UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-Q

|(Mark one)                                    |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended March 31, 2004
|or                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to           

Commission file number 000-24890

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EDISON MISSION ENERGY(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or
organization)             |  | 95-4031807(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------- |  | ----------------------------------------------
|18101 Von Karman Avenue Irvine, California(Address of principal executive offices) |  | 92612(Zip Code)                               
|Registrant's telephone number, including area code:(949) 752-5588                 

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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 ý    NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). YES o    NO ý

Number of shares outstanding of the registrant's Common Stock as of May 7, 2004: 100 shares (all shares held by an affiliate of the registrant).



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TABLE OF CONTENTS

|                            |  |                                                                                       |  | Page
|--------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                            |  | PART I  Financial Information                                                        |  |     
|Item 1.                     |  | Financial Statements                                                                  |  | 1   
|Item 2.                     |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 21  
|Item 3.                     |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 60  
|Item 4.                     |  | Controls and Procedures                                                               |  | 60  
|PART II  Other Information |  |                                                                                      
|Item 6.                     |  | Exhibits and Reports on Form 8-K                                                      |  | 61  
|                            |  | Signatures                                                                            |  | 63  

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PART I  FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

EDISON MISSION ENERGY AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF INCOME (LOSS)  (In thousands, Unaudited)

|                                         |                                                                                    | Three Months Ended
March 31, |       
|---------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------- | ------
|
|Operating Revenues                       |                                                                                    |                              |       
|                                         | Electric revenues                                                                  |                              | $     
|                                         | Net gains (losses) from price risk management and energy trading                   |                              |       
|                                         | Operation and maintenance services                                                 |                              |       
|                                         |                                                                                    |                              |       
|                                         |                                                                                    | Total operating revenues     |       
|                                         |                                                                                    |                              |       
|Operating Expenses                       |                                                                                    |                              |       
|                                         | Fuel                                                                               |                              |       
|                                         | Plant operations and transmission costs                                            |                              |       
|                                         | Plant operating leases                                                             |                              |       
|                                         | Operation and maintenance services                                                 |                              |       
|                                         | Depreciation and amortization                                                      |                              |       
|                                         | Administrative and general                                                         |                              |       
|                                         |                                                                                    |                              |       
|                                         |                                                                                    | Total operating expenses     |       
|                                         |                                                                                    |                              |       
|                                         | Operating income                                                                   |                              |       
|                                         |                                                                                    |                              |       
|Other Income (Expense)                   |                                                                                    |                              |       
|                                         | Equity in income from unconsolidated affiliates                                    |                              |       
|                                         | Interest and other income                                                          |                              |       
|                                         | Gain on sale of assets                                                             |                              |       
|                                         | Interest expense                                                                   |                              |       
|                                         | Dividends on preferred securities                                                  |                              |       
|                                         |                                                                                    |                              |       
|                                         |                                                                                    | Total other income (expense) |       
|                                         |                                                                                    |                              |       
|                                         | Income (loss) from continuing operations before income taxes and minority interest |                              |       
|                                         | Provision (benefit) for income taxes                                               |                              |       
|                                         | Minority interest                                                                  |                              |       
|                                         |                                                                                    |                              |       
|Income (Loss) From Continuing Operations |                                                                                    |                              | 31,234
|                                         | Income from operations of discontinued foreign subsidiaries, net of tax (Note 6)   |                              |       
|                                         |                                                                                    |                              |       
|Income (Loss) Before Accounting Change   |                                                                                    |                              | 31,272
|                                         | Cumulative effect of change in accounting, net of tax (Note 13)                    |                              |       
|                                         |                                                                                    |                              |       
|Net Income (Loss)                        |                                                                                    | $                            | 31,272
|                                         |                                                                                    |                              |       

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

1

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EDISON MISSION ENERGY AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  (In thousands, Unaudited)

|                                               |                                                                         | Three Months Ended
March 31,                                                                                                                                                 |       
|---------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|
|Net Income (Loss)                              |                                                                         | $                                                                                                                                                                            | 31,272
|Other comprehensive income (loss), net of tax: |                                                                         |                                                                                                                                                                              |       
|                                               | Foreign currency translation adjustments:                               |                                                                                                                                                                              |       
|                                               |                                                                         | Foreign currency translation adjustments, net of income tax provision (benefit) of $1,517 and $(965) for the three months ended March 31, 2004 and 2003, respectively        |       
|                                               | Minimum pension liability adjustment                                    |                                                                                                                                                                              |       
|                                               | Unrealized gains (losses) on derivatives qualified as cash flow hedges: |                                                                                                                                                                              |       
|                                               |                                                                         | Other unrealized holding losses arising during period, net of income tax benefit of $31,352 and $17,596 for the three months ended March 31, 2004 and 2003, respectively     |       
|                                               |                                                                         | Reclassification adjustments included in net income (loss), net of income tax benefit of $15,751 and $3,932 for the three months ended March 31, 2004 and 2003, respectively |       
|                                               |                                                                         |                                                                                                                                                                              |       
|Other comprehensive income (loss)              |                                                                         |                                                                                                                                                                              | (3,776
|                                               |                                                                         |                                                                                                                                                                              |       
|Comprehensive Income                           |                                                                         | $                                                                                                                                                                            | 27,496
|                                               |                                                                         |                                                                                                                                                                              |       

