects. The following table presents summarized financial information of the investments in energy projects:

2001

2000Domestic energy projectsEquity investment

$
962.7

$
398.5Loans receivable


172.9


165.7Subtotal


1,135.6


564.2International energy projectsEquity investment


663.6


1,479.8Total

$
1,799.2

$
2,044.0


Edison
Mission Energy's subsidiaries have provided loans or advances related to certain projects. Domestic loans at December 31, 2001 consist of the following: a
$110.9 million, 10% interest loan, due on demand; a $26.3 million, 5% interest promissory note, interest payable semiannually, due April 2008; and a $35.6 million, 12%
interest loan, due on demand.

The
undistributed earnings of investments accounted for by the equity method were $330.7 million in 2001 and $270.7 million in 2000.

The
following table presents summarized financial information of the investments primarily in energy projects accounted for by the equity method:

Years Ended December 31,2001

2000

1999Revenues

$
2,804.0

$
2,470.9

$
2,031.8Expenses


2,279.5


1,984.0


1,590.2Net income

$
524.5

$
486.9

$
441.6


December 31,2001

2000Current assets

$
2,054.8

$
1,807.9Noncurrent assets


7,119.0


7,371.1Total assets

$
9,173.8

$
9,179.0Current liabilities

$
1,854.1

$
1,163.9Noncurrent liabilities


5,310.3


5,829.2Equity


2,009.4


2,185.9Total liabilities and equity

$
9,173.8

$
9,179.0


114

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The
majority of noncurrent liabilities are comprised of project financing arrangements that are non-recourse to us.

The
following table presents, as of December 31, 2001, the energy projects accounted for by the equity method that represent at least five percent (5%) of our income before tax or
in which we have an investment balance greater than $50 million.

|Energy Project     |  | Location              |  | Investment |  | Ownership
Interest |   | Operating Status                        
|------------------ |  | --------------------- |  | ---------- |  | ------------------ | - | ----------------------------------------
|Paiton             |  | East Java, Indonesia  |  | 492.1      |  | 40                 | % | Operating coal-fired facility           
|EcoEléctrica       |  | Peñuelas, Puerto Rico |  | 295.0      |  | 50                 | % | Operating liquified natural gas facility
|Watson             |  | Carson, CA            |  | 166.6      |  | 49                 | % | Operating cogeneration facility         
|Sycamore           |  | Bakersfield, CA       |  | 119.5      |  | 50                 | % | Operating cogeneration facility         
|Sunrise            |  | Fellows, CA           |  | 106.5      |  | 50                 | % | Operating cogeneration facility         
|Brooklyn Navy Yard |  | Brooklyn, NY          |  | 99.3       |  | 50                 | % | Operating cogeneration facility         
|Kern River         |  | Bakersfield, CA       |  | 93.5       |  | 50                 | % | Operating cogeneration facility         
|Midway-Sunset      |  | Fellows, CA           |  | 76.7       |  | 50                 | % | Operating cogeneration facility         
|IVPC4              |  | Italy                 |  | 56.5       |  | 50                 | % | Operating wind facilities               

Investments in Oil and Gas

At December 31, 2001, Edison Mission Energy had one 37.2%-owned (with 36.05% voting stock) and one 50%-owned investment in oil and gas. These investments
are accounted for utilizing the equity method. The difference between the carrying value of one oil and gas investment and the underlying equity in the net assets amounted to $9.2 million at
December 31, 2001. The difference is being

115

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amortized on a unit of production basis over the life of the reserves. The following table presents summarized financial information of the investments in oil and gas:

Years Ended December 31,2001

2000

1999Operating revenues

$
390.1

$
382.6

$
224.3Operating expenses


208.8


187.0


144.5Operating income


181.3


195.6


79.8Provision for income taxes


54.0


63.6


16.9Net income (before non-operating items)


127.3


132.0


62.9Non-operating income (expense), net


2.4


(9.8
)

(10.4
)Net income

$
129.7

$
122.2

$
52.5


2001

2000Current assets

$
90.7

$
98.8Noncurrent assets


309.0


350.9Total assets

$
399.7

$
449.7Current liabilities

$
46.4

$
36.5Noncurrent liabilities


239.0


238.6Deferred income taxes and other liabilities


57.0


61.7Equity


57.3


112.9Total liabilities and equity

$
399.7

$
449.7


During
December 2001, a subsidiary of Edison Mission Energy purchased additional shares in Four Star for $7.4 million, increasing its interest from 35.84% to 37.20%. During
the fourth quarter of 1999, a subsidiary of Edison Mission Energy completed the sale of 31.5% of its 50.1% interest in Four Star Oil & Gas for $34.2 million in cash and 50% interest in
the acquirer, Four Star Holdings. Four Star Holdings financed the purchase of the interest in Four Star Oil & Gas from $27.5 million in loans from affiliates, including
$13.7 million from Edison Mission Energy, and $13.7 million from cash on hand. Upon completion of the sale, Edison Mission Energy continued to own an 18.6% direct interest in Four Star
Oil & Gas and an indirect interest of 15.75% which is held through Four Star Holdings. As a result of this transaction, Edison Mission Energy's total interest in the profits and losses of Four
Star Oil & Gas has decreased from 50.1% to 34.35%. Cash proceeds from the sale were $34.2 million ($20.5 million net of the loan to Four Star Holdings). The gain on the sale of
the 31.5% interest in Four Star Oil & Gas was $11.5 million of which Edison Mission Energy deferred 50%, or $5.6 million, due to its equity interest in Four Star Holdings. The
after-tax gain on the sale was approximately $30 million.

116

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Note 8. Property, Plant and Equipment

Property, plant and equipment consist of the following:

December 31,2001

2000Buildings, plant and equipment

$
3,952.2

$
4,932.5Emission allowances


1,305.4


1,305.4Civil works


1,342.2


929.2Construction in progress


130.4


335.8Capitalized leased equipment


187.8


192.86,918.0


7,695.7Less accumulated depreciation and amortization


680.4


580.4Net property, plant and equipment

$
6,237.6

$
7,115.3


In
connection with the Homer City, Loy Yang B, First Hydro, Doga and Iberian Hy-Power plant financings, lenders have taken a security interest in the respective plant assets.

Note 9. Financial Instruments

Short-Term Obligations

|                                |  | December 31, |      
|------------------------------- |  | ------------ | -----
|
|Citibank, N.A. Credit Agreement |  | $            | 80.0 
|Commercial paper                |  |              |     
|Other short-term obligations    |  |              | 88.2 
|Unamortized discount            |  |              |     
|                                |  |              |      
|Total                           |  | $            | 168.2
|                                |  |              |      
|Weighted-average interest rate  |  |              | 7.3  

At
December 31, 2001, Edison Mission Energy had available $554.3 million of borrowing capacity and approximately $115.7 million in letters of credit issued under a
$750 million revolving credit facility that expires in September 2002 (Tranche A, consisting of the $80 million outstanding borrowing) and September 2004 (Tranche B). At
December 31, 2001, other short-term borrowings consisted of a 55 million Australian dollar construction facility for the Valley Power project due November 2002 of
which US$23.7 million was outstanding and a floating rate note due March 2002, which relates to the Contact Energy project.

117

---

Edison
Mission Energy's corporate facilities include the following financial covenants:

|Financial Ratio                         |  | Covenant      |  | Actual at
December 31, 2001 |  | Description                                                                                                                                                                                             
|--------------------------------------- |  | ------------- |  | --------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Recourse Debt to Recourse Capital Ratio |  | <67.5%        |  | 64.1%                       |  | Ratio of (a) senior recourse debt to (b) sum of (i) shareholders equity per Edison Mission Energy's balance sheet adjusted by comprehensive income after December 31, 1999,plus(ii) senior recourse
debt
|Interest Coverage Ratio                 |  | >1.50 to 1.00 |  | 1.64 to 1.00                |  | For prior 12-month period, ratio of (a) funds flow from operations to (b) interest expense on recourse debt                                                                                             

At
December 31, 2001, Edison Mission Energy met the above financial covenants. The actual interest coverage ratio during 2001 was adversely affected by the operating results of
the Ferrybridge and Fiddler's Ferry projects in the United Kingdom. The interest coverage ratio, excluding the activities of the Ferrybridge and Fiddler's Ferry projects, was 1.98 to 1.0. Compliance
with these covenants is subject to future financial performance, including items that are beyond Edison Mission Energy's control.

At
December 31, 2000, commercial paper consisted of a $700 million senior credit facility due May 2001 of which $444.2 million was outstanding. Other
short-term obligations consisted of a borrowing under the $700 million senior credit facility and the $300 million senior credit facility due May 2001 of which
$128.5 million and $283.5 million were outstanding, respectively, at December 31, 2000.

Long-Term Obligations

Long-term obligations include Mission Energy Holding Company corporate debt and Edison Mission Energy corporate and non-recourse project
debt, whereby lenders rely on specific project assets to repay such obligations. We used the common stock of Edison Mission Energy as the security for our corporate debt obligations. The senior
secured notes and the credit agreement are non-recourse to Edison International and Edison Mission Energy and its subsidiaries and, accordingly, none of Edison International, Edison
Mission Energy or Edison Mission Energy's subsidiaries has any obligation under the senior secured notes or the credit agreement. At December 31, 2001, debt with recourse to Edison

118

---

Mission Energy totaled $2 billion and non-recourse project debt totaled $3.9 billion. Long-term obligations consist of the following:

|                                                                                                   |  | December 31, |      
|-------------------------------------------------------------------------------------------------- |  | ------------ | -----
|
|Corporate debt (with recourse to Mission Energy Holding Company)                                   |  |              |      
|Mission Energy Holding Company (parent only)                                                       |  |              |      
|Senior Notes, net due 2008 (13.50%)                                                                |  | $            | 783.1
|Credit Agreement due 2004 (LIBOR+7.50%) (10.09% at 12/31/01)                                       |  |              | 97.3 
|Credit Agreement due 2006 (LIBOR+7.50%) (10.09% at 12/31/01)                                       |  |              | 277.3
|Corporate debt (with recourse to Edison Mission Energy)                                            |  |              |      
|Edison Mission Energy (parent only)                                                                |  |              |      
|Senior Notes, net                                                                                  |  |              |      
|due 2002 (8.125%)                                                                                  |  |              | 99.9 
|due 2008 (10.0%)                                                                                   |  |              | 400.0
|due 2009 (7.73%)                                                                                   |  |              | 596.7
|due 2011 (9.875%)                                                                                  |  |              | 600.0
|Pounds Sterling Coal and Capex Facility due 2004
(Sterling LIBOR+1.25%+0.012%) (5.33% at 12/31/01) |  |              | 251.6
|Bank of America NT&SA Credit Agreement due 2001
(LIBOR+0.175%) (6.849% at 12/31/00)                |  |              |     
|Long-Term ObligationsAffiliate                                                                    |  |              | 78.0 
|Project debt
(without recourse to Edison Mission Energy, unless otherwise noted)                   |  |              |      
|Edison Mission Energy Funding Corp.                                                                |  |              |      
|Series A Notes, net due 1997-2003 (6.77%)                                                          |  |              | 91.0 
|Series B Bonds, net due 2004-2008 (7.33%)                                                          |  |              | 189.3
|Edison Mission Holdings Co.                                                                        |  |              |      
|Senior Secured Bonds$300 MM due 2019 (8.137%)                                                     |  |              |     
|Senior Secured Bonds$530 MM due 2026 (8.734%)                                                     |  |              |     
|Construction Loan due 2004 (LIBOR+1.0%) (7.701% at 12/31/00)                                       |  |              |     
|Edison Mission Midwest Holdings Co.                                                                |  |              |      
|Tranche A due 2003 (LIBOR+1.20%) (3.22% at 12/31/01)                                               |  |              | 911.0
|Tranche B due 2004 (LIBOR+1.15%) (3.17% at 12/31/01)                                               |  |              | 808.3
|Tranche C  $150 MM due 2004 (LIBOR+0.95%) (9.5% at 12/31/00)                                      |  |              |     
|Commercial Paper due 2002 (6.601%)                                                                 |  |              |     

119

---

|Contact project                                                                                 |                                                                                     |  |       |       |  |       |      
|----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- |  | ----- | ----- |  | ----- | -----
|Medium Term Note  US$75 MM due 2013 (6.94% at 12/31/01)                                        |                                                                                     |  | 78.5  |       |  |      |      
|Medium Term Note  US$25 MM due 2018 (7.13% at 12/31/01)                                        |                                                                                     |  | 25.9  |       |  |      |      
|Floating Rate Note  US$50 MM due 2007 (2.663% at 12/31/01)                                     |                                                                                     |  | 50.1  |       |  |      |      
|Floating Rate Note  A$120 MM due 2007 (5.175% at 12/31/01)                                     |                                                                                     |  | 62.5  |       |  |      |      
|Medium Term Note  NZ$70 MM due 2003 (6.25% at 12/31/01)                                        |                                                                                     |  | 29.1  |       |  |      |      
|Term Loan Facility  NZ$50 MM due 2004 (5.366% at 12/31/01)                                     |                                                                                     |  | 20.8  |       |  |      |      
|CSFB Revolving Credit Facility due 2005 (BKBM+1.75%)(6.68% at 12/31/01)                         |                                                                                     |  | 118.5 |       |  |      |      
|Doga project                                                                                    |                                                                                     |  |       |       |  |       |      
|Finance Agreement between Doga and OPIC due 2010
(U.S. Treasury Note+3.75%) (11.2% at 12/31/01) |                                                                                     |  | 78.3  |       |  | 86.6  |      
|                                                                                                | NCM Credit Agreement due 2010
(U.S. LIBOR+1.25%) (5.13% at 12/31/01)                |  |       | 28.9  |  |       | 31.9 
|First Hydro plants                                                                              |                                                                                     |  |       |       |  |       |      
|                                                                                                | First Hydro Finance plc £400 MM Guaranteed Secured Bonds due 2021 (9%)              |  |       | 581.7 |  |       | 598.2
|                                                                                                | £18 MM Credit Agreement due 2004
(Sterling LIBOR+0.55%+0.0145%) (4.71% at 12/31/01) |  |       | 26.2  |  |       | 26.9 
|Iberian Hy-Power plants                                                                         |                                                                                     |  |       |       |  |       |      
|Spanish peseta Project Finance Credit Facility due 2012
(EURIBOR+0.75%) (3.97% at 12/31/01)     |                                                                                     |  | 49.1  |       |  | 56.2  |      
|Spanish peseta Subordinated Loan due 2003 (9.408%)                                              |                                                                                     |  | 6.6   |       |  | 10.7  |      
|Spanish peseta Compagnie Générale Des Eaux due 2003 (non-interest bearing)                      |                                                                                     |  | 22.8  |       |  | 22.5  |      
|Kwinana plant                                                                                   |                                                                                     |  |       |       |  |       |      
|Australian dollar Syndicated Project Facility Agreement due 2012 (BBR+1.2%) (6.30% at 12/31/01) |                                                                                     |  | 44.1  |       |  | 49.8  |      
|Loy Yang B plant                                                                                |                                                                                     |  |       |       |  |       |      
|Australian dollar Amortizing Term Facility due 2017 (BBR+0.5% to 1.1%) (4.873% at 12/31/01)     |                                                                                     |  | 353.6 |       |  | 392.9 |      
|Australian dollar Interest Only Term Facility due 2012 (BBR+0.5% to 0.85%) (4.873% at 12/31/01) |                                                                                     |  | 250.5 |       |  | 272.5 |      
|Australian dollar Working Capital Facility due 2017 (BBR+0.5% to 1.1%) (4.873% at 12/31/01)     |                                                                                     |  | 5.1   |       |  | 5.6   |      

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|Roosecote plant                                                                                     |  |   |         |   |   |         |  
|--------------------------------------------------------------------------------------------------- |  | - | ------- | - | - | ------- | -
|Pounds sterling Term Loan and Guarantee Facility due 2005 (Sterling LIBOR+0.6%) (4.74% at 12/31/01) |  |   | 79.9    |   |   | 98.8    |  
|Capital lease obligation (see Note 16)                                                              |  |   | 0.7     |   |   | 0.9     |  
|Other long-term obligationsrecourse                                                                |  |   | 1.1     |   |   | 3.4     |  
|                                                                                                    |  |   |         |   |  
|Subtotal                                                                                            |  | $ | 7,097.5 |   | $ | 5,771.7 |  
|Current maturities of long-term obligations                                                         |  |   | (190.3  | ) |   | (436.9  | )
|                                                                                                    |  |   |         |   |  
|Total                                                                                               |  | $ | 6,907.2 |   | $ | 5,334.8 |  
|                                                                                                    |  |   |         |   |  

Bond Financing of First Hydro

The ability of Edison Mission Energy's subsidiary to make payments of interest on the bond financing of First Hydro bonds is dependent on revenues generated by
the First Hydro plant, which depend on market conditions for the sale of energy and ancillary services. These market conditions are beyond Edison Mission Energy's control. The financial covenants
included in the bond financing of First Hydro require Edison Mission Energy's subsidiary to maintain a minimum interest coverage ratio for each trailing twelve-month period as of June 30 and
December 31 of each year. Edison Mission Energy's subsidiary was in compliance with this ratio for the twelve months ended December 31, 2001. Compliance with this ratio depends on market
conditions for the sale of energy and ancillary services. There is no assurance that these requirements will be met and, if not met, will be waived by the holders of First Hydro's bonds. The bond
financing documents stipulate that a breach of a financial covenant constitutes an immediate event of default and, if the event of default is not waived or cured, the holders of the First Hydro bonds
are entitled to enforce their security over First Hydro's assets, including its power plants.

Long-term ObligationsAffiliates

During 1997, Edison Mission Energy declared a dividend of $78 million to The Mission Group which was recorded as a note payable due in June 2007
with interest at LIBOR + 0.275% (2.62% at December 31, 2001). The note was subsequently exchanged for two notes with the same terms and conditions and assigned to other
subsidiaries of Edison International.

Financing of the Homer City facilities

In March 1999, Edison Mission Holdings Co., an indirect, wholly-owned affiliate of Edison Mission Energy, closed a $1.1 billion financing in
connection with the acquisition of the Homer City facilities. The financing consisted of (1) an $800 million, 364-day term loan facility, (2) a $250 million,
five-year term loan facility and (3) a $50 million, five-year revolving credit facility. The $800 million credit facility has since been repaid as a result
of the bond financing described below. The $250 million facility has since been repaid and retired as a result of the sale-leaseback of our Homer City facilities assets on
December 7, 2001. These loans were structured on a limited-recourse basis in which the

121

---

lenders look primarily to the cash generated by the Homer City facilities to repay the debt and took a security interest in the Homer City facilities assets. Edison Mission Energy used amounts
available under the $250 million five-year term loan facility to fund environmental capital improvements at the Homer City facilities and never drew down on the $50 million
five-year revolving credit facility. The $50 million facility was also retired as a result of the sale-leaseback transaction.

In
May 1999, Edison Mission Holdings Co. completed an $830 million bond financing. The financing consisted of (1) $300 million, 8.137% Senior Secured Bonds
due 2019 and (2) $530 million, 8.734% Senior Secured Bonds due 2026. These bonds were non-recourse to Edison Mission Energy apart from the Credit Support Guarantee and Debt
Service Reserve Guarantee entered into by Edison Mission Energy. These bonds, and related guarantees by Edison Mission Energy, have since been assumed by the buyer as a result of the
sale-leaseback of Edison Mission Energy's Homer City facilities assets. In connection with the extinguishment of the bonds, Edison Mission Energy recorded an extraordinary gain of
$5.7 million, net of income tax expense of $4.4 million. See Note 16Lease CommitmentsSale-Leaseback Transactions, for further discussion
about the sale-leaseback.

Financing of the Ferrybridge and Fiddler's Ferry Plants

As part of the financing of the Ferrybridge and Fiddler's Ferry plants, Edison Mission Energy had entered into a 359 million pounds sterling Coal and Capex
Facility due January 2004 and July 2004, respectively. Following the completion of the sale of the power plants, this facility was cancelled. Edison Mission Energy plans to repay the
borrowings outstanding under the Coal and Capex Facility from settlement of the remaining assets and liabilities of its discontinued operations and cash flows generated from its foreign subsidiaries
prior to its maturity in 2004.

Financing of the Illinois Plants

In December 1999, Edison Mission Midwest Holdings Co., an indirect, wholly-owned affiliate of Edison Mission Energy, closed a $1.7 billion financing
in connection with the acquisition of the Illinois plants. The financing consisted of (1) an $840 million revolving credit facility due 2002, referred to as Tranche
A, (2) an $839 million revolving credit facility due 2004, referred to as Tranche B, and (3) a $150 million of borrowing capacity available under a working capital
revolving facility, referred to as Tranche C, due 2004. These credit facilities are structured on a non-recourse basis, in which the debt is secured by a pledge of stock of specified
subsidiaries. On December 13, 2000, the commitment amount under Tranche A was increased from $840 million to $911 million, and the commitment amount under Tranche B was decreased
from $839 million to $816 million. On January 6, 2001, Tranche B was decreased from $816 million to $808.3 million. During December 2001, the
$911 million revolving credit facility, Tranche B, due date was extended to 2003. Under the working capital revolving facility, Tranche C, $150 million and $6.6 million of
borrowing capacity was available at December 31, 2001 and 2000, respectively.

In
February 2000, Edison Mission Midwest Holdings Co. issued $1.7 billion of commercial paper under a commercial paper program and repaid a similar amount of outstanding
bank borrowings. At December 31, 2000, $803.9 million of commercial paper was outstanding. During 2001, the amount outstanding was repaid.

122

---

In
December 1999, as part of the financing of the Illinois plants, Edison Mission Energy also issued $500 million floating rate notes due 2001 and borrowed
$215 million under its $500 million revolving credit facility that expires in 2001. During the third quarter of 2000, the $500 million floating rate notes and the amount borrowed
under the revolving credit facility were repaid.

Annual Maturities on Long-Term Debt

Annual maturities on long-term debt at December 31, 2001, for the next five years, excluding capital leases (see Note 16) are summarized
as follows: 2002$190.3 million; 2003$1,057.0 million; 2004$1,309.4 million; 2005$219.2 million, and
2006$360.3. The current portion of Roosecote debt is included in long-term debt, as proceeds from future borrowings will exceed the current portion under the terms of the Term
Loan and Guarantee Facility at Roosecote.

Restricted Cash

Several cash balances are restricted primarily to pay amounts required for debt payments and letter of credit expenses. The total restricted cash included in our
consolidated balance sheet under the caption "Restricted cash and other assets" was $573.7 million at December 31, 2001 and $121.0 million at December 31, 2000. Debt
service reserves classified in Restricted cash and other assets (including reserves for interest on annual lease payments) were $49.2 million at December 31, 2001 and
$75.1 million at December 31, 2000.

Collateral
reserves classified in Restricted cash and other assets were $74.3 million at December 31, 2001 as required by the Edison Mission Energy Turbine Trust agreement
entered into on December 4, 2000. This agreement is discussed further in Note 16Lease CommitmentsSale-Leaseback Transactions.

We
are organized as a legal entity separate and apart from Edison Mission Energy and its other subsidiaries. Assets of Edison Mission Energy and its subsidiaries may not be available to
satisfy our obligations.

Fair Values of Non-Derivative Financial Instruments

The following table summarizes the fair values for outstanding non-derivative financial instruments:

December 31,2001

2000InstrumentsNon-derivatives:Long-term receivables

$
264.8

$
267.6Long-term obligations


7,025.4


5,231.9Preferred securities subject to mandatory redemption


257.9


326.8


In
assessing the fair value of our financial instruments we use a variety of methods and assumptions that are based on market conditions and risk existing at each balance sheet date.
Quoted market prices for the same or similar instruments are used for long-term receivables, interest rate derivatives, long-term obligations and preferred securities. Foreign
currency forward exchange

123

---

agreements and cross currency interest rate swaps are estimated by obtaining quotes from the bank. The carrying amounts reported for cash equivalents, commercial paper facilities and other
short-term debt approximate fair value due to their short maturities.

Note 10. Risk Management and Derivative Financial Instruments

Our risk management policy allows for the use of derivative financial instruments to limit financial exposure on our investments and to manage exposure from
changes in electricity and fuel prices, interest rates and fluctuations in foreign currency exchange rates for both trading and non-trading purposes.

Commodity Price Risk Management

Energy trading and price risk management activities give rise to commodity price risk, which represents the potential loss that can be caused by a change in the
market value of a particular commodity. Commodity price risks are actively monitored to ensure compliance with the risk management policies of Edison Mission Energy. Policies are in place which limit
the amount of total net exposure Edison Mission Energy may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior
management. Edison Mission Energy performs a "value at risk" analysis in its daily business to measure, monitor and control its overall market risk exposure. The use of value at risk allows management
to aggregate overall risk, compare risk on a consistent basis and identify the drivers of the risk. Value at risk measures the worst expected loss over a given time interval, under normal market
conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, Edison Mission Energy supplements this approach with the use of
stress testing and worst-case scenario analysis, as well as stop loss limits and counterparty credit exposure limits.

Interest Rate Risk Management

We have mitigated the risk of interest rate fluctuations by arranging for variable rate financing with interest rate swaps for our credit agreement due 2006. The
swaps cover interest accrued from January 2, 2002 to January 2, 2003. Under our variable to fixed swap agreements, we will pay counterparties interest at a weighted average fixed rate of
2.763% at December 31, 2001. Counterparties will pay us interest at a weighted average variable rate based on LIBOR of 1.981% at December 31, 2001.

Interest
rate changes affect the cost of capital needed to finance the construction and operation of Edison Mission Energy's projects. Edison Mission Energy has mitigated the risk of
interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps, interest rate options or other hedging mechanisms for a number of its project
financings. Edison
Mission Energy has entered into several interest rate swap agreements under which the maturity date of the swaps occurs prior to the final maturity of the underlying debt.

Under
Edison Mission Energy's fixed to variable swap agreements, the fixed interest rate payments are at a weighted average rate of 5.972% and 5.65% at December 31, 2001 and 2000,
respectively. Variable rate payments under its corporate agreements are based on six-month LIBOR capped at 9%.

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Variable rate payments pertaining to its foreign subsidiary agreements are based on an equivalent interest rate benchmark to LIBOR. The weighted average rate applicable to these agreements was 2.803%
and 5.605% at December 31, 2001 and 2000, respectively. Under the variable to fixed swap agreements, Edison Mission Energy will pay counterparties interest at a weighted average fixed rate of
7.118% and 7.59% at December 31, 2001 and 2000, respectively. Counterparties will pay Edison Mission Energy interest at a weighted average variable rate of 4.762% and 6.43% at
December 31, 2001 and 2000, respectively. The weighted average variable interest rates are based on LIBOR or equivalent interest rate benchmarks for foreign denominated interest rate swap
agreements. Under Edison Mission Energy's interest rate options, the weighted average strike interest rate is 6.76%.

Credit Risk

Our financial instruments and power sales contracts involve elements of credit risk. Credit risk relates to the risk of loss that we would incur as a result of
nonperformance by counterparties pursuant to the terms of their contractual obligations. The counterparties to financial instruments and contracts consist of a number of major financial institutions
and domestic and foreign utilities. Our attempts to mitigate this risk by entering into contracts with counterparties that have a strong capacity to meet their contractual obligations and by
monitoring the credit quality of these financial institutions and utilities. One of Edison Mission Energy's customers, Exelon Generation Company, accounted for 36% and 42% of our consolidated
operating revenues in 2001 and 2000, respectively. Any failure by Exelon Generation to make payments under the power purchase agreements could adversely affect our results of operations. The currency
crisis in Indonesia has raised concerns over the ability of the state-owned utility to meet its obligations under the current power sales contract with Edison Mission Energy's Paiton project as
discussed further in Note 15Commitments and Contingencies. In addition, we enter into contracts whereby the structure of the contracts minimizes our credit exposure. Accordingly,
we, with the exception of Edison Mission Energy's contract with Exelon Generation and the power sale contract with Edison Mission Energy's Paiton project, do not anticipate any material impact to our
financial position or results of operations as a result of counterparty nonperformance.

The
electric power generated by some of Edison Mission Energy's investments in domestic operating projects, excluding the Homer City facilities and the Illinois plants, is sold to
electric utilities under long-term, typically with terms of 15 to 30 years, power purchase agreements and is expected to result in consistent cash flow under a wide range of
economic and operating circumstances. To accomplish this, Edison Mission Energy structures its long-term contracts so that fluctuations in fuel costs will produce similar fluctuations in
electric and/or steam revenues and enter into long-term fuel supply and transportation agreements. In addition, Edison Mission Energy has plants located in different
geographic areas in order to mitigate the effects of regional markets, economic downturns or unusual weather conditions.

Foreign Exchange Rate Risk

Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of Edison Mission Energy's equity contributions to, and
distributions from, its international projects. At times, Edison Mission Energy has hedged a portion of its current exposure to fluctuations in foreign exchange rates through financial derivatives,
offsetting obligations denominated in foreign

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currencies, and indexing underlying project agreements to U.S. dollars or other indices reasonably expected to correlate with foreign exchange movements. In addition, Edison Mission Energy has used
statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. Edison Mission Energy cannot assure you, however, that fluctuations in exchange rates
will be fully offset by hedges or that currency movements and the relationship between certain macro economic variables will behave in a manner that is consistent with historical or forecasted
relationships.

At
December 31, 2001, Edison Mission Energy had outstanding foreign currency forward exchange contracts and cross currency interest rate swap contracts entered into in the
ordinary course of business to offset certain operational and balance sheet exposures from adverse currency rate fluctuations with varying maturities through April 2018. The periods of the
contracts correspond to the periods of the hedged transactions.