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

2

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EDISON MISSION ENERGY AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (In thousands, Unaudited)

|                                         |                                                                                  | March 31,
2004                    |            | December 31,
2003
|---------------------------------------- | -------------------------------------------------------------------------------- | --------------------------------- | ---------- | -----------------
|Assets                                   |                                                                                  |                                   |            |                  
|Current Assets                           |                                                                                  |                                   |            |                  
|                                         | Cash and cash equivalents                                                        |                                   | $          | 554,808          
|                                         | Accounts receivabletrade, net of allowance of $7,897 in 2004 and $6,470 in 2003 |                                   |            | 293,977          
|                                         | Accounts receivableaffiliates                                                   |                                   |            | 29,465           
|                                         | Assets under price risk management and energy trading                            |                                   |            | 32,514           
|                                         | Inventory                                                                        |                                   |            | 148,946          
|                                         | Prepaid expenses and other                                                       |                                   |            | 153,021          
|                                         |                                                                                  |                                   |            |                  
|                                         |                                                                                  | Total current assets              |            |                  
|                                         |                                                                                  |                                   |            |                  
|Investments in Unconsolidated Affiliates |                                                                                  |                                   | 1,584,312  |                  
|                                         |                                                                                  |                                   |            |                  
|Property, Plant and Equipment            |                                                                                  |                                   | 8,560,622  |                  
|                                         | Less accumulated depreciation and amortization                                   |                                   |            | 1,292,263        
|                                         |                                                                                  |                                   |            |                  
|                                         |                                                                                  | Net property, plant and equipment |            |                  
|                                         |                                                                                  |                                   |            |                  
|Other Assets                             |                                                                                  |                                   |            |                  
|                                         | Goodwill                                                                         |                                   |            | 886,593          
|                                         | Deferred financing costs                                                         |                                   |            | 59,862           
|                                         | Long-term assets under price risk management and energy trading                  |                                   |            | 108,351          
|                                         | Restricted cash                                                                  |                                   |            | 278,445          
|                                         | Rent payments in excess of levelized rent expense under plant operating leases   |                                   |            | 218,067          
|                                         | Other long-term assets                                                           |                                   |            | 164,931          
|                                         |                                                                                  |                                   |            |                  
|                                         |                                                                                  | Total other assets                |            |                  
|                                         |                                                                                  |                                   |            |                  
|Assets of Discontinued Operations        |                                                                                  |                                   | 6,218      |                  
|                                         |                                                                                  |                                   |            |                  
|Total Assets                             |                                                                                  | $                                 | 11,787,869 |                  
|                                         |                                                                                  |                                   |            |                  

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

3

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EDISON MISSION ENERGY AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (In thousands, Unaudited)