Non-Trading Derivative Financial Instruments

The following table summarizes the fair values for outstanding derivative financial instruments used for purposes other than trading by risk category and
instrument type:

December 31,2001

2000Derivatives:Interest rate:Interest rate swap/cap agreements

(37.1
)
(42.9
)Interest rate options

(1.0
)
Commodity price:Forwards

63.8

(107.5
)Futures

(8.4
)
(11.1
)Options

0.4

1.8Swaps

(137.6
)
15.9Foreign currency forward exchange agreements

(0.6
)
Cross currency interest rate swaps

27.6




In
assessing the fair value of its non-trading derivative financial instruments, Edison Mission Energy uses a variety of methods and assumptions that are based on market
conditions and risk existing at each balance sheet date. The fair value of the commodity price contracts considers quoted marked prices, time value, volatility of the underlying commodities and other
factors.

The
fair value of the electricity rate swaps agreements (included under commodity price-swaps) entered into by the Loy Yang B plant in 2001 and 2000 and the First Hydro plant in 2000 has
been estimated by discounting the future cash flows on the difference between the average aggregate contract price per MW and a forecasted market price per MW, multiplied by the amount of MW sales
remaining under contract.

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Energy Trading

On September 1, 2000, a subsidiary of Edison Mission Energy acquired the trading operations of Citizens Power LLC. As a result of this acquisition, Edison
Mission Energy has expanded its trading operations beyond the traditional marketing of its electric power to include trading of electricity and fuels. In conducting its trading activities, Edison
Mission Energy seeks to generate profit from price volatility of electricity and fuels by buying and selling these commodities in wholesale markets. Edison Mission Energy generally balances forward
sales and purchases contracts and manages its exposure through a value at risk analysis as described further below. Edison Mission Energy also conducts price risk management activities with third
parties not related to its power plants or investments in energy projects, including the restructuring of power sales and power supply agreements.

The
fair value of the financial instruments, including forwards, futures, options and swaps, related to trading activities as of December 31, 2001 and 2000, which include energy
commodities, are set forth below:

December 31,2001

2000Operating revenuesAssets

Liabilities

Assets

LiabilitiesForward contracts

$
4.6

$
2.9

$
302.0

$
282.1Futures contracts


0.1


0.1


0.1


0.1Option contracts








1.4


3.6Swap agreements


0.2





2.9


4.3Total

$
4.9

$
3.0

$
306.4

$
290.1


Quoted
market prices are used to determine the fair value of the financial instruments related to trading activities.

The
net realized and change in unrealized gains or losses arising from trading activities for the year ended December 31, 2001 and the period from inception (September 1,
2000) to December 31, 2000 are as follows:

Year ended
December 31, 2001

Period ended
December 31, 2000Forward contracts

$
11.2

$
68.4Futures contracts


(2.0
)

0.4Option contracts


(0.2
)

(1.4
)Swap agreements


1.0


(5.2
)Total

$
10.0

$
62.2


The
change in unrealized gain (loss) from trading and price risk management activities included in the above amounts was ($12.2) million and $11.7 million for the year ended
December 31, 2001 and the period ended December 31, 2000, respectively.

127

---



Note 11. Preferred Securities

Company-Obligated Mandatorily Redeemable Securities of Partnership Holding Solely Parent Debentures.In November 1994,
Mission Capital, L.P., a limited partnership of which Edison Mission Energy is the sole general partner, issued 3.5 million 9.875% Cumulative Monthly Income Preferred Securities,
Series A at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, with mandatory redemption in 2024 at a redemption price of $25
per security, plus accrued and unpaid distributions. No securities have been redeemed as of December 31, 2001. During August 1995, Mission Capital issued 2.5 million 8.5%
Cumulative Monthly Income Preferred Securities, Series B at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, with mandatory
redemption in 2025 at a redemption price of $25 per security, plus accrued and unpaid distributions. No securities have been redeemed as of December 31, 2001. Edison Mission Energy issued a
guarantee in favor of the holders of the preferred securities, which guarantees the payments of distributions declared on the preferred securities, payments upon a liquidation of Mission Capital and
payments on redemption with respect to any preferred securities called for redemption by Mission Capital. So long as any preferred securities remain outstanding, Edison Mission Energy will not be able
to declare or pay, directly or indirectly, any dividend on, or purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock if at such time
(i) Edison Mission Energy shall be in default with respect to its payment obligations under the guarantee, (ii) there shall have occurred any event of default under the subordinated
indenture, or (iii) Edison Mission Energy shall have given notice of its selection of an extended interest payment period as provided in the indenture and such period, or any extension thereof,
shall be continuing.

Subject to Mandatory Redemption.During June 1999, Edison Mission Energy Taupo Limited, a New Zealand corporation, an
indirect, wholly-owned affiliate of Edison Mission Energy, issued $84 million of Class A Redeemable Preferred Shares (16,000 shares at a price of 10,000 New Zealand dollars per share).
The dividend rate ranged from 6.19% to 6.86%. The shares were redeemable in June 2003 at 10,000 New Zealand dollars per share. From July through November 1999, Edison Mission Energy
Taupo issued $125 million of retail redeemable preferred shares (240 million shares at a price of one New Zealand dollar per share). The dividend rate ranged from 5.00% to 6.37%. The
shares were redeemable at one New Zealand dollar per share in June 2001 (64 million), June 2002 (43 million), and June 2003 (133 million).

On
July 2, 2001, the Class A Redeemable Preferred Shares were redeemed at 10,000 New Zealand dollars per share and the retail redeemable preferred shares were redeemed at
one New Zealand dollar per share from the existing holders. Funding for the redemption of the shares was provided by a NZ$400 million credit facility scheduled to mature in July 2005.

From
June through October 2001, Mission Contact Finance Limited issued $104 million of Redeemable Preferred Shares (250 million shares at a price of one New Zealand
dollar per share). The dividend rate is 6.03%. The shares are redeemable in July 2006 at one New Zealand dollar per share. Mission Contact Finance Limited is a special purpose company
established by Mission Energy Universal Holdings (Universal) to raise funds from the public and other institutional subscribers, to be used by it to subscribe for redeemable preferred shares in
Mission Energy Pacific Holdings (Pacific). Universal and Pacific are wholly-owned subsidiaries of Edison Mission Energy. Mission Contact Finance will call on Pacific to redeem Pacific's Redeemable
Preferred Shares held by Mission Contact

128

---

Finance as and when necessary to provide it with the funds required to redeem the Mission Contact Finance Redeemable Preferred Shares. The redemption of the shares can be accelerated if Mission
Contact Finance exercises its option under the terms of the issue of the shares to redeem all or part of the shares, at its discretion, by giving 45 days' irrevocable notice to the holders.
Events of default will result in automatic redemption. Optional early redemption may occur if the holders pass an extraordinary resolution to redeem the shares if Mission Contact Finance or Pacific
ceases to be a subsidiary of Edison Mission Energy, or in the case of failure by Pacific to comply with the terms of the security trust deed. The Mission Contact Finance Redeemable Preferred Shares
rank ahead of the ordinary shares in Mission Contact Finance for payment of amounts due on the shares. The holders of the shares have a shared indirect security interest, through a security trustee,
in all of the ordinary shares of Contact Energy held by Pacific. The Security Trust Deed secures a limited recourse guarantee by Pacific of Mission Contact Finance's payment obligations to holders of
the redeemable preferred shares. Mission Contact Finance may not, without the security trustee's prior written consent, make any distribution after an enforcement event (primarily a payment default)
has occurred which remains unremedied.

Note 12. Income Taxes

Current and Deferred Taxes

Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year. The components of the net
accumulated deferred income tax liability for continuing operations were:

|                                                           |  | December 31,
|---------------------------------------------------------- |  | ------------
|
|Deferred tax assets                                        |  |             
|Items deductible for book not currently deductible for tax |  | $           
|Loss carryforwards                                         |  |             
|Deferred income                                            |  |             
|Dividends in excess of equity earnings                     |  |             
|Price risk management                                      |  |             
|Other                                                      |  |             
|                                                           |  |             
|Total                                                      |  | $           
|                                                           |  |             
|Deferred tax liabilities                                   |  |             
|Basis differences                                          |  | $           
|Tax credits, net                                           |  |             
|Price risk management                                      |  |             
|Valuation allowance                                        |  |             
|                                                           |  |             
|Total                                                      |  |             
|                                                           |  |             
|Deferred taxes and tax credits, net                        |  | $           
|                                                           |  |             

129

---

Foreign
loss carryforwards, primarily Australian, total $196.5 million and $281 million at December 31, 2001 and 2000, respectively, with $11 million expiring
in 2005. State loss carryforwards total approximately $113 million for California, $18 million for Pennsylvania and $184 million for Illinois at December 31, 2001 with
various expiration dates. State capital loss carryforwards total $186 million and $309 million at December 31, 2001 and 2000, respectively, with $186 million expiring in
2005.

The
components of income (loss) before income taxes and minority interest applicable to continuing operations are as follows:

Years Ended December 31,2001

2000

1999U.S.

$
25.9

$
2.1

$
(74.7
)Foreign


107.7


161.6


162.7Total

$
133.6

$
163.7

$
88.0


United
States income taxes have not been provided on unrepatriated foreign earnings in the amounts of $483 million and $440 million at December 31, 2001 and 2000,
respectively. In addition, foreign income taxes have not been provided on unrepatriated foreign earnings from a different foreign jurisdiction in the amount of $75 million and
$151 million at December 31, 2001 and 2000, respectively.

The
provision (benefit) for income taxes applicable to continuing operations is comprised of the following:

Years Ended December 31,2001

2000

1999CurrentFederal

$
(47.9
)
$
(206.5
)
$
(75.0
)State


6.7


(19.8
)

(0.5
)Foreign


24.7


67.6


(31.4
)Total current

$
(16.5
)
$
(158.7
)
$
(106.9
)DeferredFederal

$
53.6

$
213.5

$
37.4State


26.8


37.9


10.1Foreign


3.8


(11.4
)

21.6Total deferred


84.2


240.0


69.1Provision (benefit) for income taxes

$
67.7

$
81.3

$
(37.8
)


130

---

The
components of the deferred tax provision from continuing operations, which arise from tax credits and timing differences between financial and tax reporting, are presented below:

|                                                                  |  | Years Ended December 31, |      
|----------------------------------------------------------------- |  | ------------------------ | -----
|
|Basis differences and tax credit amortization                     |  | $                        | (14.9
|Loss carryforwards                                                |  |                          | 29.2 
|Deferred income                                                   |  |                          | 3.5  
|State tax deduction                                               |  |                          | (6.2 
|Items deductible for book and tax in different accounting periods |  |                          | 40.5 
|Price risk management                                             |  |                          | 39.0 
|Other                                                             |  |                          | (6.9 
|                                                                  |  |                          |      
|Total deferred provision                                          |  | $                        | 84.2 
|                                                                  |  |                          |      

Variations
from the 35% federal statutory rate for income from continuing operations are as follows:

|                                                                                                       |  | Years Ended December 31, |      
|------------------------------------------------------------------------------------------------------ |  | ------------------------ | -----
|
|Expected provision for federal income taxes                                                            |  | $                        | 46.8 
|Increase (decrease) in the provision for taxes resulting from:                                         |  |                          |      
|State tax-net of federal deduction                                                                     |  |                          | 22.2 
|Dividends received deduction                                                                           |  |                          | (10.5
|Amortization of tax credits                                                                            |  |                          | (0.4 
|Benefit due to foreign tax rate reduction                                                              |  |                          |     
|Taxes payable under anti-deferral regimes                                                              |  |                          | 14.4 
|Taxes on foreign operations at different rates                                                         |  |                          | 7.1  
|Book and tax basis differences                                                                         |  |                          | (2.4 
|Capital loss not previously recognized                                                                 |  |                          |     
|Non-utilization of foreign losses                                                                      |  |                          | 9.0  
|Permanent reinvestment of earnings of foreign affiliates located in different foreign tax jurisdiction |  |                          | (22.4
|Refund of Advance Corporation Tax                                                                      |  |                          |     
|Other                                                                                                  |  |                          | 3.9  
|                                                                                                       |  |                          |      
|Total provision (benefit) for income taxes                                                             |  | $                        | 67.7 
|                                                                                                       |  |                          |      
|Effective tax rate                                                                                     |  |                          | 50.7 
|                                                                                                       |  |                          |      

We
are, and may in the future be, under examination by tax authorities in varying tax jurisdictions with respect to positions we take in connection with the filing of our tax returns.
Matters raised upon audit may involve substantial amounts, which, if resolved unfavorably, an event not currently anticipated, could possibly be material. However, in our opinion, it is unlikely that
the resolution of any such matters will have a material adverse effect upon our financial condition or results of operations.

131

---



Note 13. Employee Benefit Plans

United States employees of Edison Mission Energy are eligible for various benefit plans of Edison International. Several of Edison Mission Energy's Australian,
United Kingdom and Spanish subsidiaries also participate in their own respective defined benefit pension plans. Mission Energy Holding Company has no full-time employees.

Pension Plans

Noncontributory, defined benefit pension plans cover employees who fulfill minimum service requirements. In April 1999, Edison International adopted a cash
balance feature for its pension plan.

In
1999, Ferrybridge and Fiddler's Ferry employees were included as part of the PowerGen UK Group defined benefit pension plan, Electricity Supply Pension Scheme, administered by a
trustee, which provides pension and other related benefits. Contributions to the plan are based on a percentage of compensation for the covered employees and are assessed by a qualified actuary. As a
result of Ferrybridge and Fiddler's Ferry not having a plan separate from the PowerGen UK Group, amounts were not readily available to provide the information included in the tables below for 1999.
Pension expense for Ferrybridge and Fiddler's Ferry totaled $1 million for the period from July 1999 through December 31, 1999. During the first quarter of 2000, Ferrybridge and
Fiddler's Ferry employees joined a separate defined benefit pension plan utilized by First Hydro employees. Amounts for the year 2000 are included in the table below. Pension expense for Ferrybridge
and Fiddler's Ferry totaled $1.5 million for the year 2000 and is included in the table below.

On
December 21, 2001, the Ferrybridge and Fiddler's Ferry plants were sold to two wholly-owned subsidiaries of American Electric Power. American Electric Power hired Edison
Mission Energy's employees upon completion of the purchase and is required, pursuant to the asset purchase agreement, to set up a pension plan similar to Edison Mission Energy's by March 31,
2002. Edison Mission Energy anticipates that all of its former employees will transfer to the new plan, although they are under no
obligation to do so. Pursuant to Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," Edison Mission Energy recorded a curtailment gain of $10.3 million related to the cessation of future benefits for Edison Mission Energy's former employees. The curtailment gain
reduced actuarial losses incurred during the year and, therefore, did not impact Edison Mission Energy's pension expense.

Information
on plan assets and benefit obligations is shown below:

|                             |                                         | Years Ended December 31, |  
|---------------------------- | --------------------------------------- | ------------------------ | -
|
|
|Change in Benefit Obligation |                                         |                          |  
|                             | Benefit obligation at beginning of year |                          | $
|                             | Service cost                            |                          |  
|                             | Interest cost                           |                          |  
|                             | Plan amendment                          |                          |  
|                             | Acquisition                             |                          |  
|                             | Actuarial loss (gain)                   |                          |  

132

---

|                                | Other                                          |                                          |       |     |      |       |     |      |         | (0.3  | )     |          |      |      
|------------------------------- | ---------------------------------------------- | ---------------------------------------- | ----- | ---- | ---- | ----- | ---- | ---- | ------- | ----- | ----- | -------- | ----- | -----
|                                | Plan participants' contribution                |                                          |       |     |      |       |     |      |         | 2.3   |       |          | 2.6   |      
|                                | Benefits paid                                  |                                          |       | (2.1 | )    |       | (1.3 | )    |         | (1.7  | )     |          | (1.0  | )    
|                                |                                                |                                          |       |      |      |       |      |      |        
|                                |                                                | Benefit obligation at end of year        |       | $    | 59.9 |       | $    | 49.5 |         | $     | 113.5 |          | $     | 126.2
|                                |                                                |                                          |       |      |      |       |      |      |        
|Change in Plan Assets           |                                                |                                          |       |      |      |       |      |      |         |       |       |          |      
|                                | Fair value of plan assets at beginning of year |                                          | $     | 36.4 |      | $     | 28.6 |      | $       | 123.0 |       | $        | 118.0 |      
|                                | Actual return on plan assets                   |                                          |       | (2.0 | )    |       | (0.3 | )    |         | (19.1 | )     |          | (2.7  | )    
|                                | Employer contributions                         |                                          |       | 9.1  |      |       | 9.4  |      |         | 7.1   |       |          | 7.6   |      
|                                | Plan participants' contribution                |                                          |       |     |      |       |     |      |         | 0.4   |       |          | 0.9   |      
|                                | Benefits paid                                  |                                          |       | (2.1 | )    |       | (1.3 | )    |         | (1.5  | )     |          | (0.8  | )    
|                                |                                                |                                          |       |      |      |       |      |      |        
|                                |                                                | Fair value of plan assets at end of year |       | $    | 41.4 |       | $    | 36.4 |         | $     | 109.9 |          | $     | 123.0
|                                |                                                |                                          |       |      |      |       |      |      |        
|Funded Status                   |                                                | $                                        | (18.5 | )    | $    | (13.1 | )    | $    | (3.6    | )     | $     | (3.2     | )    
|Unrecognized net loss (gain)    |                                                |                                          | 5.5   |      |      | 0.2   |      |      | 9.1     |       |       | 5.9      |      
|Unrecognized net obligation     |                                                |                                          | 0.8   |      |      | 0.9   |      |      |        |       |       | (0.1     | )    
|Unrecognized prior service cost |                                                |                                          | (2.4  | )    |      | (2.8  | )    |      | 0.2     |       |       | 0.5      |      
|                                |                                                |                                          |       |      |      |       |      |      |        
|Pension asset (liability)       |                                                | $                                        | (14.6 | )    | $    | (14.8 | )    | $    | 5.7     |       | $     | 3.1      |      
|                                |                                                |                                          |       |      |      |       |      |      |        
|Discount rate                   |                                                |                                          | 7.00  | %    |      | 7.25  | %    |      | 4.06.0 | %     |       | 4.06.0  | %    
|Rate of compensation increase   |                                                |                                          | 5.00  | %    |      | 5.00  | %    |      | 3.54.0 | %     |       | 3.754.5 | %    
|Expected return on plan assets  |                                                |                                          | 8.50  | %    |      | 8.50  | %    |      | 8.0     | %     |       | 5.759.0 | %    

Components
of pension expense were:

Years Ended December 31,2001

2000

1999

2001

2000

1999U.S. Plans

Non U.S. PlansService cost

$
8.9

$
10.2

$
2.3

$
2.7

$
3.4

$
1.5Interest cost


3.4


2.7


2.1


6.4


6.7


1.9Expected return on plan assets


(3.3
)

(2.7
)

(1.7
)

(6.9
)

(7.2
)

(2.1
)Net amortization and deferral


(0.1
)

(0.4
)










0.1Total pension expense

$
8.9

$
9.8

$
2.7

$
2.2

$
2.9

$
1.4


Postretirement Benefits Other Than Pensions

Most United States non-union employees retiring at or after age 55 with at least 10 years of service are eligible for postretirement health and
dental care, life insurance and other benefits. Eligibility depends on a number of factors, including the employee's hire date.

133

---

Employees
at Edison Mission Energy's Illinois and Homer City facilities in union-represented positions are covered by collective bargaining agreements that are due to expire in 2002.
Under the agreements, a portion of these employees that retire prior to their expiration are covered under the postretirement benefit plans of their employer prior to Edison Mission Energy's
acquisitions in 1999. Edison Mission Energy has accounted for postretirement benefit obligations on the basis of a substantive plan under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pension."A substantive plan means that Edison Mission Energy is assuming for accounting
purposes that Edison Mission Energy will provide postretirement benefits to union-represented employees following the conclusion of negotiations to replace the current benefits agreement, even though
Edison Mission Energy has no legal obligation to do so. If Edison Mission Energy adopts a postretirement benefit plan for union-represented employees substantially the same as provided under the prior
plans, Edison Mission Energy would record an adjustment to its prior service costs, if applicable, and amortize the impact over the estimated remaining service of covered employees. If no post
retirement benefits are provided, Edison Mission Energy would treat this as a plan termination under SFAS No. 106 and record a gain during 2002. At the present time, Edison Mission Energy
cannot predict the outcome of the negotiations related to these benefit plans.

Information
on plan assets and benefit obligations is shown below:

|                                   |                                                 | Years Ended December 31,                 |       
|---------------------------------- | ----------------------------------------------- | ---------------------------------------- | ------
|
|Change in Benefit Obligation       |                                                 |                                          |       
|                                   | Benefit obligation at beginning of year         |                                          | $     
|                                   | Service cost                                    |                                          |       
|                                   | Interest cost                                   |                                          |       
|                                   | Plan amendment                                  |                                          |       
|                                   | Acquisition                                     |                                          |       
|                                   | Actuarial loss (gain)                           |                                          |       
|                                   | Benefits paid                                   |                                          |       
|                                   |                                                 |                                          |       
|                                   | Benefit obligation at end of year               |                                          | $     
|                                   |                                                 |                                          |       
|Change in Plan Assets              |                                                 |                                          |       
|                                   | Fair value of plant assets at beginning of year |                                          | $     
|                                   | Employer contributions                          |                                          |       
|                                   | Benefits paid                                   |                                          |       
|                                   |                                                 |                                          |       
|                                   |                                                 | Fair value of plan assets at end of year |       
|                                   |                                                 |                                          |       
|Funded Status                      |                                                 | $                                        | (118.1
|Unrecognized net loss (gain)       |                                                 |                                          | 0.8   
|Unrecognized transition obligation |                                                 |                                          |      
|Unrecognized prior service cost    |                                                 |                                          | (1.7  
|                                   |                                                 |                                          |       
|Recorded liability                 |                                                 | $                                        | (119.0
|                                   |                                                 |                                          |       
|Discount rate                      |                                                 |                                          | 7.25  
|Expected return on plan assets     |                                                 |                                          | 8.20  

134

---

The
components of postretirement benefits other than pensions expense were:

Years Ended December 31,2001

2000

1999Service cost

$
4.6

$
5.4

$
1.6Interest cost


7.5


7.6


1.3Net amortization


(0.3
)

(0.2
)

0.1Net expense

$
11.8

$
12.8

$
3.0


The
assumed rate of future increases in the per-capita cost of health care benefits is 10.5% for 2002, gradually decreasing to 5.0% for 2008 and beyond. Increasing the health
care cost trend rate by one percentage point would increase the accumulated obligation as of December 31, 2001, by $29.1 million and annual aggregate service and interest costs by
$3.1 million. Decreasing the health care cost trend rate by one percentage point would decrease the accumulated obligation as of December 31, 2001, by $22.6 million and annual
aggregate service and interest costs by $2.4 million.

Employee Stock Plans

A 401(k) plan is maintained to supplement eligible United States employees' retirement income. The plan received contributions from Edison Mission Energy of
$5.6 million in 2001, $5.3 million in 2000 and $2.9 million in 1999.

Doga
employees are included in a separate government scheme, Pension Plan of Social Security Institution. The plan is administered by the officers of the Turkish Government.
Contributions to the plan are based on a percentage of compensation for the covered employees and are assessed by the Ministry of Labor and Social Security. The plan is substantially funded at the end
of each month. Pension expense recorded by Doga was $97 thousand in 2001, $114 thousand in 2000 and $12 thousand in 1999.

Edison
Mission Energy also sponsors a defined contribution plan for specified United Kingdom subsidiaries. Annual contributions are based on ten percent of covered employees' salaries.
Contribution expense for the subsidiaries totaled approximately $0.7 million, $0.5 million and $0.4 million in 2001, 2000 and 1999, respectively.

Note 14. Stock Compensation Plans



Under the Edison International Equity Compensation Plan, shares of Edison International common stock were reserved for potential issuance to key Edison Mission
Energy employees in various forms, including the exercise of stock options. In May 2000, Edison International adopted an additional plan, the 2000 Equity Plan under which the special options
discussed below were awarded. Under these programs, there are currently outstanding at December 31, 2001 to employees and former employees of Edison Mission Energy, options on 1,747,011 shares
of Edison International Common Stock. Mission Energy Holding Company has no full-time employees.

135

---

Each
option may be exercised to purchase one share of Edison International common stock, and is exercisable at a price equivalent to the fair market value of the underlying stock at the
date of grant. Options expire 10 years after the date of grant, and vest over a period of up to five years.

Edison
International stock options awarded prior to 2000 include a dividend equivalent feature. Dividend equivalents on options issued after 1993 and prior to 2000 are accrued to the
extent dividends are declared on Edison International Common Stock, and are subject to reduction unless certain performance criteria are met. Only a portion of the 1999 Edison International stock
option awards included a dividend equivalent feature. The liability and associated expense is accrued each quarter for the dividend equivalents for each option year. At the end of the performance
measurement period, the expense and related liability is adjusted accordingly. Upon exercise, the dividends are paid out and the associated liability is reduced on Edison Mission Energy's consolidated
balance sheet.

Options
issued after 1997 generally have a four-year vesting period. The special options granted in 2000 vest over five years, but vesting does not begin until
May 2002. Earlier options had a three-year vesting period with one-third of the total award vesting annually. If an option holder retires, dies, is terminated by the
company, or is terminated while permanently and totally disabled (qualifying event) during the vesting period, the unvested options will vest on a pro rata basis.

The
fair value for each option granted during 2001, 2000 and 1999, reflecting the basis for the pro forma disclosures was determined on the date of grant using the Black-Scholes
option-pricing model.

The
following assumptions were used in determining fair value through the model:

|                        |  | 2001         |  | 2000         |  | 1999   
|----------------------- |  | ------------ |  | ------------ |  | -------
|Expected life           |  | 7-10 years   |  | 7-10 years   |  | 7 years
|Risk-free interest rate |  | 4.7% to 6.1% |  | 4.7% to 6.0% |  | 5.5%   
|Expected volatility     |  | 17% to 52%   |  | 17% to 46%   |  | 18%    

The
application of fair-value accounting to calculate the pro forma disclosures is not an indication of future income statement effects. The recognition of dividend
equivalents results in no dividends assumed for purposes of fair-value determination. The pro forma disclosures do not reflect the effect of fair-value accounting on
stock-based compensation awards granted prior to 1995.



For years after 1999, a portion of the executive long-term incentives was awarded in the form of performance shares. The 2000 performance shares were
restructured as retention incentives in December 2000, which pay as a combination of Edison International common stock and cash if the executive remains employed at the end of the performance
period. The performance period ended December 31, 2001, for half of the award, and ends on December 31, 2002, for the remainder. Additional performance shares were awarded in
January 2001 and January 2002. The 2001 performance shares vest December 31, 2003, half in shares of Edison International common stock and half in cash. The 2002 performance
shares vest December 31, 2004; also half in shares of common stock and half in cash. The number of shares that will be paid out from the 2002 performance share awards will depend on the
performance of Edison International common stock relative to the stock performance of a specified group of peer companies.

136

---



Note 14. Stock Compensation Plans (Continued)

The
2000 and 2001 performance shares and deferred stock unit values are accrued ratably over a three-year performance period. The 2002 performance shares will be valued based
on Edison International's stock performance relative to the stock performance of other such entities.

In
March 2001, deferred stock units were awarded as part of a retention program. These vest and will be paid no later than March 12, 2003, but may vest as early as
March 12, 2002, depending on performance. The deferred stock units are payable on the vesting date in shares of Edison International common stock.

In
October 2001, a stock option retention exchange offer was extended offering holders of Edison International stock options granted in 2000 the opportunity to exchange those
options for a lesser number of deferred stock units. The exchange ratio was based on the Black-Scholes value of the options and the stock price at the time the offer was extended. The exchange took
place in November 2001; the options that participants elected to exchange were cancelled, and deferred stock units were issued. Approximately three options were cancelled for each deferred
stock unit issued. The deferred stock units will vest 25% per year over four years, with the first vesting date in November 2002. The following assumptions were used in determining fair value
through the Black-Scholes option-pricing model: expected life: 8-9 years; risk-free interest rate: 5.10%; expected volatility: 52%.

We
measure compensation expense related to stock-based compensation by the intrinsic value method. Compensation expense recorded under the stock compensation program was
$0.7 million for 2000 and $0.4 million for 1999. No compensation expense was recorded in 2001.

The
weighted-average fair value of options granted during 2001, 2000 and 1999 was $3.88 per share option, $5.63 per share option and $6.45 per share option, respectively. The
weighted-average remaining life of options outstanding was 6 years as of December 31, 2001, 8 years as of December 31, 2000 and 7 years as of December 31,
1999.

Stock-based
compensation expense under the "fair-value" method of accounting prescribed by SFAS No. 123 "Stock-Based Compensation" would have resulted in pro forma net
income (loss) of ($1,170.6) million, $123.8 million and $131.4 million in 2001, 2000 and 1999, respectively.

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A
summary of the status of Edison International's stock options granted to Edison Mission Energy employees is as follows:

|                                                               |  | Share
Options |   | Exercise Price |                | Weighted
Exercise Price
|-------------------------------------------------------------- |  | ------------- | - | -------------- | -------------- | -----------------------
|Outstanding, December 31, 1998                                 |  | 352,372       |   | $              | 14.56  $24.44 |                        
|Granted                                                        |  | 154,695       |   | $              | 25.31  $28.13 |                        
|Forfeited                                                      |  | (1,229        | ) | $              | 19.75  $27.25 |                        
|Exercised                                                      |  | (26,767       | ) | $              | 14.56  $19.85 |                        
|                                                               |  |               |   |                |                |                        
|Outstanding, December 31, 1999                                 |  | 479,071       |   | $              | 14.56  $29.34 |                        
|Granted                                                        |  | 2,550,660     |   | $              | 20.06  $28.13 |                        
|Transferred to Edison Mission Energy from Edison International |  | 514,750       |   | $              | 14.56  $28.13 |                        
|Forfeited                                                      |  | (147,518      | ) | $              | 18.75  $28.13 |                        
|Exercised                                                      |  | (43,592       | ) | $              | 14.56  $28.13 |                        
|                                                               |  |               |   |                |                |                        
|Outstanding, December 31, 2000                                 |  | 3,353,371     |   | $              | 14.56  $29.34 |                        
|Granted                                                        |  | 649,768       |   | $              | 9.10  $15.25  |                        
|Transferred to Edison Mission Energy from Edison International |  | 1,327,105     |   | $              | 14.56  $28.94 |                        
|Forfeited                                                      |  | (3,583,233    | ) | $              | 9.15  $29.34  |                        
|                                                               |  |               |   |                |                |                        
|Outstanding, December 31, 2001                                 |  | 1,747,011     |   | $              | 9.10  $29.34  |                        
|                                                               |  |               |   |                |                |                        

Phantom Stock Options

Edison Mission Energy, as a part of the Edison International long-term incentive compensation program, issued phantom stock option performance awards
to key employees from 1994 through 1999. Each phantom stock option could be exercised to realize any appreciation in the value of one hypothetical share of Edison Mission Energy stock over its
exercise price. Compensation expense was recognized during the period that the employee had the right to receive this appreciation. Exercise prices for Edison Mission Energy's phantom stock were
escalated on an annually compounded basis over the grant price by 9%. The value of the phantom stock was recalculated annually as determined by a formula linked to the value of its portfolio of
investments less general and administrative costs. The options had a 10-year term with one-third of the total award vesting in each of the first three years of the award term,
for all awards prior to 1998. For options awarded in 1998 and 1999, one-fourth of the total award vested in each of the first four years of the award term. In August 2000, all
outstanding phantom stock options were cancelled and replaced with a combination of cash and stock equivalent units relating to Edison International common stock in accordance with the Edison Mission
Energy Affiliate Option Exchange Offer.

Compensation
expense recorded with respect to phantom stock options was $6 million, $4.1 million (before the $60 million adjustment referred to below) and
$136.3 million in 2001, 2000 and 1999, respectively.

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Due
to the lower valuation of the exchange offer, compared to the values previously accrued, the liability for accrued incentive compensation was reduced by approximately
$60 million in the third quarter of 2000.

Note 15. Commitments and Contingencies

Firm Commitment for Asset Purchase

|Projects        |  | Local Currency          |  | (in millions)
U.S. Currency
|--------------- |  | ----------------------- |  | ---------------------------
|Italian Wind(i) |  | 13 billion Italian Lira |  | $                          

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Firm Commitments to Contribute Project Equity

|Projects     |  | (in millions)
U.S.
Currency
|------------ |  | ---------------------------
|CBK (i)      |  | $                          
|Sunrise (ii) |  |                            

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Firm
commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities.

Contingent Obligations to Contribute Project Equity

|Projects  |  | Local Currency          |  | (in millions)
U.S. Currency
|--------- |  | ----------------------- |  | ---------------------------
|Paiton(i) |  |                        |  | $                          
|ISAB(ii)  |  | 87 billion Italian Lira |  |                            

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Edison
Mission Energy is not aware of any other significant contingent obligations or obligations to contribute project equity other than as noted above and equity
contributions made by Edison Mission Energy to meet capital calls by partnerships who own qualifying facilities that have power purchase agreements with Southern California Edison and Pacific Gas and
Electric.

Other Commitments and Contingencies

The California Power Crisis

During the period between summer 2000 and spring 2001, various market conditions and other factors resulted in higher wholesale power prices to California
utilities. At the same time, two of the three major California utilities, Southern California Edison and Pacific Gas and Electric, were operating under a retail rate freeze. As a result, there was a
significant underrecovery of costs by Southern California Edison and Pacific Gas and Electric, and each of these companies failed to make payments due to power suppliers, including several of our
subsidiaries, and others. Pacific Gas and Electric filed a voluntary bankruptcy petition on April 6, 2001. Southern California Edison and the California Public Utilities Commission, in
October 2001, entered into a settlement of the federal district lawsuit, which would allow Southern California Edison to recover certain procurement-related liabilities, and Southern California
Edison made payments to creditors, including the four partnerships in which Edison Mission Energy has an interest, on March 1, 2002. Edison International is also the corporate parent of
Southern California Edison.

Credit Support for Trading and Price Risk Management Activities

Edison Mission Energy's domestic trading and price risk management activities are conducted through its subsidiary, Edison Mission Marketing &
Trading, Inc. As part of obtaining an investment grade rating for this subsidiary, Edison Mission Energy has entered into a support agreement, which

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commits it to contribute up to $300 million in equity to Edison Mission Marketing & Trading, if needed to meet cash requirements. An investment grade rating is an important benchmark
used by third parties when deciding whether or not to enter into master contracts and trades with Edison Mission Marketing & Trading. The majority of Edison Mission Marketing & Trading's
contracts have various standards of creditworthiness, including the maintenance of specified credit ratings. Currently Edison Mission Energy provides a parent company guaranty to support Edison
Mission Marketing & Trading's contracts. If Edison Mission Energy does not maintain an investment grade rating or if other events adversely affect its financial position, a third party could
request Edison Mission Energy to provide adequate assurance. Adequate assurance could take the form of supplying additional financial information, collateral, letters of credit or cash. Failure to
provide adequate assurance could result in a
counterparty liquidating an open position and filing a claim against Edison Mission Energy for any losses for any losses.

Beginning
in 2000, the California power crisis adversely affected the liquidity of West Coast trading markets and, to a lesser extent, markets in other regions in the United States.
Edison Mission Energy's trading and price risk management activity was reduced as a result of these market conditions and uncertainty regarding the effect of the power crisis on Edison Mission
Energy's affiliate, Southern California Edison. In addition, there have been a number of other factors since 2000, including the bankruptcy filing of Enron, increased concern regarding the liquidity
of independent power companies, decrease in market prices in U.S. wholesale energy markets, and risk factors related to Edison Mission Energy's business, that continue to limit Edison Mission Energy's
trading and price risk management activities. It is not certain that market conditions or risks related to Edison Mission Energy's business will change to allow Edison Mission Energy to be able to
conduct trading and price risk management activities in a manner favorable to Edison Mission Energy.

Paiton

Edison Mission Energy's wholly-owned subsidiary owns a 40% interest in PT Paiton Energy, which owns a 1,230 MW coal-fired power plant in operation in
East Java, Indonesia, which is referred to as the Paiton project. Edison Mission Energy's investment in the Paiton project was $492.1 million at December 31, 2001. Under the terms of a
long-term power purchase agreement between Paiton Energy and PT PLN, the state-owned electric utility company, PT PLN is required to pay for capacity and fixed operating costs once each
unit and the plant achieve commercial operation.

PT
PLN and Paiton Energy signed a Binding Term Sheet on December 14, 2001 setting forth the commercial terms under which Paiton Energy is to be paid for capacity and energy
charges, as well as a monthly "restructure settlement payment" covering arrears owed by PT PLN and the settlement of other claims. In addition, the Binding Term Sheet provides for an extension of the
terms of the power purchase agreement from 2029 to 2039. Paiton Energy and PT PLN are continuing negotiations on an amendment to the power purchase agreement that will include the agreed commercial
terms in the Binding Term Sheet, with the aim of concluding those negotiations by June 30, 2002. The Binding Term Sheet serves as the basis under which PT PLN will pay Paiton Energy beginning
January 1, 2002. The Binding Term Sheet will expire on June 30, 2002 unless extended by mutual agreement. Previously, PT PLN and Paiton Energy entered into a Phase I Agreement (covering
January 1 to June 30, 2001), a Phase II Agreement (covering July 1 to September 30, 2001) and a Phase III Agreement (covering October 1 to December 31, 2001).
PT PLN has made all payments to Paiton Energy as required under

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these agreements, which are superseded by the Binding Term Sheet. Paiton Energy is continuing to generate electricity to meet the power demand in the region and believes that PT PLN will continue to
make payments for electricity under the Binding Term Sheet while negotiations on the amendment to the power purchase agreement continue. Although completion of negotiations may be delayed beyond
June 30, 2002, Paiton Energy continues to believe that negotiations on the long-term restructuring of the tariff will be successful.

Under
the Binding Term Sheet, past due accounts receivable due under the original power purchase agreement will be compensated through a restructure settlement payment in the amount of
US$4 million per month for a period of 30 years. If the power purchase agreement amendment is not completed within reasonable time frames acceptable to Paiton Energy, the parties would
be entitled to revert back to the terms and conditions of the original power purchase agreement in order to pursue arbitration in the international courts.

Any
material modifications of the power purchase agreement resulting from the continuing negotiation of a new long-term tariff could require a renegotiation of the Paiton
project's debt agreements. The impact of any such renegotiations with PT PLN, the Government of Indonesia or the project's creditors on Edison Mission Energy's expected return on its investment in
Paiton Energy is uncertain at this time; however, Edison Mission Energy believes that it will ultimately recover its investment in the project.

Brooklyn Navy Yard

Brooklyn Navy Yard is a 286 MW gas fired cogeneration power plant in Brooklyn, New York. A wholly-owned subsidiary of Edison Mission Energy owns 50% of the
project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. for damages in the
amount of $136.8 million. Brooklyn Navy Yard Cogeneration Partners has asserted general monetary claims against the contractor. In connection with a $407 million non-recourse
project refinancing in 1997, Edison Mission Energy agreed to indemnify Brooklyn Navy Yard Cogeneration Partners and its partner from all claims and costs arising from or in connection with the
contractor litigation, which indemnity has been assigned to Brooklyn Navy Yard Cogeneration Partners' lenders. Additional amounts, if any, which would be due to the contractor with respect to
completion of construction of the power plant would be accounted for as an addition to the power plant investment. Furthermore, Edison Mission Energy's partner has executed a reimbursement agreement
with Edison Mission Energy that provides recovery of up to $10 million over an initial amount, including legal fees, payable from its management and royalty fees. Edison Mission Energy believes
that the outcome of this litigation will not have a material adverse effect on its consolidated financial position or results of operations. Edison Mission Energy is currently offering its interest in
the Brooklyn Navy Yard project for sale.

ISAB

In connection with the financing of the ISAB project, Edison Mission Energy has guaranteed for the benefit of the banks financing the construction of the ISAB
project its subsidiary's obligation to contribute project equity and subordinated debt totaling up to approximately $40 million. The amount of payment under the obligation is contingent upon
settlement of an arbitration proceeding brought in

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1999 by the contractor of the project against ISAB Energy. No overall settlement of the dispute has yet been achieved.

Additional Gas-Fired Generation

Pursuant to the acquisition documents for the purchase of generating assets from Commonwealth Edison, Edison Mission Energy's subsidiary committed to install one
or more gas-fired electric generating units having an additional gross dependable capacity of 500 MW at or adjacent to an existing power plant site in Chicago. The acquisition documents
require that commercial operation of this project commence by December 15, 2003. Due to additional capacity for new gas-fired generation in the Mid-America Interconnected Network
(generally referred to as MAIN) region and the improved reliability of power generation in the Chicago area, Edison Mission Energy has undertaken preliminary discussions with Exelon Generation
regarding alternatives to construction of 500 MW of capacity which Edison Mission Energy does not believe are needed at this time. If it were to install this additional capacity, Edison Mission Energy
estimates that the cost could be as much as $320 million.

Fuel Supply Contracts

At December 31, 2001, Edison Mission Energy had contractual commitments to purchase and/or transport coal and fuel oil. Based on the contract provisions,
which consist of fixed prices, subject to adjustment clauses in some cases, these minimum commitments are currently estimated to aggregate $2.4 billion in the next five years summarized as
follows: 2002$642.3 million; 2003$466.5 million; 2004449.2 million; 2005$430.4 million;
2006$413.8 million.

Gas Transportation Agreement

In June 2000, Edison Mission Energy entered into a long-term transportation contract with Kern River Gas Transmission Company related to the
expansion of the Midway-Sunset project, a 225 MW power plant in California in which Edison Mission Energy's wholly-owned subsidiary owns a 50% interest. Under the terms of the contract Edison Mission
Energy has contractual commitments to transport natural gas beginning the later of May 1, 2003 or the first day that expansion capacity is available for transportation services. Edison Mission
Energy is committed to pay minimum fees under this agreement which has a term of 15 years. These minimum commitments are currently estimated to aggregate $28.2 million in the next five
years summarized as follows: 2003$5.1 million; 2004$7.7 million; 2005$7.7 million; and 2006$7.7 million.

Indemnities



Some of Edison Mission Energy's subsidiaries have entered into indemnification agreements, under which the subsidiaries agreed to repay capacity payments to the
projects' power purchasers in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contracts. Obligations
under these indemnification agreements as of December 31, 2001, if payment were required, would be $234.4 million. Edison Mission Energy has no reason to believe that the projects will
either terminate their performance or reduce their electric power producing capability during the term of the power contracts.

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In support of the business of its subsidiaries, Edison Mission Energy has, from time to time, entered into guarantees and indemnity agreements with respect to its
subsidiaries' obligations such as debt service, fuel supply, or the delivery of power, and has also entered into reimbursement agreements with respect to letters of credit issued to third parties to
support its subsidiaries' obligations. Edison Mission Energy has also, from time to time, entered into guarantees and indemnification agreements with respect to acquisitions made by its subsidiaries.
In this regard, Edison Mission Energy has indemnified the previous owners of the Illinois plants and the Homer City facilities for specified liabilities, including environmental liabilities, incurred
as a result of their prior ownership of the plants. Edison Mission Energy does not believe these indemnification obligations will have a material impact on it.



In connection with the sale-leaseback transactions that Edison Mission Energy has entered into related to the Collins Station, Powerton and Joliet
plants in Illinois and the Homer City facilities in Pennsylvania, Edison Mission Energy has entered into tax indemnity agreements. Under these tax indemnity agreements, Edison Mission Energy has
agreed to indemnify the equity investors in the sale-leaseback transactions for specified adverse tax consequences. The potential indemnity obligations under these tax indemnity agreements
could be significant. However, Edison Mission Energy believes it
is not likely that an event requiring material tax indemnification will occur under any of these agreements.

Litigation

We are routinely involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, we,
based on advice of counsel, do not believe that the final outcome of any pending litigation will have a material adverse effect on our financial position or results of operations.

Environmental Matters and Regulations

Edison Mission Energy is subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with
jurisdiction over projects located outside the United States. Edison Mission Energy believes that it is in substantial compliance with environmental regulatory requirements and that maintaining
compliance with current requirements will not materially affect its financial position or results of operation. However, possible future developments, such as the promulgation of more stringent
environmental laws and regulations, and future proceedings that may be initiated by environmental authorities, could affect the costs and the manner in which Edison Mission Energy conducts its
business and could cause Edison Mission Energy to make substantial additional capital expenditures. There is no assurance that Edison Mission Energy would be able to recover these increased costs from
its customers or that its financial position and results of operations would not be materially adversely affected.

Typically,
environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all the
necessary requirements

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can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital expenditures.

StateIllinois

Air Quality.In June 2001, Illinois passed legislation mandating the Illinois Environmental Protection Agency to
evaluate and issue a report to the Illinois legislature addressing the need for further emissions controls on fossil fuel-fired electric generating stations, including the potential need
for
additional controls on nitrogen oxides, sulfur dioxide and mercury. The study, which is to be submitted between September 30, 2003 and September 30, 2004, also requires an evaluation of
incentives to promote renewable energy and the establishment of a banking system for certifying credits from voluntary reductions of greenhouse gases. The law allows the Illinois Environmental
Protection Agency to propose regulations based on its findings no sooner than ninety days after the issuance of its findings, and requires the Illinois Pollution Control Board to act within one year
on such proposed regulations. Until the Illinois Environmental Protection Agency issues its findings and proposes regulations in accordance with the findings, if such regulations are proposed, Edison
Mission Energy cannot evaluate the potential impact of this legislation on the operations of its facilities.

Water Quality.The Illinois EPA is reviewing the water quality standards for the DesPlaines River adjacent to the Joliet
Station and immediately downstream of the Will County Station to determine if the use classification should be upgraded. One of the limitations for discharges to the river that could be made more
stringent if the existing secondary contact classification is changed would be the allowable temperature of the discharges from Joliet and Will County. At this time no new standards have been
proposed, so Edison Mission Energy cannot estimate the financial impact of this review.

StatePennsylvania

Water Quality.Edison Mission Energy's coal-cleaning plant National Pollutant Discharge Elimination System,
commonly referred to as NPDES, permits by the Pennsylvania Department of Environmental Protection, or PADEP, Bureau of Water Management. It now includes water-quality-based limits for certain
contaminants. Edison Mission Energy is not required to meet these limits until February 2005 but must conduct toxics reduction evaluation studies in the meantime. These limits may require
upgrade of its facilities' wastewater treatment systems with such approaches as reverse osmosis, ozonation, dechlorination and/or recycling of water. Edison Mission Energy has contested these
requirements in an administrative appeal, but hopes to reach an amicable resolution with PADEP.

The
discharge from the treatment plant receiving the wastewater stream from the Unit 3 flue gas desulfurization system has exceeded the limits for selenium in the station's NPDES permit.
The selenium limits are water-quality-based and require removal to very low levels. Edison Mission Energy is investigating technical alternatives to maximize the level of selenium removal in the
discharge. Edison Mission Energy is also meeting with PADEP to discuss potential modifications to the station's NPDES permit.

Edison
Mission Energy conducts ground water monitoring in a number of areas throughout the site, including active and former ash disposal sites, wastewater and runoff settling and
drainage ponds and a coal refuse disposal site. On September 27, 2001, the Pennsylvania Department of Environmental Protection responded to an Assessment Report by stating that no further
groundwater assessment or abatement is required for the industrial waste treatment ponds.

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To
date, PADEP has not requested that any additional remediation actions be performed at the site. Edison Mission Energy's facility has a drinking water treatment system designed to meet
applicable potable water standards. Recent tests indicate that Edison Mission Energy's facilities' drinking water supply meets these standards.

Helvetia Discharges.Edison Mission Energy's generating units were originally constructed as a mine-mouth
generating station, where coal produced from two adjacent deep mines was delivered directly to the units by coal conveyors. The two adjacent deep mines were owned by Helen Mining Company, a subsidiary
of the Quaker State Corporation, and Helvetia, a subsidiary of the Rochester and Pittsburgh Coal Company. Both Helen Mining and Helvetia developed mine refuse sites, water treatment facilities and
other mine related facilities on the site. The Helen Mining mine was closed in the early 1990s, and the mine surface operations and maintenance shop areas were restored before Helen Mining left the
site. Helen Mining has continuing mine water and refuse site leachate treatment obligations and remains obligated to perform any cleanup required with respect to its refuse site. Helvetia's
on-site mine was closed in 1995. As a result of the cessation of its on-site mining activities, Helvetia has continuing mine discharge and refuse site leachate discharge
treatment obligations that it performs using water treatment facilities owned by Helvetia and located on the site. Bonds posted by Helvetia may not be sufficient to fund Helvetia's obligations in the
event of Helvetia's failure to comply with its mine-related permits at the site. Current annual operating costs for Helvetia's treatment systems are estimated to be approximately
$1 million. If Helvetia defaults on its treatment obligations, the government may look to Edison Mission Energy to fund these commitments.

Penn Hill No. 2 and Dixon Run No. 3 Discharges.In connection with Edison Mission Energy's purchase of the
Homer City facilities, Edison Mission Energy acquired the Two Lick Creek Dam and Reservoir. Acid mine drainage discharges from the Penn Hill No. 2 and Dixon Run No. 3 inactive deep mines
were collected and partially treated on the reservoir property by Stanford Mining Company before being pumped off the property for additional treatment at the nearby Chestnut Ridge Treatment Plant.
The mining company filed for bankruptcy, however, it operated the collection and treatment system until May 1999 when its assets were allegedly depleted.

PADEP
initially advised Edison Mission Energy that it was potentially liable for treating the two discharges solely because of Edison Mission Energy's ownership of the property from
which the discharges emanated. Without any admission of Edison Mission Energy's liability, Edison Mission Energy voluntarily entered into a letter agreement to fund the operation of the collection and
treatment system for an interim period until the agency completed its investigation of potentially liable parties and alternatives for permanent treatment of the discharges were evaluated. After
examining property records, PADEP concluded that Edison Mission Energy is only responsible for treating the Dixon Run No. 3 discharge. The agency completed its investigation of other
potentially responsible parties, particularly mining companies that previously operated the two mines, and has notified Edison Mission Energy that they plan no further action against other parties.

A
draft consent decree agreement that addresses remedial responsibilities for the two discharges has been prepared by PADEP. Under its terms, Edison Mission Energy is responsible for
designing and implementing a permanent system to collect and treat the Dixon Run No. 3 discharge. Edison Mission Energy will continue its funding of the existing collection and treatment system
until the Dixon Run No. 3 treatment system becomes operational. The state has provided funding to the Blacklick Creek

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Watershed Association to develop and operate a collection and treatment system for the Penn Hill No. 2 discharge. The Watershed Association has completed construction of the Penn Hill
No. 2 system is in, and it will be fully operational in the next several months.

The
current cost of operating the collection and treatment system is approximately $17,000 per month. Edison Mission Energy expects that the costs of operation will be reduced by 30% to
40% as a result of the completion of the Penn Hill No. 2 system. Edison Mission Energy is evaluating options for permanent treatment of the Dixon Run No. 3 discharge and concluded that
conventional chemical treatment is the most appropriate option. The capital cost of the system is estimated to be $1 million. Its operational costs cannot be determined until design and
permitting are complete.

FederalUnited States of America

Clean Air Act.Edison Mission Energy expects that compliance with the Clean Air Act and the regulations and revised State
Implementation Plans developed as a consequence of the Act will result in increased capital expenditures and operating expenses. For example, Edison Mission Energy expects to spend approximately
$17.8 million for 2002 to install upgrades to the environmental controls at the Homer City facilities to reduce sulfur dioxide and nitrogen oxide emissions. Similarly, Edison Mission Energy
anticipates upgrades to the environmental controls at the Illinois plants to reduce nitrogen oxide emissions to result in expenditures of approximately $367.9 million for the
2002-2005 period.

Mercury MACT Determination.On December 20, 2000, the Environmental Protection Agency issued a regulatory finding that
it is "necessary and appropriate" to regulate emissions of mercury and other hazardous air pollutants from coal-fired power plants. The agency has added coal-fired power plants
to the list of source categories under Section 112(c) of the Clean Air Act for which "maximum available control technology" standards will be developed. Eventually, unless overturned or
reconsidered, the Environmental Protection Agency will issue technology-based standards that will apply to every coal-fired unit owned by Edison Mission Energy or its affiliates in the
United States. This section of the Clean Air Act provides only for technology-based standards, and does not permit market trading options. Until the standards are actually promulgated, the potential
cost of these control technologies cannot be estimated, and Edison Mission Energy cannot evaluate the potential impact on the operations of its facilities.

National Ambient Air Quality Standards.A new ambient air quality standard was adopted by the Environmental Protection Agency in
July 1997 to address emissions of fine particulate matter. It is widely understood that attainment of the fine particulate matter standard may require reductions in nitrogen oxides and sulfur
dioxides, although, under the time schedule announced by the Environmental Protection Agency when the new standard was adopted, non-attainment areas were not to have been designated until
2002 and control measures to meet the standard were not to have been identified until 2005. In May 1999, the United States Court of Appeals for the District of Columbia Circuit held that
Section 109(b)(1) of the Clean Air Act, the section of the Clean Air Act requiring the promulgation of national ambient air quality standards, as interpreted by the Environmental Protection
Agency, was an unconstitutional delegation of legislative power. The Court of Appeals remanded both the fine particulate matter standard and the revised ozone standard to allow the Environmental
Protection Agency to determine whether it could articulate a constitutional application of Section 109(b)(1). On February 27, 2001, the Supreme Court, inWhitman
v. American Trucking Associations, Inc., reversed the Circuit Court's judgment on this issue and remanded the case back to

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the Court of Appeals to dispose of any other preserved challenges to the particulate matter and ozone standards. On March 26, 2002, the D.C. Circuit, on remand, held that the revised ozone and
fine particulate matter ambient air quality standards were neither arbitrary nor capricious. Further action by the EPA with respect to the implementation of the revised ozone standard and the
promulgation of a new coarse particulate matter standard is required pursuant to the first D.C. Circuit opinion and the Supreme Court's decision in Whitmanv.American Trucking
Associations, Inc.Because of the delays resulting from the
litigation over the standards and the additional actions to be undertaken by the EPA, the impact of these standards on Edison Mission Energy's facilities is uncertain at this time.

Edison
Mission Energy believes that its facilities are in material compliance with applicable state and federal air quality requirements. Further reductions in emissions may be required
for the achievement and maintenance of National Ambient Air Quality Standards for ozone and fine particulate matter.

Clean Water Act§ 316(b) Rulemakings.The Environmental Protection Agency proposed rules establishing
standards for the location, design, construction and capacity of cooling water intake structures at new facilities, including steam electric power plants. Under the terms of a consent decree entered
into by the U.S. District Court for the Southern District of New York inRiverkeeper, Inc. v. Whitman,regulations for new facilities were
adopted by November 9, 2001. Pursuant to the consent decree, the agency proposed similar regulations for existing facilities on February 28, 2002, and is required to finalize those
regulations by August 28, 2003. Until the final standards are promulgated, Edison Mission Energy cannot determine their impact on its facilities or estimate the potential cost of compliance.

Comprehensive Environmental Response, Compensation, and Liability Act.Under various federal, state and local environmental
laws and regulations, a current or previous owner or operator of any facility, including an electric generating facility, may be required to investigate and remediate releases or threatened releases
of hazardous or toxic substances or petroleum products located at that facility, and may be held liable to a governmental entity or to third parties for property damage, personal injury and
investigation and remediation costs incurred by these parties in connection with these releases or threatened releases. Many of these laws, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, impose liability without regard to whether the owner knew of or caused the presence of
the hazardous substances, and courts have interpreted liability under these laws to be strict and joint and several. The cost of investigation, remediation or removal of these substances may be
substantial. In connection with the ownership and operation of Edison Mission Energy's facilities, Edison Mission Energy may be liable for these costs.

In
addition, persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may be liable for the costs of removal or remediation
of a release or threatened release of hazardous or toxic substances at that disposal or treatment facility, whether or not that facility is owned or operated by that person. Some environmental laws
and regulations create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The owner of a contaminated site and persons who
arrange for the disposal of hazardous substances at that site also may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating
from that site. In connection

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with the ownership and operation of Edison Mission Energy's facilities, Edison Mission Energy may be liable for these costs.

With
respect to Edison Mission Energy's liabilities arising under CERCLA or similar laws for the investigation and remediation of contaminated property, Edison Mission Energy accrues a
liability to the extent the costs are probable and can be reasonably estimated. Generally, Edison Mission Energy does not believe the costs for environmental remediation can be reasonably estimated
before a remedial investigation has been completed for a particular site. In connection with due diligence conducted for the acquisition of its Illinois plants, Edison Mission Energy engaged a third
party consultant to conduct an assessment of the potential costs for environmental remediation of the plants. This assessment, which was based on information provided to Edison Mission Energy by the
former owner of these plants, was less rigorous than a remedial investigation conducted in the course of a voluntary or required site cleanup. Accordingly, Edison Mission Energy has not recorded a
liability for environmental remediation at these sites. Edison Mission Energy plans to perform or update individual site assessments as it believes is appropriate. As these assessments are completed,
Edison Mission Energy will determine whether remedial investigation is needed.

Enforcement Issues.Edison Mission Energy owns an indirect 50% interest in EcoEléctrica, L.P., a limited
partnership which owns and operates a liquefied natural gas import terminal and cogeneration project at Peñuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued
to EcoEléctrica a notice of violation ("NOV") and a compliance order alleging violations of the Federal Clean Air Act primarily related to start-up activities.
Representatives of EcoEléctrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoEléctrica has not
been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency.

On
November 3, 1999, the United States Department of Justice filed suit against a number of electric utilities for alleged violations of the Clean Air Act's new source review, or
NSR, requirements related
to modifications of air emissions sources at electric generating stations located in the southern and midwestern regions of the United States. Several states have joined these lawsuits. In addition,
the United States Environmental Protection Agency has also issued administrative notices of violation alleging similar violations at additional power plants owned by some of the same utilities named
as defendants in the Department of Justice lawsuit, as well as other utilities, and also issued an administrative order to the Tennessee Valley Authority for similar violations at certain of its power
plants. The Environmental Protection Agency has also issued requests for information pursuant to the Clean Air Act to numerous other electric utilities, including the prior owners of the Homer City
facilities, seeking to determine whether these utilities also engaged in activities that may have been in violation of the Clean Air Act's new source review requirements.