|                                                |                                                                                                      | March 31,
2004                       |            | December 31,
2003 |          
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------- | ----------------- | ---------
|Liabilities and Shareholder's Equity            |                                                                                                      |                                      |            |                   |          
|Current Liabilities                             |                                                                                                      |                                      |            |                   |          
|                                                | Accounts payableaffiliates                                                                          |                                      | $          | 1,277             |          
|                                                | Accounts payable and accrued liabilities                                                             |                                      |            | 396,384           |          
|                                                | Liabilities under price risk management and energy trading                                           |                                      |            | 262,587           |          
|                                                | Interest payable                                                                                     |                                      |            | 93,707            |          
|                                                | Short-term obligations                                                                               |                                      |            | 36,119            |          
|                                                | Current maturities of long-term obligations                                                          |                                      |            | 838,309           |          
|                                                |                                                                                                      |                                      |            |                   |          
|                                                |                                                                                                      | Total current liabilities            |            |                   | 1,628,383
|                                                |                                                                                                      |                                      |            |                   |          
|Long-Term Obligations Net of Current Maturities |                                                                                                      |                                      | 5,182,084  |                   |          
|                                                |                                                                                                      |                                      |            |                   |          
|Long-Term Deferred Liabilities                  |                                                                                                      |                                      |            |                   |          
|                                                | Deferred taxes and tax credits                                                                       |                                      |            | 1,271,418         |          
|                                                | Deferred revenue                                                                                     |                                      |            | 467,348           |          
|                                                | Long-term incentive compensation                                                                     |                                      |            | 28,890            |          
|                                                | Long-term liabilities under price risk management and energy trading                                 |                                      |            | 115,349           |          
|                                                | Junior subordinated debentures                                                                       |                                      |            | 154,639           |          
|                                                | Preferred securities subject to mandatory redemption                                                 |                                      |            | 166,450           |          
|                                                | Other                                                                                                |                                      |            | 322,801           |          
|                                                |                                                                                                      |                                      |            |                   |          
|                                                |                                                                                                      | Total long-term deferred liabilities |            |                   | 2,526,895
|                                                |                                                                                                      |                                      |            |                   |          
|Liabilities of Discontinued Operations          |                                                                                                      |                                      | 322        |                   |          
|                                                |                                                                                                      |                                      |            |                   |          
|Total Liabilities                               |                                                                                                      |                                      | 9,337,684  |                   |          
|                                                |                                                                                                      |                                      |            |                   |          
|Minority Interest                               |                                                                                                      |                                      | 519,619    |                   |          
|                                                |                                                                                                      |                                      |            |                   |          
|Commitments and Contingencies(Note 8)           |                                                                                                      |                                      |            |                   |          
|Shareholder's Equity                            |                                                                                                      |                                      |            |                   |          
|                                                | Common stock, par value $0.01 per share; 10,000 shares authorized; 100 shares issued and outstanding |                                      |            | 64,130            |          
|                                                | Additional paid-in capital                                                                           |                                      |            | 2,634,034         |          
|                                                | Retained deficit                                                                                     |                                      |            | (741,911          | )        
|                                                | Accumulated other comprehensive loss                                                                 |                                      |            | (25,687           | )        
|                                                |                                                                                                      |                                      |            |                   |          
|Total Shareholder's Equity                      |                                                                                                      |                                      | 1,930,566  |                   |          
|                                                |                                                                                                      |                                      |            |                   |          
|Total Liabilities and Shareholder's Equity      |                                                                                                      | $                                    | 11,787,869 |                   | $        
|                                                |                                                                                                      |                                      |            |                   |          

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

4

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EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, Unaudited)

|                                                                        |                                                                                         | Three Months Ended
March 31,                                             |        
|----------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------
|
|Cash Flows From Operating Activities                                    |                                                                                         |                                                                          |        
|                                                                        | Income (loss) from continuing operations, after accounting change, net                  |                                                                          | $      
|                                                                        | Adjustments to reconcile income to net cash provided by (used in) operating activities: |                                                                          |        
|                                                                        |                                                                                         | Equity in income from unconsolidated affiliates                          |        
|                                                                        |                                                                                         | Distributions from unconsolidated affiliates                             |        
|                                                                        |                                                                                         | Depreciation and amortization                                            |        
|                                                                        |                                                                                         | Minority interest                                                        |        
|                                                                        |                                                                                         | Deferred taxes and tax credits                                           |        
|                                                                        |                                                                                         | Gain on sale of assets                                                   |        
|                                                                        |                                                                                         | Cumulative effect of change in accounting, net of tax                    |        
|                                                                        | Changes in operating assets and liabilities:                                            |                                                                          |        
|                                                                        |                                                                                         | Decrease (increase) in accounts receivable                               |        
|                                                                        |                                                                                         | Decrease in inventory                                                    |        
|                                                                        |                                                                                         | Decrease (increase) in prepaid expenses and other                        |        
|                                                                        |                                                                                         | Decrease (increase) in rent payments in excess of levelized rent expense |        
|                                                                        |                                                                                         | Increase (decrease) in accounts payable and accrued liabilities          |        
|                                                                        |                                                                                         | Decrease in interest payable                                             |        
|                                                                        |                                                                                         | Decrease in net assets under risk management                             |        
|                                                                        | Other operating, net                                                                    |                                                                          |        
|                                                                        |                                                                                         |                                                                          |        
|                                                                        |                                                                                         |                                                                          | 7,523  
|                                                                        | Operating cash flow from discontinued operations                                        |                                                                          |        
|                                                                        |                                                                                         |                                                                          |        
|                                                                        |                                                                                         | Net cash provided by (used in) operating activities                      |        
|                                                                        |                                                                                         |                                                                          |        
|Cash Flows From Financing Activities                                    |                                                                                         |                                                                          |        
|                                                                        | Borrowings on long-term debt and lease swap agreements                                  |                                                                          |        
|                                                                        | Payments on long-term debt agreements                                                   |                                                                          |        
|                                                                        | Short-term financing and lease swap agreements, net                                     |                                                                          |        
|                                                                        | Cash dividends to minority shareholders                                                 |                                                                          |        
|                                                                        | Financing costs                                                                         |                                                                          |        
|                                                                        |                                                                                         |                                                                          |        
|                                                                        |                                                                                         | Net cash provided by (used in) financing activities                      |        
|                                                                        |                                                                                         |                                                                          |        
|Cash Flows From Investing Activities                                    |                                                                                         |                                                                          |        
|                                                                        | Investments in and loans to energy projects                                             |                                                                          |        
|                                                                        | Purchase of common stock of acquired companies                                          |                                                                          |        
|                                                                        | Capital expenditures                                                                    |                                                                          |        
|                                                                        | Proceeds from return of capital and loan repayments                                     |                                                                          |        
|                                                                        | Proceeds from sale of interest in projects                                              |                                                                          |        
|                                                                        | Decrease in restricted cash                                                             |                                                                          |        
|                                                                        | Investments in other assets                                                             |                                                                          |        
|                                                                        |                                                                                         |                                                                          |        
|                                                                        |                                                                                         |                                                                          | 139,155
|                                                                        | Investing cash flow from discontinued operations                                        |                                                                          |        
|                                                                        |                                                                                         |                                                                          |        
|                                                                        |                                                                                         | Net cash provided by (used in) investing activities                      |        
|                                                                        |                                                                                         |                                                                          |        
|Effect of exchange rate changes on cash                                 |                                                                                         |                                                                          | 1,460  
|Effect on cash from de-consolidation of subsidiaries                    |                                                                                         |                                                                          | (34,231
|                                                                        |                                                                                         |                                                                          |        
|Net increase in cash and cash equivalents                               |                                                                                         |                                                                          | 50,851 
|Cash and cash equivalents at beginning of period                        |                                                                                         |                                                                          | 504,093
|                                                                        |                                                                                         |                                                                          |        
|Cash and cash equivalents at end of period                              |                                                                                         |                                                                          | 554,944
|Cash and cash equivalents classified as part of discontinued operations |                                                                                         |                                                                          | (136   
|                                                                        |                                                                                         |                                                                          |        
|Cash and cash equivalents of continuing operations                      |                                                                                         | $                                                                        | 554,808
|                                                                        |                                                                                         |                                                                          |        