To
date, several utilities have reached formal agreements with the United States (or reached agreements-in-principle) to resolve alleged NSR violations. All of
the settlements have included the installation of additional pollution controls, supplemental environment projects, and the payment of civil penalties. Some of the settlements have also included the
retirement or repowering of coal-fired generating units. The agreements provide for a phased approach to achieving required emission reductions over the next 10 to 15 years. The
total cost of some of these settlements exceeds $1 billion; the civil penalties agreed to by these utilities range between $1 million and $10 million. Because of the

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uncertainty created by the Administration's review of the NSR regulations and NSR enforcement proceedings, some of the settlements referred to above have not been finalized.

In
May 2001, President Bush issued a directive for a 90-day review of NSR "interpretation and implementation" by the Administrator of the Environmental Protection
Agency and the Secretary of the U.S. Department of Energy. The results of the review have been postponed with release likely sometime during the first half of 2002. President Bush also directed the
Attorney General to review ongoing NSR legal actions to "ensure" they are "consistent with the Clean Air Act and its regulations." The DOJ review was released in January 2002 and concluded "EPA
has a reasonable basis for arguing that the enforcement actions are consistent with both the Clean Air Act and the Administrative Procedure Act".

Prior
to Edison Mission Energy's purchase of the Homer City facilities, the Environmental Protection Agency requested information from the prior owners of the plant concerning physical
changes at the plant. Other than with respect to the Homer City facilities, no proceedings have been initiated or requests for information issued with respect to any of Edison Mission Energy's United
States facilities. However, Edison Mission Energy has been in informal voluntary discussions with the Environmental Protection Agency relating to these facilities, which may result in the payment of
civil fines. Edison Mission Energy cannot assure you that it will reach a satisfactory agreement or that these facilities will not be subject to proceedings in the future. Depending on the outcome of
the proceedings, Edison Mission Energy could be required to invest in additional pollution control requirements, over and above the upgrades Edison Mission Energy is planning to install, and could be
subject to fines and penalties. Edison Mission Energy cannot estimate the outcome of these discussions or the potential costs of investing in additional pollution control requirements, fines or
penalties at this time.

International

United Nations Framework Convention on Climate Change.Since the adoption of the United Nations Framework Convention on
Climate Change in 1992, there has been worldwide attention with respect to greenhouse gas emissions. In December 1997, the Clinton administration participated in the Kyoto, Japan negotiations,
where the basis of a Climate Change treaty was formulated. Under the treaty, known as the Kyoto Protocol, the United States would be required, by 2008-2012, to reduce its greenhouse gas
emissions by 7% from 1990 levels.

The
Kyoto Protocol has yet to be submitted to the U.S. Senate for ratification. In March 2001, the Bush administration announced that the United States would not ratify the Kyoto
Protocol, but would instead offer an alternative. On February 14, 2002, President Bush announced objectives to slow the growth of greenhouse gas emissions by reducing the amount of greenhouse
gas emissions per unit of economic output by 18% by 2012 and to provide funding for climate-change related programs. The President's proposed program does not include mandatory reductions of
greenhouse gas emissions. However, various bills have been, or are expected to be, introduced in Congress to require greenhouse gas emissions reductions and to address other issues related to climate
change. Apart from the Kyoto Protocol, we may be impacted by future federal or state legislation relating to controlling greenhouse gas emissions.

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Note 15. Commitments and Contingencies (Continued)

Notwithstanding
the Bush administration position, environment ministers from around the world have reached a compromise agreement on the mechanics and rules of the Kyoto Protocol. The
compromise agreement is believed to clear the way for countries to begin the treaty ratification process.

Edison
Mission Energy either has an equity interest in or own and operate generating plants in the following countries:

 Australia

 Spain Indonesia

 Thailand Italy

 Turkey New Zealand

 The United Kingdom Philippines

 The United States


With
the exception of Turkey, all of the countries identified have ratified the UN Framework Convention on Climate Change, as well as signed the Kyoto Protocol. None of the countries
have ratified the Kyoto Protocol, but, with the exception of the United States, all are expected to do so by the end of 2002. For the treaty to come into effect, approximately 55 countries that also
represent at least 55% of the greenhouse gas emissions of the developed world must ratify it.

All
of the countries, with the exception of Indonesia, the Philippines and Thailand, are classified as Annex 1 or "developed" countries and are subject to national greenhouse gas
emission reduction targets during the period of 2008-2012 (e.g., Phase 1). Each nation is actively developing policies and measures meant to assist it with meeting the individual national
emission targets as set out within the Kyoto Protocol.

If
Edison Mission Energy does become subject to limitations on emissions of carbon dioxide from its fossil fuel-fired electric generating plants, these requirements could
have a significant economic impact on their operations.

Note 16. Lease Commitments

We lease office space, property and equipment under noncancelable lease agreements that expire in various years through 2063. The primary capital lease obligation
is for a plant located in the United Kingdom denominated in pounds sterling. A group of banks provides a guarantee on the performance of the capital lease obligation under a term loan and guarantee
facility agreement. The facility agreement provides for an aggregate of $166.9 million in a guarantee to the lessor and in loans to the project. As of December 31, 2001, the loan
obligation stands at $62.1 million, which is secured by the plant assets of $14.2 million owned by the project and a debt service reserve of $2.9 million.

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Future
minimum payments for operating and capital leases at December 31, 2001, are:

|Years Ending December 31,            |  | Operating
Leases |         | Capital
Leases
|------------------------------------ |  | ---------------- | ------- | --------------
|2002                                 |  | $                | 379.7   |               
|2003                                 |  |                  | 370.9   |               
|2004                                 |  |                  | 360.7   |               
|2005                                 |  |                  | 418.4   |               
|2006                                 |  |                  | 511.6   |               
|Thereafter                           |  |                  | 5,813.3 |               
|                                     |  |                  |         |               
|Total future commitments             |  | $                | 7,854.6 |               
|                                     |  |                  |         |               
|Amount representing interest (9.73%) |  |                  |         |               
|                                     |  |                  |         |               
|Net Commitments                      |  |                  |         |               
|                                     |  |                  |         |               

Operating
lease expense amounted to $162.5 million, $121.9 million and $10.3 million in 2001, 2000 and 1999, respectively.

Sale-Leaseback Transactions

On December 7, 2001, a subsidiary of Edison Mission Energy completed a sale-leaseback of its Homer City facilities to third-party lessors for
an aggregate purchase price of $1.591 billion, consisting of $782 million in cash and assumption of debt (the fair value of which was $809.3 million). Under the terms of the
33.67-year leases, the subsidiary is obligated to make semi-annual lease payments on each April 1 and October 1. If a lessor intends to sell its interest in the
Homer City facilities, Edison Mission Energy has a right of first refusal to acquire the interest at fair market value. Minimum lease payments (included in the table above) are $175.0 million
in 2002, $174.0 million in 2003, $142.1 million in 2004, $151.9 million in 2005, and $151.6 million in 2006. At December 31, 2001, the total remaining minimum lease
payments are $3.4 billion. Lease costs will be levelized over the terms of the leases. The gain on the sale of the facilities has been deferred and is being amortized over the term of the
leases.

On
August 24, 2000, a subsidiary of Edison Mission Energy completed a sale-leaseback of its Powerton and Joliet power facilities located in Illinois to third-party
lessors for an aggregate purchase price of $1.367 billion. Under the terms of the leases (33.75 years for Powerton and 30 years for Joliet), the subsidiary makes
semi-annual lease payments on each January 2 and July 2, which began January 2, 2001. Edison Mission Energy guarantees its subsidiary's payments under the leases. If a
lessor intends to sell its interest in the Powerton or Joliet power facility, Edison Mission Energy has a right of first refusal to acquire the interest at fair market value. Minimum lease payments
(included in the table above) are $97.3 million in 2002, $97.3 million in 2003, $97.3 million in 2004, $141.1 million in 2005, and $184.9 million in 2006. At
December 31, 2001, the total remaining minimum lease payments are $2.3 billion. Lease costs of these power facilities will be levelized over the terms of the respective leases. The gain
on the sale of the power facilities has been deferred and is being amortized over the term of the leases.

On
July 10, 2000, one of Edison Mission Energy's subsidiaries entered into a sale-leaseback of equipment, primarily Illinois peaker power units, to a third-party
lessor for $300 million. Under the terms of the 5-year lease, Edison Mission Energy has a fixed price purchase option at the end of the

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lease term of $300 million. Edison Mission Energy guarantees the monthly payments under the lease. Minimum lease payments (included in the table above) are $21.0 million in 2002,
$21.0 million in 2003, $21.0 million in 2004 and $10.6 million in 2005. In connection with the sale-leaseback, a subsidiary of Edison Mission Energy's purchased
$255 million of notes issued by the lessor which accrue interest at LIBOR plus 0.65% to 0.95%, depending on Edison Mission Energy's credit rating (3.43% at December 31, 2001). The notes
are due and payable in 2005. The gain on the sale of equipment has been deferred and is being amortized over the term of the lease.

In
connection with the acquisition of the Illinois plants, Edison Mission Energy assigned the right to purchase the Collins gas and oil-fired power plant to third-party
lessors. The third-party lessors purchased the Collins Station for $860 million and entered into leases of the plant with Edison Mission Energy. The leases, which are being accounted for as
operating leases, have an initial term of 33.75 years with payments due on a quarterly basis. The base lease rent includes both a fixed and variable component; the variable component of which
is impacted by movements in defined short-term interest rate indexes. Under the terms of the leases, Edison Mission Energy may request a lessor, at its option, to refinance the lessor's
debt, which if completed would impact the base lease rent. If a lessor intends to sell its interest in the Collins Station, Edison Mission Energy has a first right of refusal to acquire the facility
at fair market value. Minimum lease payments (included in the table above) are $50.3 million in 2002, $50.3 million in 2003, $50.4 million in 2004, $50.3 million in 2005
and $90.3 million in 2006. At December 31, 2001, the total remaining minimum lease payments were $1.5 billion.

Edison Mission Energy Master Turbine Lease

In December 2000, Edison Mission Energy entered into a master lease and related agreements which together initially provided for the construction of
several new projects using in total nine turbines on order from Siemens Westinghouse. Under the terms of the master lease, an independent party is owner
of the projects and is responsible for their development and construction using these turbines. In turn, as agent for the owner, Edison Mission Energy has agreed to supervise the development and
construction of the new projects, which duties include arranging for funding to enable the owner to make payments for construction costs, including progress payments on the turbines. Edison Mission
Energy is required to deposit treasury notes equal to 103% of the construction costs incurred by the owner from time to time as collateral security for its obligation to assist the owner to complete
the projects. This can only be called upon in certain limited circumstances. Edison Mission Energy has agreed to lease from the owner each project upon its completion and to provide a guarantee of
each project's residual value at the end of the lease term. Use of this structure during the development and construction phase of a project allows Edison Mission Energy to retain the flexibility to
finance the project on a long-term basis through a lease structure. Lease payments are scheduled to begin in November 2003. Minimum lease payments (included in the table above) are
$3.1 million in 2003, $27.7 million in 2004, $50.2 million in 2005 and $71.5 million in 2006. At December 31, 2001, the total remaining minimum lease payments were
$452.9 million. The term of the master lease ends in 2010. The master lease grants Edison Mission Energy, as lessee, a purchase option based on the lease balance which can be exercised at any
time during the term.

Due
to unfavorable market conditions, Edison Mission Energy decided to terminate its obligation to cause the completion of three of the four projects (for which Edison Mission Energy
planned to use

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six of the turbines). In order to terminate the master lease for these projects, Edison Mission Energy exercised an option to acquire the assets of these projects (principally the purchase rights for
the related turbines) for a purchase price of approximately $25 million. As a result of Edison Mission Energy's decision to terminate these projects, Edison Mission Energy recorded a loss of
$25.4 million during the year ended December 31, 2001. In connection with the termination, Edison Mission Energy obtained a release of the treasury notes held as collateral for its
performance obligations with respect to these projects. Also, as part of the termination, Edison Mission Energy acquired the purchase orders for the six turbines and, thus, can continue to make
progress payments and take delivery of them should market conditions improve. No progress payments are due until 2003, however, and Edison Mission Energy has the right to terminate these orders prior
to the end of 2002 with no additional payment obligations.

Edison
Mission Energy exercised its right to purchase the remaining three turbines under the master lease in March 2002 for $61.1 million, effectively terminating any
remaining obligations under this arrangement. Edison Mission Energy plans to use these turbines for a new gas-fired project and, accordingly, Edison Mission Energy plans to capitalize the
amount paid to purchase the turbines from the master lease. Edison Mission Energy's remaining purchase obligations under these turbines purchase orders are $53 million.

Note 17. Related Party Transactions

Specified administrative services such as payroll and employee benefit programs, all performed by Edison International or Southern California Edison Company
employees, are shared among all affiliates of Edison International, and the costs of these corporate support services are allocated to all
affiliates, including us. Costs are allocated based on one of the following formulas: percentage of time worked, equity in investment and advances, number of employees, or multi-factor (operating
revenues, operating expenses, total assets and number of employees). In addition, services of Edison International or Southern California Edison employees are sometimes directly requested by us and
these services are performed for our benefit. Labor and expenses of these directly requested services are specifically identified and billed at cost. We believe the allocation methodologies utilized
are reasonable. We made reimbursements for the cost of these programs and other services, which amounted to $71.3 million, $65.3 million and $34.6 million in 2001, 2000 and 1999,
respectively. Accounts payableaffiliates associated with these administrative services totaled $12 million and $25.5 million at December 31, 2001 and 2000,
respectively.

We
participate in the insurance program of Edison International, including property, general liability, workers compensation and various other specialty policies. Our insurance premiums
are generally based on our share of risk related to each policy. In connection with the property insurance program, a portion of the risk is reinsured by a captive insurance subsidiary of Edison
International. Under these reinsurance policies, we are entitled to receive a premium refund to the extent that our loss experience is less than estimated.

We
record accruals for tax liabilities and/or tax benefits which are settled quarterly according to a series of tax sharing agreements as described in Note 2. Under these
agreements, we recognized tax benefits applicable to continuing operations of $41.2 million, $226.3 million and $75.5 million for 2001, 2000 and 1999, respectively. See
Note 12Income Taxes. Amounts included in Accounts receivable

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affiliates associated with these tax benefits totaled $253.7 million and $149.9 million at December 31, 2001 and 2000, respectively.

Edison
Mission Operation & Maintenance, Inc., an indirect, wholly-owned affiliate of Edison Mission Energy, has entered into operation and maintenance agreements with
partnerships in which Edison Mission Energy has a 50% or less ownership interest. Pursuant to the negotiated agreements, Edison Mission Operation & Maintenance is to perform all operation and
maintenance activities necessary for the production of power by these partnerships' facilities. The agreements continue until terminated by either party. Edison Mission Operation & Maintenance
is paid for all costs incurred with operating and maintaining such facilities and may also earn an incentive compensation as set forth in the agreements. Edison Mission Energy recorded revenues under
the operation and maintenance agreements of $24.1 million, $27.9 million and $28.9 million in 2001, 2000 and 1999, respectively. Accounts receivableaffiliates for
Edison Mission Operation & Maintenance totaled $5.7 million and $4.9 million at December 31, 2001 and 2000, respectively.

Specified
Edison Mission Energy subsidiaries have ownership in partnerships that sell electricity generated by their project facilities to Southern California Edison Company and others
under the terms of long-term power purchase agreements. Sales by these partnerships to Southern California Edison Company under these agreements amounted to $982.8 million,
$715.9 million and $512.6 million in 2001, 2000 and 1999, respectively.

Note 18. Supplemental Statements of Cash Flows Information

|                           |                                      | Years Ended December 31, |  
|-------------------------- | ------------------------------------ | ------------------------ | -
|
|Cash paid                  |                                      |                          |  
|                           | Interest (net of amount capitalized) |                          | $
|                           | Income taxes (receipts)              |                          | $
|Details of assets acquired |                                      |                          |  
|                           | Fair value of assets acquired        |                          | $
|                           | Liabilities assumed                  |                          |  
|                           |                                      |                          |  
|                           | Net cash paid for acquisitions       |                          | $
|                           |                                      |                          |  

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Note 19. Business Segments

We
operate predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia-Pacific, and Europe and
Middle East. Our plants are located in different geographic areas, which mitigate the effects of regional markets, economic downturns or unusual weather conditions.

Electric
power and steam generated in the United States is sold primarily under (1) long-term contracts, with terms of 15 to 30 years, to domestic electric
utilities and industrial steam users, (2) through a centralized power pool, or (3) under three power purchase agreements with Commonwealth Edison, which assigned its rights and
obligations under these power purchase agreements to Exelon Generation Company, which began December 15, 1999 and have a term of up to five years. Edison Mission Energy currently derives a
significant source of its revenues from the sale of energy and capacity to Exelon Generation Company under these power purchase agreements terminating in December 2004. Edison Mission Energy's
revenues from Commonwealth Edison were $1.1 billion for each of the years ended December 31, 2001 and 2000, respectively. This represents 36% and 42% of our consolidated revenues in 2001
and 2000, respectively. Edison Mission Energy's share of equity in earnings from partnerships that have long-term power purchase agreements with Southern California Edison were
$225.8 million, $153.0 million and $132.4 million for the years ended December 31, 2001, 2000 and 1999, respectively. This represents 8% in 2001, 6% in 2000 and 10% in 1999
of our consolidated revenues. Both companies' revenues are included in the Americas region shown below.

A
plant located in Australia sells its energy and capacity production through a centralized power pool by entering into short and/or long-term contracts to hedge against the
volatility of price fluctuations in the pool. A plant located in the United Kingdom sells its energy and capacity production by entering into physical bilateral contracts with various counterparties.
Other electric power generated overseas is sold under short and/or long-term contracts to either electricity companies, electricity buying groups or electric utilities located in the
country where the power is generated. Intercompany transactions have been eliminated in the following segment information.

|                                                                 |                          | Americas |         | Asia
Pacific |   | Europe,
and
Middle East |       | Corporate/
Other |       | Total |  
|---------------------------------------------------------------- | ------------------------ | -------- | ------- | ------------ | - | ----------------------- | ----- | ---------------- | ----- | ----- | -
|2001                                                             |                          |          |         |              |   |                         |       |                  |       |       |  
|Electric & operating revenues                                    |                          | $        | 1,613.1 |              | $ | 464.4                   |       | $                | 457.3 |       | $
|Net gains (losses) from energy trading and price risk management |                          |          | 35.3    |              |   | (4.1                    | )     |                  | 3.3   |       |  
|Equity in income from investments                                |                          |          | 353.3   |              |   | 7.5                     |       |                  | 13.3  |       |  
|                                                                 |                          |          |         |              |   |                         |       |                  |       |       |  
|                                                                 | Total operating revenues |          |         | 2,001.7      |   |                         | 467.8 |                  |       | 473.9 |  
|Fuel and plant operations                                        |                          |          | 1,165.2 |              |   | 265.9                   |       |                  | 297.7 |       |  
|Depreciation and amortization                                    |                          |          | 167.2   |              |   | 51.9                    |       |                  | 42.6  |       |  
|Long-term incentive compensation                                 |                          |          |        |              |   |                        |       |                  |      |       |  
|Asset impairment and other charges                               |                          |          | 59.1    |              |   |                        |       |                  |      |       |  
|Administrative and general                                       |                          |          | 32.5    |              |   |                        |       |                  |      |       |  
|                                                                 |                          |          |         |              |   |                         |       |                  |       |       |  
|Income (loss) from operations                                    |                          | $        | 577.7   |              | $ | 150.0                   |       | $                | 133.6 |       | $
|                                                                 |                          |          |         |              |   |                         |       |                  |       |       |  

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|Identifiable assets                                      |                          | $ | 3,741.6 |         | $ | 2,507.8 |         | $ | 1,914.8 |         | $ | 947.3  |       | $ | 9,111.5  |         
|-------------------------------------------------------- | ------------------------ | - | ------- | ------- | - | ------- | ------- | - | ------- | ------- | - | ------ | ----- | - | -------- | --------
|Assets of discontinued operations                        |                          |   |        |         |   |        |         |   | 153.6   |         |   |       |       |   | 153.6    |         
|Equity investments and advances                          |                          |   | 1,166.2 |         |   | 563.2   |         |   | 100.5   |         |   |       |       |   | 1,829.9  |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|                                                         | Total assets             |   | $       | 4,907.8 |   | $       | 3,071.0 |   | $       | 2,168.9 |   | $      | 947.3 |   | $        | 11,095.0
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Additions to property and plant                          |                          | $ | 142.3   |         | $ | 66.6    |         | $ | 12.7    |         | $ | 20.6   |       | $ | 242.2    |         
|2000                                                     |                          |   |         |         |   |         |         |   |         |         |   |        |       |   |          |         
|Electric & operating revenues                            |                          | $ | 1,571.0 |         | $ | 184.2   |         | $ | 543.6   |         | $ |       |       | $ | 2,298.8  |         
|Net losses from energy trading and price risk management |                          |   | (17.3   | )       |   |        |         |   |        |         |   |       |       |   | (17.3    | )       
|Equity in income from investments                        |                          |   | 257.2   |         |   | 14.6    |         |   | (5.0    | )       |   |       |       |   | 266.8    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|                                                         | Total operating revenues |   |         | 1,810.9 |   |         | 198.8   |   |         | 538.6   |   |        |      |   |          | 2,548.3 
|Fuel and plant operations                                |                          |   | 1,131.6 |         |   | 61.5    |         |   | 270.6   |         |   |       |       |   | 1,463.7  |         
|Depreciation and amortization                            |                          |   | 191.2   |         |   | 35.0    |         |   | 44.7    |         |   | 11.1   |       |   | 282.0    |         
|Long-term incentive compensation                         |                          |   |        |         |   |        |         |   |        |         |   | (56.0  | )     |   | (56.0    | )       
|Administrative and general                               |                          |   | 21.1    |         |   |        |         |   |        |         |   | 139.8  |       |   | 160.9    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Income (loss) from operations                            |                          | $ | 467.0   |         | $ | 102.3   |         | $ | 223.3   |         | $ | (94.9  | )     | $ | 697.7    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Identifiable assets                                      |                          | $ | 5,606.6 |         | $ | 1,408.9 |         | $ | 1,935.9 |         | $ | 567.2  |       | $ | 9,518.6  |         
|Assets of discontinued operations                        |                          |   |        |         |   |        |         |   | 3,410.9 |         |   |       |       |   | 3,410.9  |         
|Equity investments and advances                          |                          |   | 952.3   |         |   | 1,048.9 |         |   | 86.4    |         |   |       |       |   | 2,087.6  |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|                                                         | Total assets             |   | $       | 6,558.9 |   | $       | 2,457.8 |   | $       | 5,433.2 |   | $      | 567.2 |   | $        | 15,017.1
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Additions to property and plant                          |                          | $ | 294.1   |         | $ | 4.0     |         | $ | 17.2    |         | $ | 15.3   |       | $ | 330.6    |         
|1999                                                     |                          |   |         |         |   |         |         |   |         |         |   |        |       |   |          |         
|Electric & operating revenues                            |                          | $ | 378.6   |         | $ | 213.6   |         | $ | 490.6   |         | $ |       |       | $ | 1,082.8  |         
|Net losses from energy trading and price risk management |                          |   | (6.4    | )       |   |        |         |   |        |         |   |       |       |   | (6.4     | )       
|Equity in income from investments                        |                          |   | 224.8   |         |   | 18.1    |         |   | 1.4     |         |   |       |       |   | 244.3    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|                                                         | Total operating revenues |   |         | 597.0   |   |         | 231.7   |   |         | 492.0   |   |        |      |   |          | 1,320.7 
|Fuel and plant operations                                |                          |   | 237.7   |         |   | 73.8    |         |   | 247.8   |         |   |       |       |   | 559.3    |         
|Depreciation and amortization                            |                          |   | 52.5    |         |   | 40.5    |         |   | 42.2    |         |   | 8.9    |       |   | 144.1    |         
|Long-term incentive compensation                         |                          |   |        |         |   |        |         |   |        |         |   | 136.3  |       |   | 136.3    |         
|Administrative and general                               |                          |   |        |         |   |        |         |   |        |         |   | 114.8  |       |   | 114.8    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Income (loss) from operations                            |                          | $ | 306.8   |         | $ | 117.4   |         | $ | 202.0   |         | $ | (260.0 | )     | $ | 366.2    |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Identifiable assets                                      |                          | $ | 6,708.4 |         | $ | 1,421.1 |         | $ | 1,934.3 |         | $ | 81.0   |       | $ | 10,144.8 |         
|Assets of discontinued operations                        |                          |   |        |         |   |        |         |   | 3,448.5 |         |   |       |       |   | 3,448.5  |         
|Equity investments and advances                          |                          |   | 862.2   |         |   | 1,063.1 |         |   | 15.6    |         |   |       |       |   | 1,940.9  |         
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|                                                         | Total assets             |   | $       | 7,570.6 |   | $       | 2,484.2 |   | $       | 5,398.4 |   | $      | 81.0  |   | $        | 15,534.2
|                                                         |                          |   |         |         |   |         |         |   |         |         |  
|Additions to property and plant                          |                          | $ | 6,127.0 |         | $ | 6.1     |         | $ | 29.0    |         | $ | 52.7   |       | $ | 6,214.8  |         

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Geographic Information

Foreign operating revenues and assets by country included in the table above are shown below.

|                             |                    | Years Ended December 31, |      
|---------------------------- | ------------------ | ------------------------ | -----
|
|Operating revenues           |                    |                          |      
|                             | Australia          |                          | $    
|                             | New Zealand        |                          |      
|                             | Indonesia          |                          |      
|                             | Other Asia Pacific |                          |      
|                             |                    |                          |      
|Total Asia-Pacific           |                    | $                        | 467.8
|                             |                    |                          |      
|                             | United Kingdom     |                          | $    
|                             | Turkey             |                          |      
|                             | Spain              |                          |      
|                             | Italy              |                          |      
|                             |                    |                          |      
|Total Europe and Middle East |                    | $                        | 473.9
|                             |                    |                          |      

|                             |                              | December 31,
|---------------------------- | ---------------------------- | ------------
|
|Assets                       |                              |             
|                             | Australia                    |             
|                             | New Zealand                  |             
|                             | Indonesia                    |             
|                             | Other Asia-Pacific           |             
|                             |                              |             
|Total Asia Pacific           |                              | $           
|                             |                              |             
|                             | United Kingdom (1)           |             
|                             | Turkey                       |             
|                             | Spain                        |             
|                             | Italy                        |             
|                             | Other Europe and Middle East |             
|                             |                              |             
|Total Europe and Middle East |                              | $           
|                             |                              |             

---

158

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Note 20. Quarterly Financial Data (unaudited)

|2001                                                                                     |  | First(i) |       | Second |   | Third(i) |   | Fourth(i) |           | Total |  
|---------------------------------------------------------------------------------------- |  | -------- | ----- | ------ | - | -------- | - | --------- | --------- | ----- | -
|Operating revenues                                                                       |  | $        | 586.3 |        | $ | 723.4    |   | $         | 1,073.3   |       | $
|Operating income (loss)                                                                  |  |          | 113.4 |        |   | 200.8    |   |           | 436.8     |       |  
|Income (loss) from continuing operations before accounting change and extraordinary gain |  |          | (10.8 | )      |   | 40.9     |   |           | 141.1     |       |  
|Discontinued operations, net                                                             |  |          | 19.0  |        |   | (40.6    | ) |           | (1,206.6) | (ii)  |  
|Net income (loss)                                                                        |  |          | 8.5   |        |   | 0.3      |   |           | (1,050.5) | (ii)  |  

|2000                                                              |  | First(i) |       | Second |   | Third(i) |   | Fourth(i) |       | Total
|----------------------------------------------------------------- |  | -------- | ----- | ------ | - | -------- | - | --------- | ----- | -----
|Operating revenues                                                |  | $        | 493.4 |        | $ | 584.8    |   | $         | 923.5 |      
|Operating income                                                  |  |          | 44.6  |        |   | 115.9    |   |           | 486.7 |      
|Income (loss) from continuing operations before accounting change |  |          | (72.0 | )      |   | (7.5     | ) |           | 204.9 |      
|Discontinued operations, net                                      |  |          | 37.8  |        |   | (11.1    | ) |           | (13.7 | )    
|Net income (loss)                                                 |  |          | (12.5 | )      |   | (18.5    | ) |           | 191.3 |      

---

159

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Positions with Mission Energy Holding Company

Listed below are our current directors and executive officers and their ages and positions as of March 28, 2002.

|Name, Position and Age                                                      |  | Director
Continuously
Since |  | Term
Expires |  | Position Held
Continuously
Since |  | Term
Expires
|--------------------------------------------------------------------------- |  | --------------------------- |  | ------------ |  | -------------------------------- |  | ------------
|John E. Bryson, 58
Director, Chairman of the Board                          |  | 2001                        |  | 2002         |  |                                 |  |            
|Frank B. Bilotta, 41
Director                                               |  | 2001                        |  | 2002         |  |                                 |  |            
|Bryant C. Danner, 64
Director                                               |  | 2001                        |  | 2002         |  |                                 |  |            
|William J. Heller, 45
Director                                              |  | 2002                        |  | 2002         |  |                                 |  |            
|Theodore F. Craver, Jr., 50
Director, Chief Executive Officer and President |  | 2001                        |  | 2002         |  | 2001                             |  | 2002        
|Barbara Mathews, 49
Secretary and Assistant General Counsel                 |  |                            |  |             |  | 2001                             |  | 2002        
|Kevin M. Smith, 44
Senior Vice President and Chief Financial Officer        |  |                            |  |             |  | 2001                             |  | 2002        
|Raymond W. Vickers, 59
Senior Vice President and General Counsel            |  |                            |  |             |  | 2001                             |  | 2002        

Business Experience

Below is a description of the principal business experience during the past five years of each of the individuals named above and the name of each public company
in which any director named above is a director.

Mr. Brysonhas been director and chairman of the board of Mission Energy Holding Company since June 2001. Mr. Bryson
has been director and chairman of the board of Edison Mission Energy since January 2000. Mr. Bryson was director of Edison Mission Energy from January 1986 to January 1998.
Mr. Bryson has been president of Edison International since January 2000 and chairman of the board and chief executive officer of Edison International since 1990. Mr. Bryson
served as chairman of the board, chief executive officer and a director of Southern California Edison from 1990 to January 2000. Mr. Bryson is a director of The Walt Disney Company, The
Boeing Company, and Pacific American Income Shares, Inc. and LM Institutional Fund Advisors I, Inc.

Mr. Bilottahas been director of Mission Energy Holding Company since June 2001 and serves as Mission Energy Holding
Company's independent director. Mr. Bilotta has over 16 years of diversified accounting and legal experience with an emphasis in asset-backed securities. Prior to joining Global
Securitization Services in September of 2000, Mr. Bilotta served as senior vice president at Lord Securities Corporation. He also served as an independent director on a variety of structured
finance vehicles. Mr. Bilotta served as manager of Securitized Debt at Morgan Stanley & Co. Incorporated prior to joining Lord Securities in December 1996. He was vice president
at Lehman Brothers Inc. prior to joining Morgan Stanley in 1995.

Mr. Dannerhas been director of Mission Energy Holding Company since June 2001. Mr. Danner has been director of
Edison Mission Energy since May 1993. Mr. Danner has been executive vice

160

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president and general counsel of Edison International since June 1995. Mr. Danner was executive vice president and general counsel of Southern California Edison from June 1995
until January 2000. Mr. Danner was senior vice president and general counsel of Edison International and Southern California Edison from July 1992 until May 1995.

Mr. Hellerhas been director of Mission Energy Holding Company since January 2002. Mr. Heller has been director,
president and chief executive officer of Edison Mission Energy since January 2002. Mr. Heller was senior vice president and division president of Edison Mission Energy, Europe, Central
Asia, Middle East and Africa from February 2000 until January 2002. Mr. Heller was elected director of Edison Mission Energy's board of directors, effective December 9,
1999, and subsequently resigned effective February 7, 2000. Mr. Heller was senior vice president of Strategic Planning and New Business Development for Edison International from
January 1996 until February 2000. Prior to joining Edison International, Mr. Heller was with McKinsey and Company, Inc. from 1982 to 1995, serving as principal and head of
McKinsey's Los Angeles Energy Practice from 1991 to 1995.

Mr. Craverhas been director, chief executive officer and president of Mission Energy Holding Company since June 2001.
Mr. Craver has been director of Edison Mission Energy since January 2001. Since January 2002, Mr. Craver has been executive vice president of Edison International.
Mr. Craver has been senior vice president, chief financial officer, and treasurer of Edison International since January 2000. Mr. Craver has been chairman of the board and chief
executive officer of Edison Enterprise since September 1999. Mr. Craver served as senior vice president and treasurer of Edison International from February 1998 to
January 2000. Mr. Craver served as senior vice president and treasurer of Southern California Edison from February 1998 to September 1999. Mr. Craver served as vice
president and treasurer of Edison International and Southern California Edison from September 1996 to February 1998. Mr. Craver was executive vice president and corporate
treasurer of First Interstate Bancorp from September 1990 to April 1996.

Ms. Mathewshas been secretary and assistant general counsel of Mission Energy Holding Company since June 2001.
Ms. Mathews has been assistant general counsel of Edison International and Southern California Edison since August 1996. Prior to joining Edison International and Southern California
Edison, Ms. Mathews was a partner with the law firm of Arnold & Porter.

Mr. Smithhas been senior vice president and chief financial officer of Mission Energy Holding Company since September 2001.
Mr. Smith has been senior vice president and chief financial officer of Edison Mission Energy since May 1999. Mr. Smith served as treasurer of Edison Mission Energy from 1992 to
2000 and was elected a vice president in 1994. During March 1998 until September 1999, Mr. Smith also held the position of regional vice president of the Americas region.

Mr. Vickershas been senior vice president and general counsel of Mission Energy Holding Company since June 2001.
Mr. Vickers has been senior vice president and general counsel of Edison Mission Energy since March 1999. Prior to joining Edison Mission Energy, Mr. Vickers was a partner with
the law firm of Skadden, Arps, Slate, Meagher & Flom LLP concentrating on international business transactions, particularly cross-border capital markets and investment transactions, project
implementation and finance.

ITEM 11. EXECUTIVE COMPENSATION

Our officers receive compensation from Edison Mission Energy or Edison International and receive no compensation from us. For information concerning the chief
executive officer and four most highly paid executive officers, other than the chief executive officer, of Edison Mission Energy and Edison International, see Edison Mission Energy's
Form 10-K for the year ended December 31, 2001 and Edison International Proxy Statement relating to its 2002 Annual Meeting of Shareholders, respectively, which are
incorporated by reference.

161

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Certain Beneficial Owners

Set forth below is certain information regarding each person who is known to us to be the beneficial owner of more than five percent of our common stock.

|Title of Class             |  | Name and Address
of Beneficial Owner                                           |  | Amount and Nature of
Beneficial Ownership                                 |  | Percent of Class |  
|-------------------------- |  | ------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------- |  | ---------------- | -
|Common Stock, no par value |  | The Mission Group
18101 Von Karman Avenue,
Suite 1700
Irvine, California 92612 |  | 1,000 shares held directly and with exclusive voting and investment power |  | 100              | %

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July 1999, Edison Mission Energy made an interest-free loan to Georgia R. Nelson, who at that time was senior vice president of Edison
Mission Energy and president of Midwest Generation EME, LLC, in the amount of $179,800 in exchange for a note executed by Ms. Nelson and payable to Edison Mission Energy 365 days
following the conclusion of her assignment in Chicago, Illinois.

162

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|(a) |  | (1) |  | List of Financial Statements                                                                                                                                                                                                                               
|--- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |     |  | See Index to Consolidated Financial Statements at Item 8 of this report.                                                                                                                                                                                   
|    |  | (2) |  | List of Financial Statement Schedules                                                                                                                                                                                                                      
|    |  |     |  | The following items are filed as a part of this report pursuant to Item 14(d) of Form 10-K:                                                                                                                                                                
|    |  |     |  |   The Cogeneration Group Combined Financial Statements as of December 31, 2001, 2000 and 1999.                                                                                                                                                            
|    |  |     |  |   Four Star Financial Statements as of December 31, 2001, 2000 and 1999.                                                                                                                                                                                  
|    |  |     |  | Schedule ICondensed Financial Information of Parent                                                                                                                                                                                                       
|    |  |     |  | Schedule IIValuation and Qualifying Accounts                                                                                                                                                                                                              
|    |  |     |  | All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the consolidated financial statements or notes
thereto.
|(b) |  |     |  | Reports on Form 8-K                                                                                                                                                                                                                                        
|    |  |     |  | No reports on Form 8-K were filed during the quarter ended December 31, 2001.                                                                                                                                                                              
|(c) |  |     |  | Exhibits                                                                                                                                                                                                                                                   

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement for the sale and purchase of shares in First Hydro Limited, dated December 21, 1995, between PSB Holding Limited and First Hydro Finance Plc, incorporated by reference to Exhibit 2.1 to Edison Mission
Energy's Form 8-K dated December 21, 1995.                                                                                                                                                                                                                                                                                                                                                                                                          
|2.2         |  | Transaction Implementation Agreement, dated March 29, 1997, between The State Electricity Commission of Victoria, Edison Mission Energy Australia Limited, Loy Yang B Power Station Pty Ltd, Loy Yang Power Limited, The
Honorable Alan Robert Stockdale, Leanne Power Pty Ltd and Edison Mission Energy, incorporated by reference to Exhibit 2.2 to Edison Mission Energy's Form 8-K dated May 22, 1997.                                                                                                                                                                                                                                                             
|2.3         |  | Stock Purchase and Assignment Agreement, dated December 23, 1998, between KES Puerto Rico, L.P., KENETECH Energy Systems, Inc., KES Bermuda, Inc. and Edison Mission Energy del Caribe for the (i) sale and purchase of KES
Puerto Rico, L.P.'s shares in EcoEléctrica Holdings Ltd.; (ii) assignment of KENETECH Energy Systems' rights and interests in that certain Project Note from the Partnership; and (iii) assignment of KES Bermuda, Inc.'s rights and interests in
that certain Administrative Services Agreement dated October 31 1997, incorporated by reference to Exhibit 2.3 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.
|2.4         |  | Asset Purchase Agreement, dated August 1, 1998, between Pennsylvania Electric Company, NGE Generation, Inc., New York State Electric & Gas Corporation and Mission Energy Westside, Inc., incorporated by reference
to Exhibit 2.4 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.                                                                                                                                                                                                                                                                                                                                                          
|2.5         |  | Asset Sale Agreement, dated March 22, 1999, between Commonwealth Edison Company and Edison Mission Energy as to the Fossil Generating Assets, incorporated by reference to Exhibit 2.5 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1998.                                                                                                                                                                                                                                                                                                                                                                                                      

163

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|2.6   |  | Agreement for the Sale and Purchase of Shares in Contact Energy Limited, dated March 10, 1999, between Her Majesty the Queen in Right of New Zealand, Edison Mission Energy Taupo Limited and Edison Mission Energy,
incorporated by reference to Exhibit 2.6 to the Edison Mission Energy's Form 10-Q for the quarter ended March 31, 1999.                                                                                                                                                          
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.7   |  | Sale, Purchase and Leasing Agreement between PowerGen UK plc and Edison First Power Limited for the purchase of the Ferrybridge C Power Station, incorporated by reference to Exhibit 2.7 to Edison Mission Energy's
Form 8-K/A dated July 19, 1999.                                                                                                                                                                                                                                                  
|2.8   |  | Sale, Purchase and Leasing Agreement between PowerGen UK plc and Edison First Power Limited for the purchase of the Fiddler's Ferry Power Station, incorporated by reference to Exhibit 2.8 to Edison Mission Energy's
Form 8-K/A dated July 19, 1999.                                                                                                                                                                                                                                                
|2.9   |  | Purchase and Sale Agreement, dated May 10, 2000, between Edison Mission Energy, P & L Coal Holdings Corporation and Gold Fields Mining Corporation, incorporated by reference to Exhibit 2.9 to Edison Mission
Energy's 10-Q for the quarter ended September 30, 2000.                                                                                                                                                                                                                                
|2.10  |  | Asset Purchase Agreement dated 3 March 2000 between MEC International B.V. and UPC International Partnership CV II, incorporated by reference to Exhibit 10.80 to Edison Mission Energy's Form 10-Q for the quarter
ended March 31, 2000.                                                                                                                                                                                                                                                             
|2.11  |  | Stock Purchase Agreement, dated November 17, 2000 between Mission Del Sol, LLC and Texaco Inc., incorporated by reference to Exhibit 2.11 to Edison Mission Energy's Form 10-K for the year ended December 31,
2000.                                                                                                                                                                                                                                                                                  
|2.12  |  | Agreement relating to the sale and purchase of the business carried on at Fiddler's Ferry Power Station, Warrington, Cheshire, dated October 6, 2001, among Edison First Power Limited, AEP Energy Services UK Generation
Limited, AEPR Global Holland Holding BV, and American Electric Power Company, Inc., incorporated by reference to Exhibit 2.12 to Edison Mission Energy's Form 8-K dated December 21, 2001.                                                                                  
|2.13  |  | Agreement relating to the sale and purchase of the business carried on at Ferrybridge "C" Power Station, Knottingley, West Yorkshire, dated October 6, 2001, among Edison First Power Limited, AEP Energy Services UK
Generation Limited, AEPR Global Holland Holding BV, and American Electric Power Company, Inc., incorporated by reference to Exhibit 2.13 to Edison Mission Energy's Form 8-K dated December 21, 2001.                                                                           
|3.1   |  | Amended and Restated Certificate of Incorporation, as amended, of Mission Energy Holding Company, incorporated by reference to Exhibit 3.1 to Mission Energy Holding Company's Registration Statement on Form S-4
to the Securities and Exchange Commission on August 29, 2001.                                                                                                                                                                                                                       
|3.2   |  | By-laws of Mission Energy Holding Company, incorporated by reference to Exhibit 3.2 to Mission Energy Holding Company's Registration Statement on Form S-4 to the Securities and Exchange Commission on
August 29, 2001.                                                                                                                                                                                                                                                                              
|3.3   |  | First Amended and Restated Articles of Incorporation of Edison Mission Energy. Originally filed with Edison Mission Energy's Registration Statement on Form 10 to the Securities and Exchange Commission on September 30,
 1994 and amended by Amendment No. 1 thereto dated November 19, 1994 and Amendment No. 2 thereto dated November 21, 1994 (as so amended, the "Form 10"), incorporated by reference to Exhibit 3.1 to Edison Mission Energy's Form 10-K for
the year ended December 31, 2000.
|3.3.1 |  | Certificate of Amendment of Articles of Incorporation of Edison Mission Energy dated October 18, 1988, originally filed with Edison Mission Energy's Form 10, incorporated by reference to Exhibit 3.1.1 to Edison
Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                                   
|3.3.2 |  | Certificate of Amendment of Articles of Incorporation of Edison Mission Energy dated January 17, 2001, incorporated by reference to Exhibit 3.1.2 to Edison Mission Energy's Form 10-K for the year ended December
31, 2000.                                                                                                                                                                                                                                                                          

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|3.3.3 |  | Certificate of Amendment of Articles of Incorporation of Edison Mission Energy dated July 2, 2001, incorporated by reference to Exhibit 3.1.3 to Edison Mission Energy's 10-Q for the quarter ended June 30,
2001.                                                                                                                                                                                                                                                                                                    
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.4   |  | By-Laws of Edison Mission Energy as amended to and including January 1, 2000, incorporated by reference to Exhibit 3.2 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                                                                                                                                     
|3.4.1 |  | Amendment to By-Laws of Edison Mission Energy dated January 15, 2001, incorporated by reference to Exhibit 3.2.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                                                                                                                                           
|4.1   |  | Indenture, dated as of July 2, 2001, by and between Mission Energy Holding Company and Wilmington Trust Company with respect to $900 million aggregate principal amount of 13.50% Senior Secured Notes due 2008,
incorporated by reference to Exhibit 4.1 to Mission Energy Holding Company's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                                        
|4.2   |  | Registration Rights Agreement, dated as of July 2, 2001, by and between Mission Energy Holding Company and Goldman, Sachs & Co., incorporated by reference to Exhibit 4.2 to Mission Energy Holding Company's
Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                                                                                                                        
|4.3   |  | Indenture Escrow and Security Agreement, dated as of July 2, 2001, by and among Mission Energy Holding Company, Wilmington Trust Company, as Trustee, and Wilmington Trust Company, as Indenture Escrow Agent,
incorporated by reference to Exhibit 4.3 to Mission Energy Holding Company's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                                          
|4.4   |  | Amended and Restated Credit Agreement, dated as of July 3, 2001, by and among Mission Energy Holding Company, the lenders party thereto from time to time, Goldman Sachs Credit Partners L.P., as sole Lead Arranger, as
Administrative Agent and as Term Loan Collateral Agent, and Lehman Commercial Paper Inc., as Syndication Agent, incorporated by reference to Exhibit 4.4 to Mission Energy Holding Company's Registration Statement on Form S-4 to the
Securities and Exchange Commission on August 29, 2001.
|4.5   |  | Loan Escrow and Security Agreement, dated as of July 2, 2001, by and among Mission Energy Holding Company, Goldman, Sachs & Co., as Collateral Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent,
and Wilmington Trust Company, as Loan Escrow Agent, incorporated by reference to Exhibit 4.5 to Mission Energy Holding Company's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29,
2001.                                                                  
|4.6   |  | Pledge and Security Agreement, dated as of July 2, 2001, by and among Mission Energy Holding Company, Goldman Sachs Credit Partners L.P., as Administrative Agent, and Wilmington Trust Company, as Trustee and Joint
Collateral Agent, incorporated by reference to Exhibit 4.6 to Mission Energy Holding Company's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                 
|4.7   |  | Indenture, dated as of August 10, 2001, among Edison Mission Energy and The Bank of New York as Trustee, incorporated by reference to Exhibit 4.1 to Edison Mission Energy's Registration Statement on
Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                                                                                                                                                         
|4.7.1 |  | Form of 10% Senior Note due 2008 (included in Exhibit 4.1) to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001).                                                                                                                                                                                                                                                                                                                               

165

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|4.8    |  | Registration Rights Agreement, dated as of August 7, 2001, among Edison Mission Energy, Credit Suisse First Boston Corporation, BMO Nesbitt Burns Corp., Salomon Smith Barney Inc., SG Cowen Securities Corporation, TD
Securities (USA) Inc. and Westdeutsche Landesbank Girozentrale (Düsseldorf), incorporated by reference to Exhibit 4.2 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on
August 29, 2001.                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9    |  | Indenture, dated as of April 5, 2001, among Edison Mission Energy and United States Trust Company of New York as Trustee, incorporated by reference to Exhibit 4.20 to Edison Mission Energy's and Midwest Generation
LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                                
|4.9.1  |  | Form of 9.875% Senior Note due 2011 (included in Exhibit 4.1 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 24, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.10   |  | Registration Rights Agreement, dated as of April 2, 2001, among Edison Mission Energy and Credit Suisse First Boston Corporation and Westdeutsche Landesbank Girozentrale (Düsseldorf) as representatives of the Initial
Purchasers, incorporated by reference to Exhibit 4.2 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 24, 2001.                                                                                                                                                                                                   
|4.11   |  | Guarantee, dated as of August 17, 2000, made by Edison Mission Energy, as Guarantor in favor of Powerton Trust I, as Owner Lessor, incorporated by reference to Exhibit 4.9 to Edison Mission Energy's and Midwest
Generation LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                        
|4.11.1 |  | Schedule identifying substantially identical agreement to Guarantee constituting Exhibit 4.5 hereto, incorporated by reference to Exhibit 4.9.1 to Edison Mission Energy's and Midwest Generation LLC's
Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                                                    
|4.12   |  | Guarantee, dated as of August 17, 2000, made by Edison Mission Energy, as Guarantor in favor of Joliet Trust I, as Owner Lessor, incorporated by reference to Exhibit 4.10 to Edison Mission Energy's and Midwest
Generation LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                         
|4.12.1 |  | Schedule identifying substantially identical agreement to Guarantee constituting Exhibit 4.6 hereto, incorporated by reference to Exhibit 4.10.1 to Edison Mission Energy's and Midwest Generation LLC's
Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                                                   
|4.13   |  | Registration Rights Agreement, dated as of August 17, 2000, among Edison Mission Energy, Midwest Generation, LLC and Credit Suisse First Boston Corporation and Lehman Brothers Inc., as representatives of the Initial
Purchasers, incorporated by reference to Exhibit 4.11 to Edison Mission Energy's and Midwest Generation LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                      
|4.14   |  | Participation Agreement (T1), dated as of August 17, 2000, by and among, Midwest Generation, LLC, Powerton Trust I, as the Owner Lessor, Wilmington Trust Company, as the Owner Trustee, Powerton Generation I, LLC, as
the Owner Participant, Edison Mission Energy, United States Trust Company of New York, as the Lease Indenture Trustee, and United States Trust Company of New York, as the Pass Through Trustees, incorporated by reference to Edison Mission Energy's and
Midwest Generation LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.
|4.14.1 |  | Schedule identifying substantially identical agreement to Participation Agreement constituting Exhibit 4.8 hereto, incorporated by reference to Exhibit 4.12.1 to Edison Mission Energy's and Midwest Generation
LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                                     

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|4.15   |  | Participation Agreement (T1), dated as of August 17, 2000, by and among, Midwest Generation, LLC, Joliet Trust I, as the Owner Lessor, Wilmington Trust Company, as the Owner Trustee, Joliet Generation I, LLC, as the
Owner Participant, Edison Mission Energy, United States Trust Company of New York, as the Lease Indenture Trustee and United States Trust Company of New York, as the Pass Through Trustees, incorporated by reference to Exhibit 4.13 to Edison
Mission Energy's and Midwest Generation LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.15.1 |  | Schedule identifying substantially identical agreement to Participation Agreement constituting Exhibit 4.9 hereto, incorporated by reference to Exhibit 4.13.1 to Edison Mission Energy's and Midwest Generation
LLC's Registration Statement on Form S-4 to the Securities and Exchange Commission on April 20, 2001.                                                                                                                                                                                                                                                                                                
|4.16   |  | Copy of the Global Debenture representing Edison Mission Energy's 97/8% Junior Subordinated Deferrable Interest Debentures, Series A, Due 2024, incorporated by reference to Exhibit 4.1 to
Edison Mission Energy's Form 10-K for the year ended December 31, 1994.                                                                                                                                                                                                                                                                                                                                                   
|4.17   |  | Conformed copy of the Indenture, dated as of November 30, 1994, between Edison Mission Energy and The First National Bank of Chicago, as Trustee, incorporated by reference to Exhibit 4.2 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1994.                                                                                                                                                                                                                                                                                                                                                 
|4.17.1 |  | First Supplemental Indenture, dated as of November 30, 1994, to Indenture dated as of November 30, 1994 between Edison Mission Energy and The First National Bank of Chicago, as Trustee, incorporated by reference to
Exhibit 4.2.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994.                                                                                                                                                                                                                                                                                                       
|4.17.2 |  | Second Supplemental Indenture, dated as of August 8, 1995, to Indenture dated as of November 30, 1994 between Edison Mission Energy and The First National Bank of Chicago, as Trustee, incorporated by reference to
Exhibit 4.11.2 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on August 29, 2001.                                                                                                                                                                                                                                                       
|4.18   |  | Indenture, dated as of June 28, 1999, between Edison Mission Energy and The Bank of New York, as Trustee, incorporated by reference to Exhibit 4.1 to Edison Mission Energy's Registration Statement on Form S-4 to
the Securities and Exchange Commission on February 18, 2000.                                                                                                                                                                                                                                                                                                                                      
|4.18.1 |  | First Supplemental Indenture, dated as of June 28, 1999, to Indenture dated as of June 28, 1999, between Edison Mission Energy and The Bank of New York, as Trustee, incorporated by reference to Exhibit 4.2 to Edison
Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on February 18, 2000.                                                                                                                                                                                                                                                                           
|4.19   |  | Copy of the Security representing Edison Mission Energy's 81/8% Senior Notes Due 2002, incorporated by reference to Exhibit 4.4 to Edison Mission Energy's Form 10-K for the year ended
December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                            
|4.20   |  | Promissory Note ($499,450,800), dated as of August 24, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC, incorporated by reference to Exhibit 4.5 to Edison Mission Energy's Form 10-K for
the year ended December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                        
|4.20.1 |  | Schedule identifying substantially identical agreements to Promissory Note constituting Exhibit 4.4 hereto, incorporated by reference to Exhibit 4.5.1 to Edison Mission Energy's Form 10-K for the year ended
December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                     
|4.21   |  | Promissory Note, dated as of June 23, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC, incorporated by reference to Exhibit 4.6 to Edison Mission Energy's Form 10-K for the year ended December
31, 2000.                                                                                                                                                                                                                                                                                                                                                                                         
|10.1   |  | Registration Rights Agreement, dated as of June 23, 1999, between Edison Mission Energy and the Initial Purchasers specified therein, incorporated by reference to Exhibit 10.1 to Edison Mission Energy's Registration
Statement on Form S-4 to the Securities and Exchange Commission on February 18, 2000.                                                                                                                                                                                                                                                                                                         

167

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|10.8    |  | Power Purchase Contract between Southern California Edison Company and Arco Petroleum Products Company (Watson Refinery), incorporated by reference to Exhibit 10.8 to Edison Mission Energy's Form 10.                                                                                                      
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9    |  | Power Supply Agreement between State Electricity Commission of Victoria, Loy Yang B Power Station Pty. Ltd. and the Company Australia Pty. Ltd., as managing partner of the Latrobe Power Partnership, dated December 31,
1992, incorporated by reference to Exhibit 10.9 to Edison Mission Energy's Form 10.
|10.10   |  | Power Purchase Agreement between P.T. Paiton Energy Company as Seller and Perusahaan Umum Listrik Negara as Buyer, dated February 12, 1994, incorporated by reference to Exhibit 10.10 to Edison Mission Energy's
Form 10.                                                                                   
|10.11   |  | Amended and Restated Power Purchase Contract between Southern California Energy Company and Midway-Sunset Cogeneration Company, dated May 5, 1988, incorporated by reference to Exhibit 10.11 to Edison Mission Energy's
Form 10.                                                                            
|10.12   |  | Parallel Generation Agreement between Kern River Cogeneration Company and Southern California Energy Company, dated January 6, 1984, incorporated by reference to Exhibit 10.12 to Edison Mission Energy's
Form 10.                                                                                          
|10.13   |  | Parallel Generation Agreement between Kern River Cogeneration (Sycamore Project) Company and Southern California Energy Company, dated December 18, 1984, incorporated by reference to Exhibit 10.13 to Edison Mission
Energy's Form 10.                                                                     
|10.15   |  | Conformed copy of the Second Amended and Restated U.S. $500 million Bank of America National Trust and Savings Association Credit Agreement, dated as of October 11, 1996, incorporated by reference to Exhibit 10.15.3
to Edison Mission Energy's Form 10-K for the year ended December 31, 1996.           
|10.15.1 |  | Amendment One to Second Amended and Restated U.S. $500 million Bank of America National Trust and Savings Association Credit Agreement, dated as of August 17, 2000, incorporated by reference to Exhibit 10.15.1
to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                 
|10.15.2 |  | Amendment Two to Second Amended and Restated U.S. $425 million Bank of America, N.A. Credit Agreement, dated as of May 30, 2001, incorporated by reference to Exhibit 10.15.2 to Edison Mission Energy's Form 10-Q
for the quarter ended June 30, 2001.                                                      
|10.16   |  | Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to Edison Mission
Energy's Form 10.                                                                           
|10.16.1 |  | Amendment No. 1 to Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16
to Edison Mission Energy's Form 10.                                                        
|10.17   |  | Memorandum of Agreement between Atlantic Richfield Company and Products Cogeneration Company, dated September 17, 1987, incorporated by reference to Exhibit 10.17 to Edison Mission Energy's Form 10.                                                                                                       
|10.18   |  | Memorandum of Ground Lease between Texaco Producing Inc. and Sycamore Cogeneration Company, dated January 19, 1987, incorporated by reference to Exhibit 10.18 to Edison Mission Energy's Form 10.                                                                                                           
|10.19   |  | Amended and Restated Memorandum of Ground Lease between Getty Oil Company and Kern River Cogeneration Company, dated November 14, 1984, incorporated by reference to Exhibit 10.19 to Edison Mission Energy's
Form 10.                                                                                       
|10.20   |  | Memorandum of Lease between Sun Operating Limited Partnership and Midway-Sunset Cogeneration Company, incorporated by reference to Exhibit 10.20 to Edison Mission Energy's Form 10.                                                                                                                         
|10.21   |  | Executive Supplemental Benefit Program, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                                                              

168

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|10.22   |  | 1981 Deferred Compensation Agreement, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23   |  | 1985 Deferred Compensation Agreement for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                        
|10.24   |  | 1987 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                             
|10.25   |  | 1988 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                             
|10.26   |  | 1989 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936).                                                                                                                                             
|10.27   |  | 1990 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936).                                                                                                                                             
|10.28   |  | Annual Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936).                                                                                                                                           
|10.29   |  | Executive Retirement Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).                                                                                                                                                   
|10.31   |  | Estate and Financial Planning Program for Executive Officers, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No 1-9936).                                                                                                                                
|10.32   |  | Letter Agreement with Edward R. Muller, incorporated by reference to Exhibit 10.32 to Edison Mission Energy's Form 10.                                                                                                                                                              
|10.34   |  | Conformed copy of the Guarantee Agreement dated as of November 30, 1994, incorporated by reference to Exhibit 10.34 to Edison Mission Energy's Form 10.                                                                                                                             
|10.35   |  | Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated as of December 18, 1989, incorporated by reference to Exhibit 10.35 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1994.                     
|10.35.1 |  | First Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated November 1, 1991, incorporated by reference to Exhibit 10.35.1 to Edison Mission
Energy's Form 10-K for the year ended December 31, 1994.       
|10.35.2 |  | Second Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated June 3, 1994, incorporated by reference to Exhibit 10.35.2 to Edison Mission
Energy's Form 10-K for the year ended December 31, 1994.          
|10.35.3 |  | Third Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated December 12, 1994, incorporated by reference to Exhibit 10.35.3 to Edison Mission
Energy's Form 10-K for the year ended December 31, 1994.      
|10.37   |  | Amended and Restated Limited Partnership Agreement of Mission Capital, L.P., dated as of November 30, 1994, incorporated by reference to Exhibit 10.37 to Edison Mission Energy's Form 10-K for the year ended
December 31, 1994.                                                   
|10.38   |  | Action of General Partner of Mission Capital, L.P. creating the 97/8% Cumulative Monthly Income Preferred Securities, Series A, dated as of November 30, 1994, incorporated by reference to
Exhibit 10.38 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994.
|10.39   |  | Action of General Partner of Mission Capital, L.P., creating the 81/2% Cumulative Monthly Income Preferred Securities, Series B, dated as of August 8, 1995, incorporated by reference to
Exhibit 10.39 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 1995.   