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

5

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EDISON MISSION ENERGY AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  MARCH 31, 2004  (Dollars in millions, Unaudited)

Note 1. General

In the opinion of management, all adjustments, including recurring accruals, have been made that are necessary to present fairly the consolidated financial
position and results of operations for the periods covered by this report. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the operating
results for the full year.

Edison
Mission Energy's (EME's) significant accounting policies are described in Note 2 to its Consolidated Financial Statements as of December 31, 2003 and 2002, included
in EME's annual report on Form 10-K for the year ended December 31, 2003. EME follows the same accounting policies for interim reporting purposes, with the exception of the
change in accounting for variable interest entities (see Note 14). This quarterly report should be read in connection with such financial statements.

Terms
used but not defined in this report are defined in EME's annual report on Form 10-K for the year ended December 31, 2003. Certain prior period amounts
have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on net income or shareholder's equity.

EME's
independent auditors' audit opinion for the year ended December 31, 2003 contains an explanatory paragraph that indicates the consolidated financial statements included in
its 2003 annual report on Form 10-K have been prepared on the basis that EME will continue as a going concern and that the uncertainty about Edison Mission Midwest Holdings' ability
to repay or refinance $693 million of debt that matures in December 2004 raises substantial doubt about EME's ability to continue as a going concern. In April 2004, all of the
outstanding debt of Edison Mission Midwest
Holdings was repaid in full through new financings obtained by Midwest Generation. For further discussion, see Note 15Subsequent Event.

Note 2. Dispositions

On March 31, 2004, EME completed the sale of its 50% partnership interest in Brooklyn Navy Yard Cogeneration Partners L.P. to a third party for a sales
price of approximately $42 million. EME recorded an impairment charge of $53 million during the fourth quarter of 2003 related to the planned disposition of this investment and a
pre-tax loss of approximately $4 million during the first quarter of 2004 due to changes in the terms of the sale.

On
January 7, 2004, EME completed the sale of 100% of its stock of Edison Mission Energy Oil & Gas, which in turn holds minority interests in Four Star Oil & Gas, to
Medicine Bow Energy Corporation. Proceeds from the sale were approximately $100 million. EME recorded a pre-tax gain on the sale of approximately $47 million during the first
quarter of 2004.

Note 3. Goodwill and Intangible Assets

Effective January 1, 2002, EME 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

6

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reporting
unit level. EME will perform its annual evaluation of goodwill on October 1, 2004 or sooner if indicators of impairment exist.