169

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|10.40 |  | Power Purchase Contract between ISAB Energy, S.r.l. as Seller and Enel, S.p.A. as Buyer, dated June 9, 1995, incorporated by reference to Exhibit 10.40 to Edison Mission Energy's Form 10-Q for the quarter ended
June 30, 1995.                                                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.41 |  | 400 million sterling pounds Barclays Bank Plc Credit Agreement, dated December 18, 1995, incorporated by reference to Exhibit 10.41 to Edison Mission Energy's Form 8-K, dated December 21, 1995.                                                                                                                                                                                                                                                                                                         
|10.44 |  | Guarantee by Edison Mission Energy, dated December 20, 1996, in favor of The Fuji Bank, Limited, Los Angeles Agency, to secure Camino Energy Company's payments pursuant to Camino Energy Company's Credit Agreement and
Defeasance Agreement, incorporated by reference to Exhibit 10.44 to Edison Mission Energy's Form 10-K for the year ended December 31, 1996.                                                                                                                                      
|10.45 |  | Power Purchase Agreement between National Power Corporation and San Pascual Cogeneration Company International B.V., dated September 10, 1997, incorporated by reference to Exhibit 10.45 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1997.                                                                                                                                                                                                                                      
|10.46 |  | Power Purchase Agreement between Gulf Power Generation Co., LTD., and Electricity Generating Authority of Thailand, dated December 22, 1997, incorporated by reference to Exhibit 10.46 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1997.                                                                                                                                                                                                                                        
|10.49 |  | Equity Support Guarantee by Edison Mission Energy, dated December 23, 1998, in favor of ABN AMRO Bank N.V., and the Chase Manhattan Bank to guarantee certain equity funding obligations of EcoEléctrica Ltd. and
EcoEléctrica Holdings Ltd. pursuant to EcoEléctrica Ltd.'s Credit Agreement dated as of October 31, 1997, incorporated by reference to Exhibit 10.49 to Edison Mission Energy's Form 10-K for the year ended December 31,
1998.                                                         
|10.50 |  | Master Guarantee and Support Instrument by Edison Mission Energy, dated December 23, 1998, in favor of ABN AMRO Bank N.V., and the Chase Manhattan Bank to guarantee the availability of funds to purchase fuel for the
EcoEléctrica project pursuant to EcoEléctrica Ltd.'s Credit Agreement dated as of October 31, 1997 and Intercreditor Agreement dated as of October 31, 1997, incorporated by reference to Exhibit 10.50 to Edison Mission Energy's
Form 10-K for the year ended December 31, 1998.
|10.51 |  | Guarantee Assumption Agreement from Edison Mission Energy, dated December 23, 1998, under which Edison Mission Energy assumed all of the obligations of KENETECH Energy Systems, Inc. to Union Carbide Caribe Inc., under the
certain Guaranty dated November 25, 1997, incorporated by reference to Exhibit 10.51 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.                                                                                                             
|10.52 |  | Transition Power Purchase Agreement, dated August 1, 1998, between New York State Electric & Gas Corporation and Mission Energy Westside, Inc, incorporated by reference to Exhibit 10.52 to Edison Mission
Energy's Form 10-K for the year ended December 31, 1998.                                                                                                                                                                                                                                      
|10.54 |  | Guarantee, dated August 1, 1998, between Edison Mission Energy, Pennsylvania Electric Company, NGE Generation, Inc. and New York State Electric & Gas Corporation, incorporated by reference to Exhibit 10.54
to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.                                                                                                                                                                                                                  
|10.55 |  | Credit Agreement, dated March 18, 1999, among Edison Mission Holdings Co. and Certain Commercial Lending Institutions, and Citicorp USA, Inc., incorporated by reference to Exhibit 10.55 to Edison Mission Energy's
Form 8-K dated March 18, 1999.                                                                                                                                                                                                                                                       

170

---

|10.56   |  | Guarantee and Collateral Agreement made by Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME City Generation L.P.
and Edison Mission Energy in favor of United States Trust Company of New York, dated as of March 18, 1999, incorporated by reference to Exhibit 10.56 to Edison Mission Energy's Form 8-K dated March 18, 1999.                                                                                                                    
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.56.1 |  | Amendment No. 1 to the Guarantee and Collateral Agreement, dated May 27, 1999, between Edison Mission Holdings, Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Company, Mission Energy
Westside, Inc., EME Homer City Generation L.P. and Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.56.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement
on Form S-4 to the Securities and Exchange Commission on February 8, 2000.
|10.56.2 |  | Open-End Mortgage, Security Agreement and Assignment of Leases and Rents, dated March 18, 1999 from EME Homer City Generation L.P. to United States Trust Company of New York, incorporated by reference to
Exhibit 10.56.2 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000.                                                                                                                                                                             
|10.56.3 |  | Amendment No. 1 to the Open-End Mortgage, Security Agreement and Assignment of Leases and Rents, dated May 27, 1999, from EME Homer City Generation L.P. to United States Trust Company of New York, incorporated by
reference to Exhibit 10.56.3 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000.                                                                                                                                                       
|10.57   |  | Collateral Agency and Intercreditor Agreement among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME Homer City
Generation L.P., The Secured Parties' Representatives, Citicorp USA, Inc. as Administrative Agent and United States Trust Company of New York as Collateral Agent, dated as of March 18, 1999, incorporated by reference to Exhibit 10.57 to Edison
Mission Energy's Form 8-K dated March 18, 1999.                                 
|10.58   |  | Security Deposit Agreement among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME Homer City Generation L.P. and
United States Trust Company of New York, as Collateral Agent, dated as of March 18, 1999, incorporated by reference to Exhibit 10.58 to Edison Mission Energy's Form 8-K dated March 18, 1999.                                                                                                                                     
|10.58.1 |  | Amendment No. 1 to the Security Deposit Agreement, dated May 27, 1999, between Edison Mission Holdings, Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Company, Mission Energy
Westside, Inc., EME Homer City Generation L.P. and United States Trust Company of New York, as Collateral Agent, incorporated by reference to Exhibit 10.58.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on
Form S-4 to the Securities and Exchange Commission on February 8, 2000.                     
|10.59   |  | Credit Support Guarantee, dated as of March 18, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.59 to Edison Mission Energy's
Form 8-K dated March 18, 1999.                                                                                                                                                                                                                                                                                                                 
|10.59.1 |  | Amendment No. 1 to the Credit Support Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.59.1 to Amendment No. 1
of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000.                                                                                                                                                                                                    

171

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|10.60   |  | Debt Service Reserve Guarantee, dated as of March 18, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York on behalf of the various financial institutions (Lenders) as are or may become
parities to the Credit Agreement, dated as of March 18, 1999, among Edison Mission Holdings Co., the Lenders and Citicorp USA, Inc., incorporated by reference to Exhibit 10.60 to Edison Mission Energy's Form 8-K dated March 18,
1999.                                       
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.60.1 |  | Amendment No. 1 to the Debt Service Reserve Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.60.1 to Amendment
No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000.                                                                                                                                             
|10.60.2 |  | Amendment No. 2 to the Debt Service Reserve Guarantee, dated as of March 18, 2001, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.60.2 to
Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2001.                                                                                                                                                                                                                 
|10.60.3 |  | Bond Debt Service Reserve Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.60.2 to Amendment No. 1 of Edison
Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000.                                                                                                                                                               
|10.60.4 |  | Intercompany Loan Subordination Agreement, dated March 18, 1999, among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc.,
EME Homer City Generation L.P. and United States Trust Company of New York, incorporated by reference to Exhibit 10.60.3 to Amendment No. 2 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange
Commission on February 29, 2000.
|10.61   |  | Credit Agreement, dated March 18, 1999, among Edison Mission Energy and Certain Commercial Lending Institutions, and Citicorp USA, Inc., incorporated by reference to Exhibit 10.61 to Edison Mission Energy's
Form 8-K dated March 18, 1999.                                                                                                                                                                                                                                                                
|10.61.1 |  | Amendment One to Credit Agreement, dated as of August 17, 2000, by and among Edison Mission Energy, Certain Commercial Lending Institutions, and Citicorp USA, Inc., as Administrative Agent, incorporated by reference
to Exhibit 10.61.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                        
|10.61.2 |  | Amendment Two to Credit Agreement, dated as of March 15, 2001, by and among Edison Mission Energy, certain commercial lending institutions, and Citicorp USA, Inc., as Administrative Agent, incorporated by reference to
Exhibit 10.61.2 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2001.                                                                                                                                                                                          
|10.61.3 |  | Amendment Three to the U.S. $595 million Credit Agreement, dated as of May 30, 2001, by and among Edison Mission Energy, certain commercial lending institutions, and Citicorp USA, Inc., as Administrative Agent,
incorporated by reference to Exhibit 10.61.3 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2001.                                                                                                                                                                    
|10.62   |  | Edison Power Limited £1,150,000,000 Guaranteed Secured Variable Rate Bonds due 2019 Guaranteed by Maplekey UK Limited, incorporated by reference to Exhibit 10.62 to Edison Mission Energy's Form 8-K dated
July 19, 1999.                                                                                                                                                                                                                                                                                   
|10.64   |  | Coal and Capex Facility Agreement, dated July 16, 1999 between EME Finance UK Limited, Barclay's Capital and Credit Suisse First Boston, The Financial Institutions named as Banks, and Barclays Bank PLC as Facility
Agent, incorporated by reference to Exhibit 10.64 to Edison Mission Energy's Form 10-Q for the quarter ended September 30, 1999.                                                                                                                                                       
|10.64.1 |  | Amendment One to Coal and Capex Facility Agreement, dated as of May 29, 2001, by and among Edison Mission Energy Finance UK Limited and Barclays Bank PLC, as Facility Agent, incorporated by reference to
Exhibit 10.64.1 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2001.                                                                                                                                                                                                         

172

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|10.65   |  | Guarantee by Edison Mission Energy dated July 16, 1999 supporting the Coal and Capex Facility Agreement (Facility Agreement) issued by Barclays Bank PLC to secure EME Finance UK Limited obligations pursuant to the
Facility Agreement, incorporated by reference to Exhibit 10.65 to Edison Mission Energy's Form 10-Q for the quarter ended September 30, 1999.
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.65.1 |  | Amendment One to Guarantee by Edison Mission Energy supporting the Facility Agreement, dated as of August 17, 2000, incorporated by reference to Exhibit 10.65.1 to Edison Mission Energy's Form 10-K for the
year ended December 31, 2000.                                                                                                                        
|10.65.2 |  | Amendment Two to Guarantee by Edison Mission Energy Supporting the Facility Agreement, dated as of May 29, 2001, incorporated by reference to Exhibit 10.65.2 to Edison Mission Energy's Form 10-Q for the quarter
ended June 30, 2001.                                                                                                                            
|10.66   |  | Debt Service Reserve Guarantee, dated as of July 16, 1999, made by Edison Mission Energy in favor of Bank of America National Trust and Savings Association, incorporated by reference to Exhibit 10.66 to Edison
Mission Energy's Form 10-K for the year ended December 31, 1999.                                                                                 
|10.71   |  | Indenture, dated as of May 27, 1999, between Edison Mission Holdings Co. and United States Trust Company of New York, as Trustee, incorporated by reference to Exhibit 4.1 to Edison Mission Holdings Co.'s Registration
Statement on Form S-4 to the Securities and Exchange Commission on December 3, 1999.                                                      
|10.75   |  | Exchange and Registration Rights Agreement, dated as of May 27, 1999, by and among the Initial Purchasers named therein, the Guarantors named therein and Edison Mission Holdings Co., incorporated by reference to
Exhibit 10.1 to Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on December 3, 1999.
|10.76   |  | Agreement among Edward R. Muller, Edison International and Edison Mission Energy concerning the terms of Mr. Muller's employment separation, incorporated by reference to Exhibit 10.76 to Edison Mission Energy's
Form 10-Q for the quarter ended March 31, 2000.                                                                                                 
|10.77   |  | Agreement By and Between S. Linn Williams and Edison Mission Energy dated February 5, 2000, incorporated by reference to Exhibit 10.77 to Edison Mission Energy's Form 10-Q for the quarter ended March 31,
2000.                                                                                                                                                  
|10.78   |  | Form of Agreement for 2000 Employee Awards under the Equity Compensation Plan, incorporated by reference to Exhibit 10.78 to Edison Mission Energy's Form 10-Q for the quarter ended March 31,
2000.                                                                                                                                                               
|10.79   |  | Resolution regarding the computation of disability and survivor benefits prior to age 55 for Alan J. Fohrer, incorporated by reference to Exhibit 10.79 to Edison Mission Energy's Form 10-Q for the quarter ended
March 31, 2000.                                                                                                                                 
|10.81   |  | Edison International 2000 Equity Plan, incorporated by reference to Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2000. (File No. 1-9936).                                                                                                                                                                                       
|10.82   |  | Form of Agreement for 2000 Employee Awards under the 2000 Equity Plan, incorporated by reference to Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended June 30, 2000. (File No.
1-9936).                                                                                                                                                       
|10.83   |  | Amendment No. 1 to the Edison International Equity Compensation Plan (as restated January 1, 1998), incorporated by reference to Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended June 30,
2000. (File No. 1-9936).                                                                                                                          
|10.84   |  | Credit Agreement, dated May 30, 2000, among Edison Mission Energy, Certain Commercial Lending Institutions and Bank of America, N.A., incorporated by reference to Exhibit 10.84 to Edison Mission Energy's
Form 10-Q for the quarter ended June 30, 2000.                                                                                                         
|10.84.1 |  | Amendment One to Credit Agreement, dated as of August 17, 2000, by and among Edison Mission Energy, Certain Commercial Lending Institutions and Bank of America, N.A. as Administrative Agent, incorporated by reference
to Exhibit 10.84.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                             

173

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|10.84.2 |  | Amendment Two to the U.S. $255 million Credit Agreement, dated as of May 30, 2001, by and among Edison Mission Energy, Certain Commercial Lending Institutions and Bank of America, N.A. as Administrative Agent,
incorporated by reference to Exhibit 10.84.2 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2001.                                                                                                                                              
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.85   |  | Guarantee, dated as of June 23, 2000, in favor of EME/CDL Trust and Midwest Generation, LLC made by Edison Mission Energy, incorporated by reference to Exhibit 10.85 to Edison Mission Energy's Form 10-K for the
year ended December 31, 2000.                                                                                                                                                                                                                                      
|10.86   |  | Power Purchase Agreement (Crawford, Fisk, Waukegan, Will County, Joliet and Powerton Generating Stations), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation, LLC, incorporated by
reference to Exhibit 10.86 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                      
|10.87   |  | Power Purchase Agreement (Collins Generating Station), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation, LLC, incorporated by reference to Exhibit 10.87 to Edison Mission
Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                          
|10.87.1 |  | Amendment No. 1 to the Power Purchase Agreement, dated July 12, 2000, between Commonwealth Edison Company and Midwest Generation, LLC, incorporated by reference to Exhibit 10.87.1 to Edison Mission Energy's
Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                                        
|10.87.2 |  | Amended and Restated Power Purchase Agreement (Collins Generating Station), dated as of September 13, 2000, between Commonwealth Edison Company and Midwest Generation, LLC, incorporated by reference to
Exhibit 10.87.2 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                  
|10.88   |  | Power Purchase Agreement (Crawford, Fisk, Waukegan, Calumet, Joliet, Bloom, Electric Junction, Sabrooke and Lombard Peaking Units), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation,
 LLC, incorporated by reference to Exhibit 10.88 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                                                            
|10.89   |  | Participation Agreement, dated as of June 23, 2000, among Midwest Generation, LLC, Edison Mission Energy, EME/CDL Trust, the Investor party to the Trust Agreement, Wilmington Trust Company, the Persons listed as
Noteholders on Schedule I thereto, Citicorp North America, Inc. and Citicorp North America, Inc., incorporated by reference to Exhibit 10.89 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000                                            
|10.89.1 |  | Amendment One, dated as of August 17, 2000, by and among Midwest Generation, LLC, Edison Mission Energy, EME/CDL Trust, Citicorp Del-Lease, Inc., Wilmington Trust Company, Certain Noteholders Party Thereto, Citicorp
North America, Inc. and Citicorp North America, Inc., incorporated by reference to Exhibit 10.89.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 2000.                                                                                 
|10.90   |  | Reimbursement Agreement, dated as of August 17, 2000, between Edison Mission Energy and Midwest Generation, LLC, incorporated by reference to Exhibit 10.90 to Edison Mission Energy's Form 10-K for the year
ended December 31, 2000.                                                                                                                                                                                                                                                
|10.91   |  | Supplemental Agreement, dated as of May 30, 2001, to Amendment Two to the Second Amended and Restated U.S. $425 million Bank of America, N.A. Credit Agreement dated as of May 30, 2001, Amendment Three to the
U.S. $595 million Credit Agreement dated as of May 30, 2001 and Amendment Two to the U.S. $255 million Credit Agreement dated as of May 30, 2001, incorporated by reference to Exhibit 10.91 to Edison Mission Energy's Form 10-Q for the
quarter ended June 30, 2001.

174

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|10.92  |  | Credit Agreement, dated as of September 13, 2001, among Edison Mission Energy, Certain Commercial Lending Institutions, Citicorp USA, Inc., as Administrative Agent, and Citibank, N.A. as Issuing Agent, incorporated
by reference to Exhibit 10.92 to Amendment No. 1 of Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on September 27, 2001.
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.93  |  | Edison Mission Energy Exchange Offer Circular, dated as of July 3, 2000, incorporated by reference to Exhibit 10.93 to Edison Mission Energy's Form 10-K for the year ended December 31, 2001.                                                                                                                                                                                                        
|10.94  |  | Edison Mission Energy Option Exchange Offer Summary of Deferred Compensation Alternatives, dated as of July 3, 2000, incorporated by reference to Exhibit 10.94 to Edison Mission Energy's Form 10-K for the
year ended December 31, 2001                                                                                                                                                             
|10.95  |  | Executive Retirement Plan Amendment 2001-1, incorporated by reference to Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2001. (File No. 1-9936).                                                                                                                                                                                                                    
|10.96  |  | Restatement of Terms of 2000 basic long-term incentive awards under the Equity Compensation Plan or the 2000 Equity Plan, incorporated by reference to Exhibit 10.2 to Edison International's Form 10-Q for the
quarter ended March 31, 2001. (File No. 1-9936).                                                                                                                                      
|10.97  |  | Terms of 2001 basic long-term incentive awards under the Equity Compensation Plan or the 2000 Equity Plan, incorporated by reference to Exhibit 10.3 to Edison International's Form 10-Q for the quarter ended
March 31, 2001. (File No. 1-9936).                                                                                                                                                     
|10.98  |  | Terms of 2001 special long-term incentive awards under the Equity Compensation Plan or the 2000 Equity Plan, incorporated by reference to Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended
March 31, 2001. (File No. 1-9936).                                                                                                                                                   
|10.99  |  | Terms of 2001 retention incentives under the Equity Compensation Plan, incorporated by reference to Exhibit 10.5 to Edison International's Form 10-Q for the quarter ended March 31, 2001. (File
No. 1-9936).                                                                                                                                                                                         
|10.100 |  | Executive Severance Plan as adopted effective January 1, 2001, incorporated by reference to Exhibit 10.34 to Edison International's Form 10-K for the year ended December 31, 2001. (File
No. 1-9936).                                                                                                                                                                                                
|18.1   |  | Preferability Letter Regarding Change in Accounting Principle for Major Maintenance Costs, incorporated by reference to Exhibit 18.1 to Edison Mission Energy's Form 10-Q for the quarter ended March 31,
2000.                                                                                                                                                                                       
|21     |  | List of Subsidiaries of Mission Energy Holding Company.*                                                                                                                                                                                                                                                                                                                                              
|99     |  | Letter from Mission Energy Holding Company Regarding Assurance Letter from Arthur Andersen LLP.*                                                                                                                                                                                                                                                                                                      

---

Financial
information for the Cogeneration Group and Four Star Oil & Gas Company is for the years ended December 31, 2001, 2000 and 1999. The financial
statements of the Cogeneration Group present the combination of those entities that are energy projects and 50% or less owned by Edison Mission Energy and that met the requirements of
Rule 3-09 of Regulation S-X in 2001, 2000 and 1999. The financial statements of Four Star Oil & Gas Company represent an oil and gas investment that is 50%
or less owned by Edison Mission Energy and that met the requirements of Rule 3-09 of Regulation S-X in 2001 and 2000. There were no oil and gas investments which
were 50% or less owned by Edison Mission Energy that met the requirements of Rule 3-09 of Regulation S-X in 1999.

175

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors of Mission Energy Holding Company:

We
have audited the accompanying combined balance sheets of Kern River Cogeneration Company (a general partnership between Getty Energy Company and Southern Sierra Energy Company),
Sycamore Cogeneration Company (a general partnership between Texaco Cogeneration Company and Western Sierra Energy Company), Watson Cogeneration Company (a general partnership between Camino Energy
Company and Products Cogeneration Company) and CPC Cogeneration LLC (a Delaware limited liability company), (collectively the Cogeneration Group) as of December 31, 2001 and 2000, and the
related combined statements of income, partners' equity and members' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the
responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Cogeneration Group as of December 31,
2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.

As
more fully disclosed in Note 2 to the financial statements, effective January 1, 2000, Kern River Cogeneration Company and Sycamore Cogeneration Company changed their
method of accounting for major maintenance costs from the "accrue in advance" method to the "expense as incurred" method.



Los
Angeles, California
March 25, 2002

176

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THE COGENERATION GROUP        COMBINED STATEMENTS OF INCOME        (In Thousands)

|                                                                                                          |                                               | Years Ended December 31,     |        
|--------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ---------------------------- | -------
|
|Operating Revenues                                                                                        |                                               |                              |        
|                                                                                                          | Sales of energy to Southern California Edison |                              | $      
|                                                                                                          | Sales of energy to Chevron Subsidiary         |                              |        
|                                                                                                          | Sales of energy to ARCO Products Company      |                              |        
|                                                                                                          | Sales of steam to Chevron Subsidiary          |                              |        
|                                                                                                          | Sales of steam to ARCO Products Company       |                              |        
|                                                                                                          |                                               |                              |        
|                                                                                                          |                                               | Total operating revenues     |        
|                                                                                                          |                                               |                              |        
|Operating Expenses                                                                                        |                                               |                              |        
|                                                                                                          | Plant and other operating expenses            |                              |        
|                                                                                                          | Depreciation and amortization                 |                              |        
|                                                                                                          | Administrative and general                    |                              |        
|                                                                                                          |                                               |                              |        
|                                                                                                          |                                               | Total operating expenses     |        
|                                                                                                          |                                               |                              |        
|                                                                                                          |                                               | Income from operations       |        
|                                                                                                          |                                               |                              |        
|Other Income (Expense)                                                                                    |                                               |                              |        
|                                                                                                          | Interest and other income                     |                              |        
|                                                                                                          | Interest expense                              |                              |        
|                                                                                                          |                                               |                              |        
|                                                                                                          |                                               | Total other income (expense) |        
|                                                                                                          |                                               |                              |        
|Income Before Change in Accounting Principle                                                              |                                               | $                            | 401,968
|                                                                                                          |                                               |                              |        
|Cumulative effect on prior years of change in accounting for major maintenance costs, net of tax (Note 2) |                                               |                              |       
|                                                                                                          |                                               |                              |        
|Net income                                                                                                |                                               | $                            | 401,968
|                                                                                                          |                                               |                              |        

The
accompanying notes are an integral part of these combined financial statements.

177

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THE COGENERATION GROUP        COMBINED BALANCE SHEETS        (In Thousands)

|                                                        |                                                | December 31,                     
|------------------------------------------------------- | ---------------------------------------------- | ---------------------------------
|
|Assets                                                  |                                                |                                  
|Current Assets                                          |                                                |                                  
|                                                        | Cash and cash equivalents                      |                                  
|                                                        | Trade receivablesaffiliates                   |                                  
|                                                        | Other receivables                              |                                  
|                                                        | Inventories                                    |                                  
|                                                        | Prepaid expenses and other assets              |                                  
|                                                        |                                                |                                  
|                                                        |                                                | Total current assets             
|                                                        |                                                |                                  
|Property, Plant and Equipment                           |                                                |                                  
|                                                        | Less accumulated depreciation and amortization |                                  
|                                                        |                                                |                                  
|                                                        |                                                | Net property, plant and equipment
|                                                        |                                                |                                  
|Intangible Assets, Net                                  |                                                |                                  
|                                                        |                                                |                                  
|Total Assets                                            |                                                | $                                
|                                                        |                                                |                                  
|Liabilities, Partners' Equity and Members' Equity       |                                                |                                  
|Current Liabilities                                     |                                                |                                  
|                                                        | Accounts payableaffiliates                    |                                  
|                                                        | Unearned revenue                               |                                  
|                                                        | Accounts payable and accrued liabilities       |                                  
|                                                        |                                                |                                  
|                                                        |                                                | Total current liabilities        
|                                                        |                                                |                                  
|Loans Payable, net of current maturities                |                                                |                                  
|                                                        |                                                |                                  
|                                                        |                                                | Total liabilities                
|                                                        |                                                |                                  
|Commitments and Contingencies (Note 7)                  |                                                |                                  
|Partners' and Members' Equity                           |                                                |                                  
|                                                        |                                                |                                  
|Total Liabilities, Partners' Equity and Members' Equity |                                                | $                                
|                                                        |                                                |                                  

The
accompanying notes are an integral part of these combined financial statements.

178

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THE COGENERATION GROUP        COMBINED STATEMENTS OF PARTNERS' EQUITY AND MEMBERS' EQUITY        (In Thousands)

|                                          |  | Edison
Mission
Energy
Affiliates |          | Chevron
Affiliates |   | ARCO
Affiliates |   | Total |        
|----------------------------------------- |  | -------------------------------- | -------- | ------------------ | - | --------------- | - | ----- | -------
|Balances at December 31, 1998 (Unaudited) |  | $                                | 215,421  |                    | $ | 90,147          |   | $     | 87,992 
|Cash distributions                        |  |                                  | (123,510 | )                  |   | (71,325         | ) |       | (54,315
|Net income                                |  |                                  | 116,509  |                    |   | 68,588          |   |       | 49,878 
|                                          |  |                                  |          |                    |   |                 |   |       |        
|Balances at December 31, 1999             |  |                                  | 208,420  |                    |   | 87,410          |   |       | 83,555 
|Cash distributions                        |  |                                  | (120,425 | )                  |   | (71,425         | ) |       | (51,000
|Net income                                |  |                                  | 135,680  |                    |   | 83,183          |   |       | 54,638 
|                                          |  |                                  |          |                    |   |                 |   |       |        
|Balances at December 31, 2000             |  |                                  | 223,675  |                    |   | 99,168          |   |       | 87,193 
|Cash distributions                        |  |                                  | (137,455 | )                  |   | (121,775        | ) |       | (16,320
|Cash contributions                        |  |                                  | 78,500   |                    |   | 78,500          |   |       |       
|Net income                                |  |                                  | 199,602  |                    |   | 131,874         |   |       | 70,492 
|                                          |  |                                  |          |                    |   |                 |   |       |        
|Balances at December 31, 2001             |  | $                                | 364,322  |                    | $ | 187,767         |   | $     | 141,365
|                                          |  |                                  |          |                    |   |                 |   |       |        

The
accompanying notes are an integral part of these combined financial statements.

179

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THE COGENERATION GROUP        COMBINED STATEMENTS OF CASH FLOWS        (In Thousands)

|                                                     |                                                                                   | Years Ended December 31,                         |         
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------ | --------
|
|Cash Flows From Operating Activities                 |                                                                                   |                                                  |         
|                                                     | Net income                                                                        |                                                  | $       
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                  |         
|                                                     |                                                                                   | Cumulative effect change of accounting principle |         
|                                                     |                                                                                   | Depreciation and amortization                    |         
|                                                     |                                                                                   | Loss on disposal of assets                       |         
|                                                     | Increase in receivables                                                           |                                                  |         
|                                                     | Increase in inventories                                                           |                                                  |         
|                                                     | (Decrease) increase in payables                                                   |                                                  |         
|                                                     | Increase in unearned revenue                                                      |                                                  |         
|                                                     | (Decrease) increase in maintenance accrual                                        |                                                  |         
|                                                     | Other, net                                                                        |                                                  |         
|                                                     |                                                                                   |                                                  |         
|Net cash provided by operating activities            |                                                                                   |                                                  | 171,970 
|                                                     |                                                                                   |                                                  |         
|Cash Flows From Investing Activities                 |                                                                                   |                                                  |         
|                                                     | Capital expenditures                                                              |                                                  |         
|                                                     | Loans from partners                                                               |                                                  |         
|                                                     | Repayment of loans from partners                                                  |                                                  |         
|                                                     | Proceeds from disposal of assets                                                  |                                                  |         
|                                                     |                                                                                   |                                                  |         
|Net cash used in investing activities                |                                                                                   |                                                  | (7,081  
|                                                     |                                                                                   |                                                  |         
|Cash Flows From Financing Activities                 |                                                                                   |                                                  |         
|                                                     | Proceeds from escrow account                                                      |                                                  |         
|                                                     | Loan repayments                                                                   |                                                  |         
|                                                     | Contribution from partners                                                        |                                                  |         
|                                                     | Distribution to partners                                                          |                                                  |         
|                                                     |                                                                                   |                                                  |         
|Net cash used in financing activities                |                                                                                   |                                                  | (118,550
|                                                     |                                                                                   |                                                  |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                   |                                                  | 46,339  
|Cash and Cash Equivalents at Beginning of Year       |                                                                                   |                                                  | 10,703  
|                                                     |                                                                                   |                                                  |         
|Cash and Cash Equivalents at End of Year             |                                                                                   | $                                                | 57,042  
|                                                     |                                                                                   |                                                  |         
|Supplemental Cash Flow Information                   |                                                                                   |                                                  |         
|                                                     | Interest paid                                                                     |                                                  | $       
|                                                     |                                                                                   |                                                  |         
|                                                     | Capital expenditures accrued in accounts payable                                  |                                                  | $       
|                                                     |                                                                                   |                                                  |         

The
accompanying notes are an integral part of these combined financial statements.

180

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THE COGENERATION GROUP        NOTES TO COMBINED FINANCIAL STATEMENTS        DECEMBER 31, 2001, 2000 AND 1999

Note 1. General

Principles of Combination

Edison Mission Energy, a wholly owned subsidiary of The Mission Group, a wholly owned non-utility subsidiary of Edison International, the parent
holding company of Southern California Edison Company (SCE), has a general partnership interest in Kern River Cogeneration Company, Sycamore Cogeneration Company, Watson Cogeneration Company and CPC
Cogeneration LLC (jointly referred to herein as the Cogeneration Group). Southern Sierra Energy Company, Western Sierra Energy Company, and Camino Energy Company are wholly owned by Edison Mission
Energy but are separate legal entities from Edison Mission Energy. The accompanying combined financial statements have been prepared for purposes of Edison Mission Energy complying with certain
requirements of the Securities and Exchange Commission.

Background of Operations

Kern River Cogeneration Company, which is commonly referred to as Kern River, is a general partnership between Getty Energy Company, an indirect wholly-owned
subsidiary of ChevronTexaco Corporation (Chevron), and Southern Sierra Energy Company, a wholly owned subsidiary of Edison
Mission Energy. Kern River owns and operates a 300-MW natural gas-fired cogeneration facility located near Bakersfield, California, which sells electricity to Southern
California Edison Company and which sells electricity and steam to Texaco Exploration and Production, Inc., a wholly owned subsidiary of Chevron, for use in Texaco Exploration and
Production, Inc.'s enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. The Partnership shall terminate, unless
terminated at an earlier date pursuant to the general partnership agreement, on the latter of December 31, 2006, or the date the Partnership elects to cease operations.

Sycamore
Cogeneration Company, which is commonly referred to as Sycamore, is a general partnership between Texaco Cogeneration Company, an indirect wholly-owned subsidiary of Chevron,
and Western Sierra Energy Company, a wholly owned subsidiary of Edison Mission Energy. Sycamore owns and operates a 300-MW natural gas-fired cogeneration facility located near
Bakersfield, California, which sells electricity to Southern California Edison Company and which sells steam to Texaco Exploration and Production, Inc., a wholly owned subsidiary of Chevron,
for use in Texaco Exploration and Production, Inc.'s enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. The
Partnership shall terminate, unless terminated at an earlier date pursuant to the general partnership agreement, on the latter of December 31, 2008, or the date the Partnership elects to cease
operations.

Watson
Cogeneration Company, which is commonly referred to as Watson, is a general partnership between Carson Cogeneration Company, a wholly-owned subsidiary of
CH-Twenty, Inc., a majority owned subsidiary of Atlantic Richfield Company, which is commonly referred to as ARCO, Products Cogeneration Company, a wholly owned subsidiary of ARCO
and Camino Energy Company, a wholly owned subsidiary of Edison Mission Energy. Carson Cogeneration Company, Products Cogeneration Company and Camino Energy Company own 49 percent,
2 percent, and 49 percent, respectively. Watson owns and operates a 385-MW natural gas-fired cogeneration facility located in Carson, California, which sells
electricity to Southern California Edison Company and which sells electricity and steam to ARCO Products Company for use at ARCO Products Company's refinery. Partnership income (loss) is allocated
based upon the partners' respective ownership percentage.

181

---

Effective
January 1, 2000, the partners in Watson created CPC Cogeneration LLC (commonly referred to as CPC). Watson's partners own CPC in the same percentage in which they own
Watson. The general purpose of CPC is to act as an intermediary between Watson and ARCO by purchasing power from Watson and selling it to ARCO.

Current developments

As a result of SCE's liquidity crisis in late 2000 and early 2001, SCE failed to make payments to qualifying facilities supplying them power. These qualifying
facilities include the Cogeneration Group.

As
of December 31, 2001 SCE owed the Cogeneration Group $373.6 million for electric energy delivered from November 1, 2000 through March 26, 2001 (the past
due period). SCE claimed the non-payment stemmed from the undercollection in their tariff rates based on the full cost of providing service to their customers. The Cogeneration Group
notified SCE that they were in breach of the Power Purchase Agreement (PPA) as a result of the delinquent payments.

On
July 31, 2001, the Cogeneration Group and SCE entered into written agreements to address the outstanding issues surrounding SCE's failure to pay past due amounts for energy
deliveries from the past due period. SCE agreed to a payment schedule based on the occurrence of certain events, the first of which occurred with the execution of the agreement. SCE paid
10 percent of the past due amount $44.3 million in August, 2001 and agreed to pay an additional 10 percent upon a legislative solution being reached which would restore SCE to
creditworthiness and allow them to pay their debts in a timely manner.

On
October 2, 2001, SCE and the California Public Utilities Commission (CPUC) announced an agreement that would allow SCE to eventually restore its creditworthiness. The CPUC
agreed to freeze consumer rates despite the decline in the price of wholesale electricity.

In
March, 2002 SCE paid the Cogeneration Group all of the past due amounts including accrued interest amounting to approximately $362.5 million.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain previously reported amounts have been reclassified to conform to current year presentation.

182

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Operating Plants and Equipment

Operating plants and equipment are stated at cost. Normal repairs for maintenance and minor replacements that do not improve or extend the lives of the respective
assets are charged to expense as incurred.

All
costs, including interest and field overhead expenses, incurred during construction and precommission phase of the plants were capitalized as part of the cost of the plants. Revenue
earned during the precommission phase was offset against the costs of the Facility. The plants and related equipment are being depreciated on a straight-line basis over 30 years,
the estimated life of the plants.

The
Kern plant's estimated life exceeds the term of the Power Purchase Agreement (PPA) by 8 years, the Sycamore plant's estimated life exceeds the term of the Power Purchase
Agreement (PPA) by 10 years and the Watson plant's estimated life exceeds the term of the Power Purchase Agreement (PPA) by 10 years. The viability of these plants subsequent to the expiration
of the PPA is uncertain due to the current market for power, the cost to produce power compared to more efficient plants and the ability to increase rates to the steam host. Management periodically
evaluates the expected viability of the plants subsequent to the expiration of the PPA's. While management currently believes that the useful lives are appropriate, management subsequently determines
that the plants will not be able to operate profitably beyond the PPA, management will accelerate the depreciation charge to the facility over the remaining term of the PPA.

Inventories

Inventories are comprised of materials, supplies and spare parts, and are stated at their lower of average cost or market.

Intangible Assets

Intangible assets are stated net of accumulated amortization of $18.7 million and $16.4 million at December 31, 2001 and 2000, respectively,
and consist of outside boundary limit facilities, refinery infrastructure, environment permits and land use, as outlined in the various partnership agreements, contributed to the Cogeneration Group.
All of the intangible assets relate to the operations of the various facilities, and as a result, are being amortized on a straight-line basis over the estimated useful life of the
facilities.

Statements of Cash Flows

For purposes of reporting cash flows, the Cogeneration Group considers short-term temporary cash investments with an original maturity of three months
or less to be cash equivalents.

Major Maintenance Accruals

Through December 31, 1999 two of the partnerships included in the Cogeneration Group accrued for major maintenance costs during the period between
turnarounds (referred to as "accrue in advance" accounting method). Such accounting policy has been widely used by independent power producers as well as several other industries. In
March 2000, the Securities Exchange Commission

183

---

issued a letter to the Accounting Standards Executive Committee, stating its position that the Securities Exchange Commission Staff does not believe it is appropriate to use an "accrue in advance"
method for major maintenance costs. Due to the position taken by the Securities Exchange Commission Staff, the two partnerships in the Cogeneration Group voluntarily decided to change their accounting
policy to record major maintenance costs as an expense as incurred. Such change in accounting is considered preferable based on the recent guidance provided by the Securities Exchange Commission. In
accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," the Cogeneration Group has recorded a $13.8 million, after tax, increase to net income, as a cumulative
change in the accounting for major maintenance costs, during the year ended December 31, 2000.

Revenue Recognition

Revenue and related costs are recorded as electricity and steam sales are generated or services are provided.

New Accounting Pronouncements



The Cogeneration Group adopted The Financial Accounting Standards Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and Hedging
Transactions" (FAS 133), as amended by FAS 138, "Accounting for Derivative Instruments and Hedging Transactionsan amendment of FASB Statement No. 133," effective
January 1, 2001. Provisions in Statement No. 133, as amended, affect the accounting and disclosure of certain contractual arrangements and operations of the Partnership. Under Statement
No. 133, as amended, all derivative instruments are recognized in the balance sheet at their fair values and changes in fair value are recognized immediately in earnings, unless the derivatives
qualify as hedges of future cash flows or net investments. For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair value is recorded in equity until the
related hedged items impact earnings. Any ineffective portion of a hedge is reported in earnings immediately. The Cogeneration Group reviewed the activities performed under its contracts and the
respective terms and concluded that the contracts meet the Normal Purchases and Sales Exception defined in FAS 133, which resulted in accrual accounting consistent with the
pre-adoption of FAS 133.



In June 2001, the FASB approved the issuance of three new pronouncements, Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase
method for accounting be used for all business combinations initiated after June 30, 2001. Management does not expect SFAS No. 141, when adopted to have a material effect on the
financial position or results of operations of the Cogeneration Group. SFAS No. 142, effective for financial years beginning after December 15, 2001, changes the accounting for goodwill
from an amortization method to one requiring at least an annual review for impairment. Management does not expect SFAS No. 142, when adopted, to have a material effect on the financial position
or results of operations of the Cogeneration Group. SFAS No. 143, effective for fiscal years beginning after June 15, 2002, requires an entity to record the fair value of a liability for
an asset

184

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retirement obligation in the period in which it is incurred. Management has not yet determined the impact, if any, of the adoption of SFAS No. 143 on the financial position or results of
operations of the Cogeneration Group. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard provides
guidance on the impairment of long-lived assets and for long-lived assets to be disposed of. The standard supercedes the current authoritative literature on impairments as well
as disposal of a segment of a business and is effective for fiscal years and interim periods beginning after December 31, 2001. Management has not yet determined the
impact, if any, of the adoption of this standard on the financial position or results of operation of the Cogeneration Group.

Income Taxes

The Cogeneration Group is treated as a partnership for income tax purposes and the income or loss of the Cogeneration Group is included in the income tax returns
of the individual partners. Accordingly, no recognition has been given to income taxes in the financial statements.

Note 3. Unearned Revenues

Pursuant to the July 31, 2001 agreement to amend the PPA (See Note 1), SCE paid the Cogeneration Group one month in advance for the estimate of the
expected monthly energy deliveries at the anticipated natural gas pricing formula of the original contract plus capacity. These advance payments are trued up the following month based on actual
deliveries and gas pricing. The advance payments will continue until the past due amounts have been paid.

Note 4. Property, Plant and Equipment

Plant and equipment consist of the following:

December 31,2001

2000(in millions)Plant and equipmentPower plant facilities

$
689.5

$
683.4Building, furniture and office equipment


5.0


5.0Construction in process


2.3


2.0696.8


690.4Lessaccumulated depreciation and amortization


346.3


324.8$
350.5

$
365.6


185

---



Note 5. Loans Payable

December 31,2001

2000(in millions)Watson project:Note payable to ARCO (5%)

$
27.4

$
27.4Note payable to Camino Energy Company (5%)


26.3


26.3Subtotal


53.7


53.7Current maturities of loans payable





Total

$
53.7

$
53.7


The
fair value of the two Watson project notes was approximately $44.3 million and $34.5 million at December 31, 2001 and 2000, respectively. The Watson project
notes mature in 2008.

The
Cogeneration Group received a loan from the Partners during 2001 of $71 million. The full extent of this loan was paid back to the Partners in 2001. This loan had an interest
rate of 7% upon which $2.8 million of interest was paid during the year.

Note 6. Related-Party Transactions/Contractual Obligations

Operating and Other Costs

The amounts incurred by Edison Mission Energy and its affiliates and Chevron and its subsidiaries for operating and other costs charged to the Cogeneration Group
which are not disclosed elsewhere, were as follows:

(In millions)2001

2000

1999Chevron and affiliates

$
3.7

$
3.6

$
3.8Edison Mission Energy and affiliates

$
0.8

$
1.0

$
1.3


The
above costs represent salaries and wages, labor related costs and overhead of personnel and related costs for services directly performed on behalf of each partnership. In addition,
such charges from Southern California Edison Company and its affiliates include interconnection charges which are billed based on tariffs applicable to similar customers. Management believes the basis
for charges between affiliates is reasonable.

Interconnection Facilities Agreement

Under the terms of an Interconnection Facilities Agreement, one of the partnerships within the Cogeneration Group pays a monthly charge of 1.7 percent of
the added investment, as defined, for a portion of the Interconnection Facilities which are owned, operated and maintained by Southern California Edison Company. Amounts paid under this agreement were
$1.6 million for the three years ended December 31, 2001, 2000 and 1999.

186

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Note 6. Related-Party Transactions/Contractual Obligations (Continued)

Fuels Management Agreement

Certain partnerships of the Cogeneration Group are party to agreements with Texaco Natural Gas, Inc., a wholly-owned subsidiary of Chevron, whereby Texaco
Natural Gas, Inc. is to procure, at prices based upon the spot market, and manage all fuel-gas supplies and transportation for two of the plants (except fuel-gas
supplies procured and delivered under tariff-gas contracts, provided under an excepted contract or otherwise excluded from these agreements by the mutual consent of the partners) until
termination of the Parallel Generation Agreement.

As
of January 1, 1996, the Amended and Restated Fuel Management Agreement, terminating on October 1, 2002, was entered into such that Texaco Natural Gas, Inc. will
receive a fixed service fee per MMBtu of fuel gas supplied to certain of partnerships within the Cogeneration Group, subject to escalation as defined in the agreement. As of December 31, 2001,
Texas Natural Gas, Inc. received a fixed service fee of $.039 per MMBtu. The amounts incurred under the amended agreements were $340.1 million, $315.3 million and
$177.4 million, which included fees earned by Texaco Natural Gas, Inc. of $2.4 million, $2.5 million and $2.5 million, for the three years ended December 31,
2001, 2000 and 1999, respectively.

One
of the partnerships within Cogeneration Group has entered into a fuel, refinery gas and butane, purchase agreement with a subsidiary of ARCO. This partnership's purchases under this
agreement amounted to $208.6 million, $155.2 million and $32.4 million for the three years ended December 31, 2001, 2000 and 1999, respectively.

Operation and Maintenance Agreement

Two of the partnerships within the Cogeneration Group have agreements with Edison Mission Operation & Maintenance, Inc., a wholly-owned subsidiary
of Edison Mission Energy, whereby Edison Mission Operation & Maintenance, Inc. shall perform all operation and maintenance activities necessary for the production of electricity and
steam by these partnerships' facilities. The agreements will continue until terminated by either party. Edison Mission Operation & Maintenance, Inc. is paid for all costs incurred in
connection with operating and maintaining the facility. Edison Mission Operation & Maintenance, Inc. may also earn incentive compensation as set forth in the agreements. The amounts
incurred by the Cogeneration Group under these agreements were $6.2 million, $6.3 million, and $6.1 million, which included incentive compensation earned by Edison Mission
Operation & Maintenance, Inc. of $0.9 million, $1.0 million and $0.9 million for the three years ended December 31, 2001, 2000 and 1999, respectively.

One
partnership within the Cogeneration Group has an agreement with a subsidiary of ARCO, whereby the subsidiary shall perform all operation and maintenance activities necessary for the
production of electricity and steam by this Cogeneration Group's plant. The agreement will continue until termination of the Power Purchase Agreement in April 2008. The ARCO subsidiary is
reimbursed for all costs incurred in connection with operating and maintaining the facility. The amounts incurred under this agreement were $10.4 million, $5.7 million, and
$5.6 million for the three years ended December 31, 2001, 2000 and 1999, respectively. Additionally, ARCO provides other ancillary services

187

---

under a service contract for a fee. Total service fees earned by ARCO were $1.4 million for the three years ended December 31, 2001, 2000 and 1999.

Steam Purchase and Sale Agreements

Certain partnerships within the Cogeneration Group have agreements with Texaco Exploration and Production, Inc. for the sale of steam generated by these
partnerships' facilities. The agreements terminate 20 years from the date of the first sale of steam there under. Texaco Exploration and Production, Inc. pays this group a steam fuel
charge based upon the quantity and quality of steam delivered during the month, which is priced at the lesser of the current Southern California Gas Company Border Gas Price, or the weighted average
posted price of Kern River Crude, less any severance, excise or windfall profit taxes, and a processing charge per MMBtu as defined in the agreements. The quantity of steam sold under this contract is
expected to be sufficient for the certain partnerships in the Cogeneration Group to maintain qualifying facility status.

These
agreements have been amended whereby the partnerships began receiving reduced steam revenues in 1998. The reduction in steam revenues based upon these agreements totaled
$26.2 million, $24.2 million and $20.9 million for the three years ended December 31, 2001, 2000 and 1999 respectively.

One
of the Partnerships entered into a Power Purchase Agreement with ARCO. Under the terms of the Steam and Water contract with ARCO, this Partnership contracted to sell steam and water
generated by the Facility to ARCO's Los Angeles refinery.

Parallel Generation Agreements

The Cogeneration Group has two Parallel Generation Agreements with SCE for the sale of contract capacity and net energy generated by the Cogeneration Group. The
Parallel Generation Agreements will remain in effect 20 years from the firm operation date, August 9, 1985 and January 1, 1998, respectively. The Parallel Generation Agreements
was amended to contain energy pricing terms that maintain the intent of the Parallel Generation Agreement's original pricing terms. Energy payments are currently based on an energy rate that is
calculated using a short-run-avoided-cost-based formula (SRAC Floor Formula) that contains a prescribed energy rate indexed to the Southern California
Border Spot Price of natural gas, and the quantity of kilowatts delivered during on-peak, mid-peak, off-peak and super off-peak hours. SCE also pays the
Cogeneration Group for firm capacity based upon a contracted amount per kilowatt year, as defined in the Parallel Generation Agreement.

The
Parallel Generation Agreements require the Cogeneration Group to make repayment of capacity payments to SCE, the power purchaser for the project, in the event the partnership
unilaterally terminates its Parallel Generation Agreements prior to the term of the Parallel Generation Agreements, or reduces its electric power output below contract capacity during the term of the
Parallel Generation Agreements. Obligations that the Partnership could be exposed to in the event of early termination under the Parallel Generation Agreements as of December 31, 2001, would be
approximately $84.5 million. Management has no reason to believe that the Partnership will either terminate its Parallel Generation Agreements or reduce its electric power output below contract
capacity during the term of the Parallel Generation Agreements.

188

---

Natural Gas Supply and Transportation Agreement

The Cogeneration Group purchases gas on the spot market. As such, the Cogeneration Group may be exposed, in the short-term, to fluctuations in the
price of natural gas, however, fluctuations in the prices
paid for gas are implicitly tied to the revenues received for either power or steam under the agreements.

Note 7. Commitments and Contingencies

Ship or Pay

Pursuant to the Master Agreement, entered into as of December 1, 1994, certain partnerships of the Cogeneration Group executed a Security of Supply
Agreement with an affiliated partnership of Edison Mission Energy and Texaco. As such the Cogeneration Group has agreed to accept and underwrite, on a pro-rata basis, a portion of Texaco's
commitment pursuant to the Transportation Agreement between Texaco, the Mojave Pipeline Company and the El Paso Pipeline Company, dated February 15, 1989 and extending through March 31,
2008. The Cogeneration Group has agreed that Mojave Pipeline Company and El Paso Pipeline Company shall be the exclusive means of delivery for certain partnerships within the Cogeneration Group of the
lesser of 75 percent of the annual total natural gas fuel requirements for such Cogeneration Group and 52,012,500 MMBtu per year.

Except
upon the occurrence of certain permissible events, two of the partnerships within the Cogeneration Group are subject to certain terms and conditions, whereby failure to transport
the required quantity of natural gas on the Mojave Pipeline Company's pipeline will result in the Cogeneration Group paying $0.63 per deficit MMBtu. Such Cogeneration Group will share any
ship-or-pay liabilities on a pro-rata basis, as defined in the Transportation Agreement, with the affiliated partnership.

For
each of the years in the three-year period ended December 31, 2001, the transportation quantities required under the Transportation Agreement were met. It is the
opinion of the relevant Cogeneration Group's management that these commitments will continue to be met based upon current projections for the operations of such Cogeneration Group's facilities.

189

---



REPORT OF INDEPENDENT ACCOUNTANTS

To
the Stockholders of
Four Star Oil & Gas Company:

In
our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Four Star Oil & Gas Company (a Delaware corporation) and its subsidiary at December 31, 2001 and the results of their operations and their cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP

Houston,
Texas
February 15, 2002

190

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Stockholders of
Four Star Oil & Gas Company:

We
have audited the accompanying consolidated balance sheet of Four Star Oil & Gas Company (a Delaware corporation) and subsidiary as of December 31, 2000 and the related
consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Four Star Oil & Gas Company and
subsidiary as of December 31, 2000 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.



Houston,
Texas
March 2, 2001

191

---



FOUR STAR OIL & GAS COMPANY        CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2001 AND 2000        (In Millions, Except Share and Per Share Amounts)

|                                                            |                                                                                                                                                                                                                                                                                                                        | 2001                                |      | 2000 |    
|----------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ---- | ---- | ---
|ASSETS                                                      |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Current Assets:                                             |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            | Cash and cash equivalents                                                                                                                                                                                                                                                                                              |                                     | $    | 23   |    
|                                                            | Accounts receivable:                                                                                                                                                                                                                                                                                                   |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Trade                               |      |      | 6  
|                                                            |                                                                                                                                                                                                                                                                                                                        | Related parties and affiliates      |      |      | 35 
|                                                            |                                                                                                                                                                                                                                                                                                                        | Other receivable                    |      |      | 22 
|                                                            | Other current assets                                                                                                                                                                                                                                                                                                   |                                     |      | 2    |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Total current assets                |      |      | 88 
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Properties, plant and equipment (successful-efforts method) |                                                                                                                                                                                                                                                                                                                        |                                     | 934  |      |    
|LessAccumulated depreciation, depletion and amortization   |                                                                                                                                                                                                                                                                                                                        |                                     | (629 | )    |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Net properties, plant and equipment |      |      | 305
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Deferred charges and other assets                           |                                                                                                                                                                                                                                                                                                                        |                                     | 4    |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Total                               |      | $    | 397
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|LIABILITIES AND STOCKHOLDERS' EQUITY                        |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Current Liabilities:                                        |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            | Accounts payable and accrued liabilities                                                                                                                                                                                                                                                                               |                                     | $    | 5    |    
|                                                            | Related party and affiliate payables                                                                                                                                                                                                                                                                                   |                                     |      | 31   |    
|                                                            | Taxes payable                                                                                                                                                                                                                                                                                                          |                                     |      | 8    |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Total current liabilities           |      |      | 44 
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Notes payable to an affiliate                               |                                                                                                                                                                                                                                                                                                                        |                                     | 239  |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Deferred income taxes                                       |                                                                                                                                                                                                                                                                                                                        |                                     | 57   |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Commitments and contingencies (Note 10)                     |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|Stockholders' equity:                                       |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            | Preferred stock, $1.00 par value, 400 Class A shares authorized, 96 shares and 230 shares issued and outstanding at December 31, 2001 and 2000, respectively; 400 Class B authorized, 300 shares issued and outstanding at
December 31, 2001 and 2000                                                                  |                                     |      |     |    
|                                                            | Common stock, $1.00 par value, 1,000 Class A shares authorized, issued and outstanding; 2,000 Class B shares authorized, 373 shares and 239 shares issued and outstanding at December 31, 2001 and 2000, respectively; 1,000
Class C shares authorized, 25 shares issued and outstanding at December 31, 2001 and 2000 |                                     |      |     |    
|                                                            | Additional paid-in capital                                                                                                                                                                                                                                                                                             |                                     |      | 57   |    
|                                                            | Retained earnings                                                                                                                                                                                                                                                                                                      |                                     |      |     |    
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Total stockholders' equity          |      |      | 57 
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    
|                                                            |                                                                                                                                                                                                                                                                                                                        | Total                               |      | $    | 397
|                                                            |                                                                                                                                                                                                                                                                                                                        |                                     |      |      |    

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

192

---



FOUR STAR OIL & GAS COMPANY        CONSOLIDATED STATEMENT OF INCOME        YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999  (In Millions)

|                                |                                                         | 2001     |     | 2000 |    | 1999 |    
|------------------------------- | ------------------------------------------------------- | -------- | --- | ---- | -- | ---- | ---
|Revenues:                       |                                                         |          |     |      |    |      |    
|                                | Crude oil                                               |          | $   | 52   |    | $    | 71 
|                                | Natural gas                                             |          |     | 268  |    |      | 271
|                                | Natural gas liquids                                     |          |     | 46   |    |      | 53 
|                                | Gain on sale of capital assets                          |          |     |     |    |      |   
|                                | Other                                                   |          |     | 14   |    |      | 18 
|                                |                                                         |          |     |      |    |      |    
|                                |                                                         |          | 380 |      |    | 413  |    
|                                |                                                         |          |     |      |    |      |    
|Costs and Expenses:             |                                                         |          |     |      |    |      |    
|                                | Cost of sales                                           |          |     | 63   |    |      | 73 
|                                | General and administrative and other operating expenses |          |     | 51   |    |      | 45 
|                                | Depreciation, depletion and amortization                |          |     | 38   |    |      | 42 
|                                | Impairment of oil and gas properties                    |          |     | 7    |    |      | 25 
|                                | Taxes other than income taxes                           |          |     | 25   |    |      | 28 
|                                |                                                         |          |     |      |    |      |    
|                                |                                                         |          | 184 |      |    | 213  |    
|                                |                                                         |          |     |      |    |      |    
|Operating Income                |                                                         |          | 196 |      |    | 200  |    
|Interest Expense and Other, net |                                                         |          | (12 | )    |    | (17  | )  
|                                |                                                         |          |     |      |    |      |    
|Income Before Income Taxes      |                                                         |          | 184 |      |    | 183  |    
|                                |                                                         |          |     |      |    |      |    
|Provision for Income Taxes:     |                                                         |          |     |      |    |      |    
|                                | Federal                                                 |          |     |      |    |      |    
|                                |                                                         | Current  |     |      | 45 |      |    
|                                |                                                         | Deferred |     |      | 3  |      |    
|                                | State and local                                         |          |     |      |    |      |    
|                                |                                                         | Current  |     |      | 6  |      |    
|                                |                                                         |          |     |      |    |      |    
|                                |                                                         |          | 54  |      |    | 56   |    
|                                |                                                         |          |     |      |    |      |    
|Net Income                      |                                                         | $        | 130 |      | $  | 127  |    
|                                |                                                         |          |     |      |    |      |    

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

193

---



FOUR STAR OIL & GAS COMPANY        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (In Millions, Except Share Amounts)

|                           |  |       |  |     |  |    |  | Preferred Shares |   |     |  |   |   |  |   |   |  |   |    
|-------------------------- |  | ----- |  | --- |  | -- |  | ---------------- | - | --- |  | - | - |  | - | - |  | - | ---
|
|
|
|Balance, December 31, 1998 |  | 1,000 |  | 117 |  | 25 |  | 352              |   |    |  |   |  |  |   |  |  | $ | 69 
|Stock Issuance             |  |      |  |    |  |   |  |                 |   | 300 |  |   |  |  |   |  |  |   | 21 
|Dividends Paid             |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   |   
|Net Income                 |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   |   
|Stock Conversion           |  |      |  | 42  |  |   |  | (42              | ) |    |  |   |  |  |   |  |  |   |   
|                           |  |       |  |     |  |    |  |                  |   |     |  |   |   |  |   |   |  |   |    
|Balance, December 31, 1999 |  | 1,000 |  | 159 |  | 25 |  | 310              |   | 300 |  |   |  |  |   |  |  |   | 90 
|Dividends Paid             |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   |   
|Stock Conversion           |  |      |  | 80  |  |   |  | (80              | ) |    |  |   |  |  |   |  |  |   |   
|Net Income                 |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   |   
|                           |  |       |  |     |  |    |  |                  |   |     |  |   |   |  |   |   |  |   |    
|Balance, December 31, 2000 |  | 1,000 |  | 239 |  | 25 |  | 230              |   | 300 |  |   |  |  |   |  |  |   | 90 
|Dividends Paid             |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   | (33
|Stock Conversion           |  |      |  | 134 |  |   |  | (134             | ) |    |  |   |  |  |   |  |  |   |   
|Net Income                 |  |      |  |    |  |   |  |                 |   |    |  |   |  |  |   |  |  |   |   
|                           |  |       |  |     |  |    |  |                  |   |     |  |   |   |  |   |   |  |   |    
|Balance, December 31, 2001 |  | 1,000 |  | 373 |  | 25 |  | 96               |   | 300 |  | $ |  |  | $ |  |  | $ | 57 
|                           |  |       |  |     |  |    |  |                  |   |     |  |   |   |  |   |   |  |   |    

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

194

---



FOUR STAR OIL & GAS COMPANY        CONSOLIDATED STATEMENT OF CASH FLOWS        YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999  (In Millions)

|                                                  |                                                                            | 2001                                           |                                                        | 2000 |      | 1999 |     
|------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------ | ---- | ---- | ---- | ----
|Cash Flows From Operating Activities:             |                                                                            |                                                |                                                        |      |      |      |     
|                                                  | Net income                                                                 |                                                | $                                                      | 130  |      | $    | 127 
|                                                  | Reconciliation of net income to net cash provided by operating activities: |                                                |                                                        |      |      |      |     
|                                                  |                                                                            | Reversal of provision for plug and abandonment |                                                        |      | (2   | )    |     
|                                                  |                                                                            | Depreciation, depletion and amortization       |                                                        |      | 38   |      |     
|                                                  |                                                                            | Impairment of oil and gas properties           |                                                        |      | 7    |      |     
|                                                  |                                                                            | Deferred income taxes and other                |                                                        |      | 3    |      |     
|                                                  |                                                                            | Gain on sale of capital assets                 |                                                        |      |     |      |     
|                                                  |                                                                            | Changes in operating working capital:          |                                                        |      |      |      |     
|                                                  |                                                                            |                                                | Accounts receivabletrade, net                         |      |      | 8    |     
|                                                  |                                                                            |                                                | Affiliate receivables  related parties and affiliates |      |      | 28   |     
|                                                  |                                                                            |                                                | Other receivable                                       |      |      | (15  | )   
|                                                  |                                                                            |                                                | Other current assets                                   |      |      |     |     
|                                                  |                                                                            |                                                | Accounts payable and accrued liabilities               |      |      | (10  | )   
|                                                  |                                                                            |                                                | Affiliate payables                                     |      |      | 14   |     
|                                                  |                                                                            |                                                | Taxes payable                                          |      |      |     |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|                                                  |                                                                            | Net cash provided by operating activities      |                                                        |      | 201  |      |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|Cash Flows From Investing Activities:             |                                                                            |                                                |                                                        |      |      |      |     
|                                                  | Capital expenditures                                                       |                                                |                                                        | (25  | )    |      | (21 
|                                                  | Proceeds from property sales                                               |                                                |                                                        |     |      |      | 6   
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|                                                  |                                                                            | Net cash used in investing activities          |                                                        |      | (25  | )    |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|Cash Flows From Financing Activities:             |                                                                            |                                                |                                                        |      |      |      |     
|                                                  | Dividends paid                                                             |                                                |                                                        | (171 | )    |      | (144
|                                                  | Loan principal repayment                                                   |                                                |                                                        |     |      |      |    
|                                                  | Borrowings                                                                 |                                                |                                                        |     |      |      |    
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|                                                  |                                                                            | Net cash used in financing activities          |                                                        |      | (171 | )    |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|Increase (Decrease) In Cash and Cash Equivalents  |                                                                            |                                                | 5                                                      |      |      | 4    |     
|Cash and Cash Equivalents, Beginning of Year      |                                                                            |                                                | 18                                                     |      |      | 14   |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|Cash and Cash Equivalents, End of Year            |                                                                            | $                                              | 23                                                     |      | $    | 18   |     
|                                                  |                                                                            |                                                |                                                        |      |      |      |     
|Supplemental Disclosure Of Cash Flow Information: |                                                                            |                                                |                                                        |      |      |      |     
|                                                  | Cash flows from operating activities include the following cash payments:  |                                                |                                                        |      |      |      |     
|                                                  |                                                                            | Income taxes                                   |                                                        | $    | 62   |      | $   
|                                                  |                                                                            | Interest                                       |                                                        |      | 13   |      |     

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

195

---



FOUR STAR OIL & GAS COMPANY        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2001 AND 2000

1. BASIS OF PRESENTATION AND DESCRIPTION OF THE COMPANY:

Four Star Oil and Gas Company is a subsidiary of ChevronTexaco that explores for and produces crude oil, natural gas and natural gas liquids. Texaco Exploration
and Production Inc. (TEPI) operates and manages the majority of Four Star's operations under the terms of a service agreement.