Included
in "Other long-term assets" on EME's consolidated balance sheet at March 31, 2004 and December 31, 2003 are customer contracts with a gross carrying
amount of $105 million and $104 million, respectively, and accumulated amortization of $14 million and $12 million, respectively. The contracts have a weighted average
amortization period of 20 years. For the three months ended March 31, 2004 and 2003, the amortization expense was $2 million and $1 million, respectively. Based on the
current amount of intangible assets subject to amortization, the estimated amortization expense for fiscal years 2004 through 2008 is approximately $6 million each year.

Changes
in the carrying amount of goodwill, by geographical segment, for the three months ended March 31, 2004 are as follows:

|                                     |  | Americas |   | Asia Pacific |   | Europe |  | Total
|------------------------------------ |  | -------- | - | ------------ | - | ------ |  | -----
|Carrying amount at December 31, 2003 |  | $        | 2 |              | $ | 561    |  | $    
|Translation adjustments and other    |  |          |  |              |   | 11     |  |      
|                                     |  |          |   |              |   |        |  |      
|Carrying amount at March 31, 2004    |  | $        | 2 |              | $ | 572    |  | $    
|                                     |  |          |   |              |   |        |  |      

Note 4. Inventory

Inventory is stated at the lower of weighted average cost or market. Inventory at March 31, 2004 and December 31, 2003 consisted of the following:

March 31,
2004

December 31,
2003Coal and fuel oil

$
76

$
90Spare parts, materials and supplies


73


76Total

$
149

$
166


Note 5. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consisted of the following:

|                             |  | Currency
Translation
Adjustments |     | Unrealized Gains
(Losses) on Cash
Flow Hedges |   | Minimum
Pension Liability
Adjustment |   | Accumulated Other
Comprehensive
Income (Loss) |    
|---------------------------- |  | -------------------------------- | --- | --------------------------------------------- | - | ------------------------------------ | - | --------------------------------------------- | ---
|Balance at December 31, 2003 |  | $                                | 145 |                                               | $ | (156                                 | ) | $                                             | (11
|Current period change        |  |                                  | 22  |                                               |   | (26                                  | ) |                                               |   
|                             |  |                                  |     |                                               |   |                                      |   |                                               |    
|Balance at March 31, 2004    |  | $                                | 167 |                                               | $ | (182                                 | ) | $                                             | (11
|                             |  |                                  |     |                                               |   |                                      |   |                                               |    

The amount of commodity hedges included in unrealized gains (losses) on cash flow hedges, net of tax, at March 31, 2004, was a loss of
$84 million. The amount of interest rate hedges included in unrealized gains (losses) on cash flow hedges, net of tax, at March 31, 2004, was a loss of $98 million.

Unrealized
losses on commodity hedges included those related to the hedge agreement with the State Electricity Commission of Victoria for electricity prices from the Loy Yang B project
in Australia, and Homer City and Midwest Generation forward electricity contracts that did not meet the normal

7

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sales
and purchases exception under SFAS No. 133. These losses arise because current forecasts of future electricity prices in these markets are greater than contract prices. Unrealized losses
on interest rate hedges included those related to EME's share of interest rate swaps of its unconsolidated affiliates, the Loy Yang B project and the Spanish Hydro project.

As
EME's hedged positions are realized, approximately $55 million, after tax, of the net unrealized losses on cash flow hedges at March 31, 2004 are expected to be
reclassified into earnings during the next 12 months. Management expects that reclassification of net unrealized losses will offset energy revenue recognized at market prices. The maximum
period over which EME has designated a cash flow hedge, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is 13 years.
Actual amounts ultimately reclassified into earnings over the next 12 months could vary materially from this estimated amount as a result of changes in market conditions.

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, is immediately recognized in earnings. EME recorded net gains (losses) of approximately $5 million and $(8) million during the first quarters of 2004 and 2003, respectively,
representing the amount of cash flow hedges'
ineffectiveness, reflected in net gains (losses) from price risk management and energy trading in EME's consolidated income statement.

Note 6. Discontinued Operations

Ferrybridge and Fiddler's Ferry Plants

On December 21, 2001, EME 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 was the result of a competitive bidding process. EME 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 EME's consolidated financial statements.

The
balance sheet at March 31, 2004 and December 31, 2003, is comprised of current assets of $5 million, for each period, and other long-term assets of
$1 million, for each period. In addition, there were current liabilities of $1 million at December 31, 2003.