In
October 2001, the merger between Texaco and Chevron Corporation (Chevron) was approved and ChevronTexaco Corporation (ChevronTexaco) became the ultimate parent of
Texaco Inc. In these financial statements we continue to refer to the separate affiliates by their legal entity names. The use in this report of the term "Texaco" refers solely to
Texaco Inc., a Delaware corporation, and its consolidated subsidiaries or to subsidiaries and affiliates either individually or collectively.

In
1984, Texaco acquired all of the outstanding common stock of Four Star Oil & Gas Company (Four Star or the Company) for $10.2 billion. At the time of acquisition, Four
Star was an integrated petroleum and natural gas company involved in the exploration for and production, transportation, refining and marketing of crude oil and petroleum products. The acquisition was
accounted for as a purchase, and the Four Star assets and liabilities were recorded at fair market value. In 1989, Texaco sold 20 percent of its interest in Four Star to Edison Mission Energy
(Mission Energy). Four Star was an 80 percent owned subsidiary of Texaco from December 31, 1989 through December 31, 1991.

As
a result of a series of stock transactions occurring between January 1, 1992 and December 31, 2001, Texaco's ownership interest in Four Star was reduced to 71%. As of
December 31, 2001 and 2000, the ownership interests in Four Star were as follows:

2001

2000Texaco Exploration and Production Inc. (TEPI)

36.6
%
38.2
%Texaco Inc.



26.5
%ChevronTexaco Global Energy Inc. (CTGEI)

24.3
%
Edison Mission Energy (Mission Energy)

19.0
%
15.2
%Four Star Oil & Gas Holdings Company (owned jointly by CTGEI and Mission Energy)

20.1
%
20.1
%100.0
%
100.0
%


2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of Four Star Oil & Gas Company (Four Star or the Company) and Mission Energy Methane, a
wholly-owned subsidiary of Four Star. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

Revenue from product sales is recognized upon delivery of products to customers.

Cash and Cash Equivalents

Highly liquid investments with a maturity of three months or less when purchased are generally considered to be cash equivalents.

Properties, Plant and Equipment, and Depreciation, Depletion and Amortization

The Company follows the successful-efforts method of accounting for its oil and gas exploration and production operations.

196

---

Lease
acquisition costs related to properties held for oil and gas production are capitalized when incurred. Unproved properties with acquisition costs which are individually significant
are assessed on a property-by-property basis, and a loss is recognized, by provision of a valuation allowance, when the assessment indicates an impairment in value. Unproved
properties with acquisition costs which are not individually significant are generally aggregated, and the portion of such costs estimated to be nonproductive, based on historical experience, is
amortized on an average holding period basis.

Exploratory
costs, excluding the costs of exploratory wells, are charged to expense as incurred. Costs of drilling exploratory wells, including stratigraphic test wells, are capitalized
pending determination of whether the wells have found proved reserves which justify commercial development. If such reserves are not found, the drilling costs are charged to exploratory expenses.
Intangible drilling costs applicable to productive wells and to development dry holes, as well as tangible equipment costs related to the development of oil and gas reserves, are capitalized.

The
costs of productive leaseholds and other capitalized costs related to production activities, including tangible and intangible costs, are amortized principally by field on the
unit-of-production basis by applying the ratio of produced oil and gas to estimated recoverable total proved oil and gas reserves. Estimated future restoration and abandonment
costs are taken into account in determining amortization and depreciation rates.

Depreciation
of properties, plant and equipment related to operations other than production is provided using the straight-line method, with depreciation rates based upon
estimated useful lives applied to the cost of each class of property. The useful lives of such assets range from 3 to 20 years.

Normal
maintenance and repairs of properties, plant and equipment are charged to expense as incurred. Renewals, betterments and major repairs that materially extend the life of
properties are capitalized, and the assets replaced, if any, are retired.

When
fixed capital assets representing complete units of property are disposed of, any profit or loss after accumulated depreciation and amortization is credited or charged to income.

Four
Star has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, the Company reviews its proved oil and gas properties for impairment whenever events and circumstances
indicate a decline in the recoverability of their carrying value. In 2001 and 2000, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash
flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. In each of 2001 and 2000, the carrying amount of one property exceeded the estimated
undiscounted future cash flows; therefore, the Company adjusted the carrying amount of the property to fair value as determined by discounting the estimated future cash flows. The factors used to
determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate
commensurate with the risk on those properties. As a result, the Company recorded impairment changes of $7 million and $25 million on its Green Canyon 184 property in 2001 and 2000,
respectively, due to downward reserve revisions. The Company did not record any impairment charge in 1999.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect

197

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the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates pertain to proved oil, NGL and gas reserve volumes and plug and abandonment costs as well as estimates relating to the calculation of impairment under
SFAS No. 121. Actual results could differ from those estimates.

Reclassifications

Certain previously reported amounts have been reclassified to conform to current-year presentation. Such reclassification had no effect on reported
net income or shareholders' equity.

Income Taxes

Deferred taxes result from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes and are calculated based
upon cumulative book and tax differences in the balance sheet in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."

Derivatives

The adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," did not have a material effect on the Company's financial
position as the Company has no derivatives as of December 31, 2001 and 2000, except for its physical sale contracts, which qualify as normal sales. The Company adopted SFAS 133 as of
January 1, 2001.

New Accounting Pronouncements

The following SFASs were issued in 2001: SFAS No. 141,Business Combinations, SFAS No. 142, Goodwill and
Other Intangible Assets, SFAS No. 143,Accounting for Asset Retirement Obligationsand SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 141 requires the use of the
purchase method of accounting for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method that are completed after
June 30, 2001. SFAS No. 142 requires that goodwill as well as other intangible assets with indefinite lives not be amortized but be tested annually for impairment, effective for fiscal
years beginning after December 15, 2001. The Company adopted SFAS No. 142 on January 1, 2002 and such adoption did not have a material effect on the Company's financial position,
result of operations or cash flows. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost should be allocated to expense using a systematic and rational
method. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment of
long-lived assets and long-lived assets to be disposed of. It supersedes, with limited exceptions, SFAS No. 121 and is effective for fiscal years beginning after
December 15, 2001. The Company is currently assessing the impact of SFAS No. 143 and No. 144 and therefore, at this time, cannot reasonably estimate the effect of these statements
on its consolidated financial position, results of operations or cash flows.

198

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3. RELATED PARTY TRANSACTIONS:

Four Star has various business transactions with ChevronTexaco and other ChevronTexaco subsidiaries and affiliates. These transactions principally involve sales
by Four Star of crude oil, natural gas and natural gas liquids. In addition, ChevronTexaco charges Four Star for management, professional, technical and administrative services, as well as direct
charges for exploration and production-related activities.

Prior
to December 1, 1999, TEPI charged Four Star for certain management, professional, technical and administrative services pursuant to a service agreement. In 1999, Four Star
paid $18 million to TEPI under the service agreement.

Effective
December 1, 1999, Four Star entered into a revised service agreement with TEPI for management, administrative, professional and technical services through
November 1, 2004. During 2000, Four Star paid TEPI a monthly fixed fee of $568,417 through November 15, 2000. Beginning November 15, 2000, the monthly fixed fee was adjusted to
$579,785, and this rate remained in effect throughout 2001. An aggregate amount of $7.0 million and $6.8 million in service fees was included as a component of operating expenses in the
accompanying consolidated statement of income for the years ended December 31, 2001 and 2000, respectively.

In
addition, Four Star paid a monthly unit fee of $612,368 during the period from January 1, 2000 to November 15, 2000. On November 15, 2000, Four Star commenced
payment of a monthly unit fee of $645,015. This unit fee is adjusted monthly to reflect actual oil and gas production. Total unit fees of $7.7 million and $7.3 million are included as a
component of operating expenses in the accompanying consolidated statements of income for the years ended December 31, 2001 and 2000, respectively.

In
March 1999, Four Star issued 300 shares of preferred stock in exchange for TEPI's interest in the Hugoton Gas Field.

Pursuant
to the contractual agreement described in Note 10, certain tax benefits and liabilities are assumed by ChevronTexaco.

The
following table summarizes sales to and purchases from affiliates during 2001, 2000 and 1999 (in millions):

|                               |  | 2001 |       | 2000 |   | 1999
|------------------------------ |  | ---- | ----- | ---- | - | ----
|
|Texaco Natural Gas Inc.        |  | $    | 307.4 |      | $ |    
|TEPI                           |  |      |      |      |   |    
|Bridgeline LLCTexaco Pipeline |  |      |      |      |   |    
|Equilon Enterprises LLC        |  |      | 51.9  |      |   |    
|                               |  |      |       |      |   |     
|Total                          |  | $    | 359.3 |      | $ |    
|                               |  |      |       |      |   |     

4. PROPERTIES, PLANT AND EQUIPMENT:

In 1999, Four Star sold $2 million of its properties for $4 million, resulting in an approximate $2 million gain on the sale. In 2000, Four
Star sold $5.9 million of its properties for $6.3 million, resulting in an approximate $400,000 pretax gain on the sale.

199

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5. NOTE PAYABLE TO AFFILIATE:

In September 1999, Four Star retired its loan facility with Chase Bank of Texas, N.A. and entered into a loan agreement with Texaco. The outstanding
balance on the loan agreement was $239 million at December 31, 2001 and 2000. The loan bears interest at LIBOR plus one percent and matures on December 31, 2005. The interest rate
was 3.4%, 7.0% and 7.5% at December 31, 2001, 2000 and 1999, respectively. Interest expense during 2001, 2000 and 1999 was $13 million, $18 million and $15 million,
respectively. Four Star pays ChevronTexaco an annual facility fee and administrative fee of $50,000.

The
Company's borrowing base is redetermined annually each September 30 as set forth in the Four Star Oil & Gas Credit Agreement dated September 30, 1999. If the
outstanding aggregate principal amount of the loan, excluding the amount of any debt permitted by the loan agreement, exceeds the amount of the borrowing base, Four Star must repay such excess to
ChevronTexaco in four equal quarterly installments. Throughout 2001 and 2000, Four Star's borrowing base exceeded the outstanding loan balance, thus no principal payments were due. As of
December 31, 2001, the Company's borrowing base was $388 million.

Four
Star has the right, subject to certain conditions, to prepay the note in whole or in part prior to the maturity date.

6. CONCENTRATION OF CREDIT RISK:

Substantially all of the Company's accounts receivable at December 31, 2001, result from sales to the Company's two largest customers both of which are
ChevronTexaco affiliates, as discussed in Note 3. The Company's credit policy and relatively short duration of receivables mitigate the risk of uncollected receivables. During each of the three
years in the period ended December 31, 2001, the Company did not incur any credit losses on receivables.

Two
customers, Texaco Natural Gas Inc. and Equilon Enterprises LLC, individually accounted for more than 10 percent of the Company's total revenues in 2001, 2000 and 1999.
Texaco Natural Gas Inc. accounted for 81 percent, 52 percent and 55 percent of sales in 2001, 2000 and 1999, respectively, and Equilon Enterprises LLC accounted for
14 percent, 17 percent and 22 percent of sales in 2001, 2000 and 1999, respectively.

7. INCOME TAXES:

The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
determined utilizing a liability approach. This method gives consideration to the future tax consequences associated with utilization of energy tax credits and differences between financial accounting
and tax bases of assets and liabilities. Such differences relate mainly to depreciable and depletable properties, intangible drilling costs and nonproductive leases.

The
composition of deferred tax assets and liabilities and the related tax effects at December 31, 2001, 2000 and 1999, were as follows (in millions):

2001

2000

1999Deferred tax assets related to energy tax credits

$


$
4

$
27Deferred tax liabilities related to oil and gas properties


(57
)

(58
)

(74
)Net deferred tax liability

$
(57
)
$
(54
)
$
(47
)


200

---

There
are differences between income taxes computed using the statutory rate of 35 percent and the Company's effective income tax rates (29 percent in 2001,
31 percent in 2000 and 22 percent in 1999), primarily as the result of certain tax credits available to the Company. Reconciliations of income taxes computed using the statutory rate to
the Company's effective tax rates are as follows (in millions):

2001

2000

1999Income taxes computed at the statutory rate

$
64

$
64

$
25Section 29 tax credits


(7
)

(8
)

(11
)Other, net


(3
)




2Provision for income taxes

$
54

$
56

$
16


8. STOCKHOLDERS' EQUITY:

In 1995, Four Star created four additional classes of stock: Class A common (voting), Class B common (voting), Class C common (nonvoting),
and preferred (Class A preferred and Class B preferred).

In
1999, Texaco, TEPI and Mission Energy entered into an agreement granting Mission Energy the option to purchase shares of Class A common stock or Class B common stock of
Four Star (class determined by ChevronTexaco), provided that ChevronTexaco's aggregate ownership interest in the common stock at the time of purchase shall not be reduced to less than
51 percent of all common stock outstanding at the time of purchase. In 2001, the agreement was amended to replace Texaco with CTGEI. The option expires on December 23, 2006. As of
December 31, 2001 and 2000, Mission Energy owned 23 percent and 20 percent, respectively, of all voting common stock outstanding. Four Star Oil and Gas Holdings Company (owned
jointly by CTGEI and Mission Energy) owned 26 percent of all voting common stock in the Company as of December 31, 2001.

Each
share of Class A preferred stock is entitled to receive cumulative cash dividends of $5,112 per share per annum, payable semiannually. Each share of Class B preferred
stock is entitled to receive cumulative cash dividends of $2,250 per annum, payable semiannually.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents, short-term receivables and payables and long-term debt. The
carrying amounts of such instruments approximate their fair market values due to the highly liquid nature of the short-term instruments and the floating interest rates associated with the
long-term debt, which reflect market rates.

10. COMMITMENTS AND CONTINGENCIES:

ChevronTexaco has assumed any and all liabilities of Four Star incurred or attributable to periods prior to January 1, 1990, for state and federal income,
windfall profit, ad valorem or franchise taxes, and legal proceedings. In addition, Texaco has assumed certain of the tax liabilities of Four Star arising from January 1, 1990, to
March 1, 1990, attributable to Four Star's status as a member of the Texaco tax consolidated group.

In
the opinion of the Company, while it is impossible to ascertain the ultimate legal and financial liability with respect to the above or other contingent liabilities, including
lawsuits, claims, guarantees,

201

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federal taxes and federal regulations, the aggregate amount of such liability is not anticipated to be material in relation to the financial position, cash flows or results of operations of the
Company.

11.  SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

In accordance with Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities" (SFAS No. 69), this section
provides supplemental information on oil and gas exploration and producing activities of the Company in seven separate tables. Tables I through IV provide historical cost information pertaining to
costs incurred in exploration, property acquisitions and developments capitalized costs, and results of operations. Tables V and VII present information on the Company's estimated net proved reserve
quantities, standardized measure of estimated discounted future net cash flows related to proved reserves, and changes in estimated discounted future net cash flows.

Table
ICosts incurred in exploration, property acquisitions and development1

(millions of dollars)Year ended December 31, 2001:Exploration

$
Property Acquisitions


Development


42Total costs incurred

$
42


---

Table
IICapitalized costs related to oil and gas producing activities:

(millions of dollars)At December 31, 2001:Unproved properties

$
1Proved properties and related producing assets


906Other uncompleted projects


27Gross capitalized costs


934Unproved properties valuation


1Proved producing properties:Depreciation and depletion


618Future abandonment and restoration


10Accumulated provisions


629Net capitalized costs

$
305


Table
IIIResults of operations for oil and gas producing activities:

The
Company's results of operations from oil and gas producing activities for the year 2001 are shown in the following table. In accordance with SFAS No. 69, income taxes in Table
III are based on

202

---

statutory tax rates, reflecting allowable deductions and tax credits. Interest income and expense are excluded from the results reported in Table III.

|(millions of dollars)                                                          |                             |   |    
|------------------------------------------------------------------------------ | --------------------------- | - | ---
|Year Ended December 31, 2001:                                                  |                             |   |    
|Revenues from net production:                                                  |                             |   |    
|Sales                                                                          |                             | $ | 304
|                                                                               |                             |   |    
|                                                                               | Total                       |   |    
|Production expenses                                                            |                             |   | (48
|Proved producing properties: depreciation, depletion and abandonment provision |                             |   | (38
|Other (expense) income                                                         |                             |   | (10
|                                                                               |                             |   |    
|                                                                               | Results before income taxes |   |    
|Income tax expense                                                             |                             |   | (61
|                                                                               |                             |   |    
|Results of producing operations                                                |                             | $ | 147
|                                                                               |                             |   |    

Table
IVResults of operations for oil and gas producing activitiesunit prices and costs:

Year Ended December 31, 2001:

|Average sales prices:                |                                      |  |     
|------------------------------------ | ------------------------------------ |  | ----
|                                     | Liquids, per barrel                  |  | $   
|                                     | Natural gas, per thousand cubic feet |  |     
|Average production costs, per barrel |                                      |  | 3.31

Table
VReserve quantity information

The
Company's estimated net proved underground oil and gas reserves and changes thereto for the year 2001 are shown in the following table. Proved reserves are estimated by Company asset
teams composed of earth scientists and reservoir engineers. These proved reserve estimates are reviewed annually by the Company's Reserves Advisory Committee to ensure that rigorous professional
standards and the reserves definitions prescribed by the U.S. Securities and Exchange Commission are consistently applied throughout the Company.

Proved
reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change as additional
information becomes available.

Proved
reserves do not include additional quantities recoverable beyond the term of the lease or concession agreement or that may result from extensions of currently proved areas or from
applying secondary or tertiary recovery processes not yet tested and determined to be economic.

Proved
developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods.

203

---

"Net"
reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at the time of the estimate.

|                              |                            | Net proved
reserves of crude
oil condensate
and natural
gas liquids(1) |    | Net proved
reserves of
natural gas(1) |        
|----------------------------- | -------------------------- | ---------------------------------------------------------------------- | -- | ------------------------------------- | -------
|
|Reserves at December 31, 2000 |                            | 28                                                                     |    | 503,855                               |        
|Changes attributable to:      |                            |                                                                        |    |                                       |        
|                              | Revisions                  |                                                                        | (3 | )                                     | 51,827 
|                              | Extensions and discoveries |                                                                        |   |                                       | 17,320 
|                              | Sales                      |                                                                        |   |                                       | (21    
|                              | Production                 |                                                                        | (3 | )                                     | (61,611
|                              |                            |                                                                        |    |                                       |        
|Reserves at December 31, 2001 |                            | 22                                                                     |    | 511,370                               |        
|                              |                            |                                                                        |    |                                       |        

Table
VIStandardized measure of discounted future net cash flows related to provided oil and gas reserves:

The
standardized measure of discounted future net cash flows, related to the preceding proved oil and gas reserves, is calculated in accordance with the requirements of SFAS
No. 69. Estimated future cash inflows from production are computed by applying year-end prices for oil and gas to year-end quantities of estimated net proved reserves.
Future price changes are limited to those provided by contractual arrangements in existence at the end of each reporting year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved reserves based on year-end cost indices, assuming continuation of year-end economic
conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to
estimated future pretax net cash flows, less the tax basis of related assets. Discounted future net cash flows are calculated using ten percent midperiod discount factors. Discounting requires a
year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.

The
information provided does not represent management's estimate of the Company's expected future cash flows or value of proved oil and gas reserves. Estimates of proved reserved
quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become reserves in the future, are excluded from the
calculations. The arbitrary valuation prescribed under SFAS No. 69 requires assumptions as to the timing and amount of future development and production costs. The calculations are made as of
December 31 each year and should not be relied upon as an indication of the Company's future cash flows or value of its oil and gas reserves.

204

---

(millions of dollars)

At December 31, 2001:

Future cash inflows from production

$
1,454Future production and development costs


(655
)Future income taxes


(273
)Undiscounted future net cash flows


526Ten percent midyear annual discount for timing of estimated cash flows


(190
)Standardized measure of discounted future net cash flows

$
336


Table
VIIChanges in the standardized measure of discounted future net cash flows from proved reserves:

(millions of dollars)

|Present value at January 1, 2001                                     |  | $ | 1,679  |  
|-------------------------------------------------------------------- |  | - | ------ | -
|                                                                     |  |   |       
|Sales and transfers of oil and gas produced, net of production costs |  |   | (256   | )
|Development costs incurred                                           |  |   | 42     |  
|Extensions, discoveries and improved recovery, less related costs    |  |   | 9      |  
|Revisions of previous quantity estimates                             |  |   | 27     |  
|Net changes in prices, development and production costs              |  |   | (2,147 | )
|Accretion of discount                                                |  |   | 257    |  
|Net change in income tax                                             |  |   | 725    |  
|                                                                     |  |   |       
|Net change for the year                                              |  |   | (1,343 | )
|                                                                     |  |   |       
|Present value at December 31, 2001                                   |  | $ | 336    |  
|                                                                     |  |   |       

The
changes in present values between years, which can be significant, reflect changes in estimated proved reserve quantities and prices and assumptions used in forecasting production
volumes and costs. Changes in the timing of production are included with "Revisions of previous quantity estimates."

205

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | MISSION ENERGY HOLDING COMPANY
(REGISTRANT)
| |  | -------------------------------------------
| |  | By:                                        

| |  | Date: | March 28 2002
| |  | ----- | -------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                                         |  | Title                                             |  | Date          
|------------------------------------------------- |  | ------------------------------------------------- |  | --------------
|                                                  |  |                                                   |  |               
|Principal Executive Officer:                      |  |                                                   |  |               
|/s/THEODORE F. CRAVER, JR.Theodore F. Craver, Jr. |  | Director and Chief Executive Officer              |  | March 28, 2002
|Controller or Principal Accounting Officer:       |  |                                                   |  |               
|/s/KEVIN M. SMITHKevin M. Smith                   |  | Senior Vice President and Chief Financial Officer |  | March 28, 2002
|Majority of Board of Directors:                   |  |                                                   |  |               
|/s/JOHN E. BRYSONJohn E. Bryson                   |  | Director, Chairman of the Board                   |  | March 28, 2002
|/s/WILLIAM J. HELLERWilliam J. Heller             |  | Director                                          |  | March 28, 2002
|/s/BRYANT C. DANNERBryant C. Danner               |  | Director                                          |  | March 28, 2002

206

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SCHEDULE I

MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONDENSED FINANCIAL INFORMATION OF PARENT(1)        Condensed Balance Sheets        (In thousands)

|                                                           |  | December 31, 2001
|---------------------------------------------------------- |  | -----------------
|Assets                                                     |  |                  
|Cash and cash equivalents                                  |  | $                
|Affiliate receivables                                      |  |                  
|                                                           |  |                  
|Total current assets                                       |  |                  
|Investments in subsidiaries                                |  |                  
|Investment in discontinued operations                      |  |                  
|Other long-term assets                                     |  |                  
|                                                           |  |                  
|Total Assets                                               |  | $                
|                                                           |  |                  
|Liabilities and Shareholder's Equity                       |  |                  
|Accounts payable and accrued liabilities                   |  | $                
|Affiliate payables                                         |  |                  
|Liabilities under energy trading and price risk management |  |                  
|                                                           |  |                  
|Total current liabilities                                  |  |                  
|Long-term obligations                                      |  |                  
|Deferred taxes and other                                   |  |                  
|                                                           |  |                  
|Total Liabilities                                          |  |                  
|Common Shareholder's Equity                                |  |                  
|                                                           |  |                  
|Total Liabilities and Shareholder's Equity                 |  | $                
|                                                           |  |                  

---

207

---



SCHEDULE I

MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONDENSED FINANCIAL INFORMATION OF PARENT(1)        Condensed Statements of Income (Loss)        (In
thousands)

Year Ended
December 31, 2001Equity in income from continuing operations of subsidiaries

$
113,406Equity in loss from discontinued operations of subsidiaries


(1,234,270
)(1,120,864
)Operating expenses


(137
)Operating loss


(1,121,001
)Interest expense and other


(77,177
)Loss before income taxes


(1,198,178
)Benefit for income taxes


(28,526
)Net loss

$
(1,169,652
)


---

208

---



SCHEDULE I

MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        CONDENSED FINANCIAL INFORMATION OF PARENT(1)        Condensed Statements of Cash Flows        (In
thousands)

Year Ended
December 31, 2001Net cash provided by operating activities

$
5,278Net cash provided by financing activities


299,195Net cash used in investing activities


(303,531
)Net increase in cash and cash equivalents


942Cash and cash equivalents at beginning of period


Cash and cash equivalents at end of period

$
942Other Cash Flow Data:Cash dividends received from subsidiaries

$
32,500


---

209

---



SCHEDULE II

MISSION ENERGY HOLDING COMPANY AND SUBSIDIARIES        VALUATION AND QUALIFYING ACCOUNTS        (In thousands)

|                             |                                    |  |   | Additions |  |   |        | 
|---------------------------- | ---------------------------------- |  | - | --------- |  | - | ------ | 
|
|Year Ended December 31, 2001 |                                    |  |   |           |  |   |        | 
|                             | Allowance for doubtful accounts(1) |  | $ | 1,126     |  | $ | 14,603 | 
|Year Ended December 31, 2000 |                                    |  |   |           |  |   |        | 
|                             | Allowance for doubtful accounts    |  | $ | 1,126     |  |   |       | 
|                             | Maintenance Accruals(2)            |  | $ | 31,540    |  |   |       | 
|Year Ended December 31, 1999 |                                    |  |   |           |  |   |        | 
|                             | Allowance for doubtful accounts    |  |   |          |  | $ | 1,126  | 
|                             | Maintenance Accruals(2)            |  | $ | 26,053    |  | $ | 18,505 | 

---

210

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