Lakeland Project

In 2001, EME ceased consolidating the activities of Lakeland Power Ltd. when an administrator receiver was appointed following a default by Norweb
Energi Ltd, the counterparty to a long-term power sales agreement. The consolidated financial statements have been restated to conform to discontinued operations treatment for all
historical periods presented. In 2003, a third party completed the purchase of the Lakeland power plant from the administrative receiver for £24 million. The proceeds from the sale
and existing cash were used to fund partial repayment of the outstanding debt owed to secured creditors of the project. Lakeland Power Ltd.'s administrative receiver has filed a claim against
Norweb Energi Ltd. for termination of the power purchase agreement. To the extent that Lakeland Power Ltd. receives payment under its claim, such amounts will first be used to repay
amounts due to creditors. Any residual amount will be distributed to EME's subsidiary that owns the outstanding shares of Lakeland Power Ltd. There is no assurance that there will be any cash
available to distribute from the ultimate resolution of this claim.

8

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Note 7. Employee Benefit Plans

Pension Plans

EME previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $13 million to its United
States pension plans in 2004. As of March 31, 2004, $3 million in contributions have been made. EME anticipates that its original expectation will be met by year-end 2004.

Components
of pension expense for United States plans are:

Three Months Ended
March 31,2004

2003Service cost

$
4

$
4Interest cost


2


2Expected return on plan assets


(1
)

(1
)Net amortization and deferral





Total expense

$
5

$
5


EME expects to contribute approximately $4 million to its foreign pension plans in 2004. As of March 31, 2004, $1 million in
contributions have been made.

Components
of pension expense for foreign plans are:

Three Months Ended
March 31,2004

2003Service cost

$
5

$
4Interest cost


10


8Expected return on plan assets


(10
)

(10
)Curtailment/settlement





8Net amortization and deferral


1


Total expense

$
6

$
10


Postretirement Benefits Other Than Pensions

EME previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1 million to its
postretirement benefits other than its pension plan in 2004. As of March 31, 2004, $0.1 million in contributions have been made. EME anticipates that its original expectation will be met
by year-end 2004.

9

---



Components
of postretirement benefits expense are:

Three Months Ended
March 31,2004

2003Service cost

$


$
Interest cost


1


1Expected return on plan assets





Net amortization and deferral





Total expense

$
1

$
1


Note 8. Commitments and Contingencies

Capital Improvements

At March 31, 2004, EME's subsidiaries had firm commitments to spend approximately $71 million on construction and other capital investments during
2004 through 2008. These expenditures are planned to be financed by existing subsidiary credit agreements and cash generated from these operations. The construction and other capital expenditures
primarily relate to the construction of a power plant in New Zealand by Contact Energy and planned improvements at Midwest Generation.

Commercial Commitments

Introduction

EME and certain of is subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As
discussed below, these contracts include performance guarantees, standby letters of credit, guarantee of debt and indemnifications.

Standby Letters of Credit

At March 31, 2004, standby letters of credit aggregated $144 million and were scheduled to expire as follows: 2004$90 million;
2005$15 million; and 2008 and thereafter$39 million.

Guarantees and Indemnities

Tax
Indemnity Agreements

In
connection with the sale-leaseback transactions that EME has entered into related to the Collins Station, Powerton and Joliet plants in Illinois and the Homer City
facilities in Pennsylvania, EME or one of its subsidiaries has entered into tax indemnity agreements. Under these tax indemnity agreements, these entities agreed to indemnify the lessors in the
sale-leaseback transactions for specified adverse tax consequences that could result in certain situations set forth in each tax indemnity agreement, including specified defaults under the
respective leases. The potential indemnity obligations under these tax indemnity agreements could be significant. Due to the nature of these potential obligations, EME cannot determine a maximum
potential liability which would be triggered by a valid claim from the lessors. EME has not recorded a liability related to these indemnities. In connection with the termination of the lease for the
Collins Station (See Note 15Subsequent Event), Midwest Generation will continue to have obligations under the tax indemnity agreement with the former lease equity investor.

10

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Indemnities
Provided as Part of the Acquisition of the Illinois Plants

In
connection with the acquisition of the Illinois Plants, EME agreed to indemnify Commonwealth Edison with respect to environmental liabilities before and after the date of sale as
specified in the Asset Sale Agreement dated March 22, 1999. The indemnification claims are reduced by any insurance proceeds and tax benefits related to such claims and are subject to a
requirement by Commonwealth Edison to take all reasonable steps to mitigate losses related to any such indemnification claim. Due to the nature of the obligation under this indemnity, a maximum
potential liability cannot be determined. The indemnification for the environmental liabilities referred to above is not limited in term and would be triggered by a valid claim from Commonwealth
Edison. Except as discussed below, EME has not recorded a liability related to this indemnity.

Midwest
Generation entered into a supplemental agreement with Commonwealth Edison on February 20, 2003 to resolve a dispute regarding interpretation of its reimbursement
obligation for asbestos claims under the environmental indemnities set forth in the Asset Sale Agreement. Under this supplemental agreement, Midwest Generation agreed to reimburse Commonwealth Edison
50% of specific existing asbestos claims less recovery of insurance costs, and agreed to a sharing arrangement for liabilities associated with future asbestos related claims as specified in the
agreement. The obligations under this agreement are not subject to a maximum liability. The supplemental agreement has a five-year term with an automatic renewal provision (subject to the
right to terminate). Payments are made under this indemnity by a valid claim provided from Commonwealth Edison. At March 31, 2004, Midwest Generation had $11 million recorded as a
liability related to this matter and had made $1 million in payments.

Indemnity
Provided as Part of the Acquisition of the Homer City Facilities

In
connection with the acquisition of the Homer City facilities, EME Homer City Generation L.P. (EME Homer City) agreed to indemnify the sellers with respect to environmental liabilities
before and after the date of sale as specified in the Asset Purchase Agreement dated August 1, 1998. EME guaranteed the obligations of EME Homer City. Due to the nature of the obligation under
this indemnity provision, it is not subject to a maximum potential liability and does not have an expiration date. Payments would be triggered under this indemnity by a claim from the sellers. EME has
not recorded a liability related to this indemnity.

Indemnities
Provided under Asset Sale Agreements

In
connection with the sale of assets, EME has provided indemnities to the purchasers for taxes imposed with respect to operations of the asset prior to the sale, and EME or its
subsidiaries have
received similar indemnities from purchasers related to taxes arising from operations after the sale. EME has also provided indemnities to purchasers for items specified in each agreement (for
example, specific pre-existing litigation matters and/or environmental conditions). Due to the nature of the obligations under these indemnity agreements, a maximum potential liability
cannot be determined. Not all indemnities under the asset sale agreements have specific expiration dates. Payments would be triggered under these indemnities by valid claims from the sellers or
purchasers, as the case may be. EME has not recorded a liability related to these indemnities.

Guarantee
of Brooklyn Navy Yard Contractor Settlement Payments

On
March 31, 2004, EME completed the sale of 100% of the stock of Mission Energy New York, Inc., which holds a fifty percent partnership interest in Brooklyn Navy Yard
Cogeneration Partners, L.P. (referred to as Brooklyn Navy Yard) to BNY Power Partners LLC. Brooklyn Navy Yard

11

---



owns
a 286 MW gas-fired cogeneration power plant in Brooklyn, New York. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement
against Brooklyn Navy Yard. A settlement agreement was executed on January 17, 2003, and all litigation has been dismissed. EME agreed to indemnify Brooklyn Navy Yard and, in connection with
the sale of EME's interest in Brooklyn Navy Yard, BNY Power Partners for any payments due under this settlement agreement, which are scheduled through 2006. At March 31, 2004, EME recorded a
liability of $10 million related to this indemnity.

Guarantee
of 50% of TM Star Fuel Supply Obligations

TM
Star was formed for the limited purpose of selling natural gas to March Point Cogeneration Company, an affiliate through common ownership, under a fuel supply agreement that extends
through December 31, 2011. TM Star had entered into fuel purchase contracts with unrelated third parties to meet a portion of the obligations under the fuel supply agreement. EME had guaranteed
50% of TM Star's obligation under the fuel supply agreement to March Point Cogeneration Company. Due to the nature of the obligation under this guarantee, a maximum potential liability could not be
determined. TM Star met its obligations to March Point Cogeneration Company, and, accordingly, no claims against this guarantee were made. TM Star was merged into March Point Cogeneration Company
effective as of January 16, 2004, and this guarantee terminated by operation of law as of that date.

Capacity
Indemnification Agreements

EME
has guaranteed, jointly and severally with Texaco Inc., the obligations of March Point Cogeneration Company under its project power sales agreements to repay capacity payments
to the project's power purchaser in the event that the power sales agreements terminate, March Point Cogeneration Company abandons the project, or the project fails to return to normal operations
within a reasonable time after a complete or partial shutdown, during the term of the power contracts. In addition, subsidiaries of EME have guaranteed the obligations of Kern River Cogeneration
Company and Sycamore Cogeneration Company under their project power sales agreements to repay capacity payments to the projects' power purchaser in the event that the projects unilaterally terminate
their performance or reduce their electric power producing capability during the term of the power contracts. The obligations under the indemnification agreements as of March 31, 2004, if
payment were required, would be $172 million. EME has no reason to believe that any of these projects will either cease operations or reduce its electric power producing capability during the
term of its power contract.

Bank
Indemnity under a Letter of Credit Supporting ISAB Energy's Debt Service Reserve Account

EME
agreed to indemnify its lenders under its credit facilities from amounts drawn on a $26 million letter of credit issued for the benefit of the lenders to ISAB Energy, a 49%
unconsolidated affiliate, in lieu of ISAB Energy funding a debt service reserve account using additional equity contributions. Accordingly, a default under ISAB Energy's project debt could result in a
draw under the letter of credit. The letter of credit is renewed each six-month period or until ISAB Energy funds the debt service account. The indemnification is subject to the maximum
amount drawn under the letter of credit. EME has not recorded a liability related to this indemnity.

Subsidiary
Indemnity to Central Maine Power Company for Value of Points of Delivery

A
subsidiary of EME agreed to indemnify Central Maine Power Company against decreases in the value of power deliveries by CL Eight, an unconsolidated affiliate, to Central Maine Power as
a result of the implementation of a location-based pricing system in the New England Power Pool. The indemnity has the same term as a power supply agreement between Central Maine Power and CL

12

---



Eight,
which runs through December 2016. It is not possible to determine potential differences in values between the various points of delivery in New England Power Pool at this time. Due to
the nature of this indemnity, a maximum potential liability cannot be determined. To the extent EME's subsidiary would be required to make a payment under this indemnity, it and EME are indemnified by
Peabody Energy Corporation pursuant to the 2000 Purchase and Sale Agreement for the acquisition of Citizens Power LLC. EME's subsidiary has not recorded a liability related to this indemnity.

Subsidiary
Guarantees for Performance of Unconsolidated Affiliates

A
subsidiary of EME has guaranteed the obligations of an unconsolidated affiliate to make payments to a third party for power delivered under a fixed-price power sales agreement. This
agreement runs through 2007. EME believes there is sufficient cash flow to pay the power suppliers, assuming timely payment by the power purchasers. Due to the nature of this indemnity, a maximum
potential liability cannot be determined. To the extent EME's subsidiary would be required to make payments under the guarantee, EME's subsidiary and EME are indemnified by Peabody Energy Corporation
pursuant to the 2000 Purchase and Sale Agreement for Citizens Power LLC. EME's subsidiary has not recorded a liability related to this indemnity.

Contingencies

Legal Developments Affecting Sunrise Power Company

Sunrise Power Company, in which EME's wholly owned subsidiary owns a 50% interest, sells all its output to the California Department of Water Resources. On
May 15, 2002, Sunrise Power Company
was served with a complaint filed in the Superior Court of the State of California, City and County of San Francisco, by James M. Millar, "individually, and on behalf of the general public and as a
representative taxpayer suit" against sellers of long-term power to the California Department of Water Resources, including Sunrise Power Company. The lawsuit alleges that the defendants,
including Sunrise Power Company, engaged in unfair and fraudulent business practices by knowingly taking advantage of a manipulated power market to obtain unfair contract terms. The lawsuit seeks to
enjoin enforcement of the "unfair and oppressive terms and conditions" in the contracts, as well as restitution by the defendants of excessive monies obtained by the defendants. Plaintiffs in several
other class action lawsuits pending in Northern California have filed petitions seeking to have the Millar lawsuit consolidated with those lawsuits. The defendants in the Millar lawsuit and other
class action suits removed all the lawsuits to the U.S. District Court, Northern District of California, and filed a motion to stay all proceedings pending final resolution of the jurisdictional
issue. On July 9, 2003, Judge Whaley of the U.S. District Court concluded the federal court lacked jurisdiction and remanded the case to the originating San Francisco Superior Court.
Defendants, including Sunrise Power Company, have stipulated to respond to the complaint thirty days after it is assigned to a specific court of the San Francisco Superior Court. In
December 2003, James Millar filed a First Amended Class Action and Representative Action Complaint which contains allegations similar to those in the earlier complaint but also alleges a class
action. One of the newly added parties has again removed the lawsuit to federal court. After various procedural motions, the case has been assigned to Judge Whaley in San Diego, who will hear
plaintiff's motion to remand and any motions to dismiss later this year. EME believes that the outcome of this litigation will not have a material adverse effect on its consolidated financial position
or results of operations.

Regulatory Developments Affecting Doga Project

On August 4, 2002, a new Electricity Market License Regulation was implemented in Turkey. The new regulation contains, among other things, a requirement
that each generator obtain a generation

13

---



license.
Historically, Doga's Implementation Contract has been its sole license. The new regulation contemplates an initial fixed license fee and a yearly license fee based on the amount of energy
generated, which will increase the project's costs of operation by an undetermined amount. In addition, the new regulation allows the possibility of insertion of provisions in a new license which may
be different from those in the Implementation Contract.

The
effect of the new regulation is still undetermined, as the new license provisions have not been specified. Doga complied with the new regulation's stipulation to apply for a new
generation license by June 2, 2003. The license has not been issued yet. If actions or inactions undertaken pursuant to the new regulation directly or indirectly impede, hinder, prevent or
delay the operation of the Doga facility or increase Doga's cost of performing its obligations under its project documents, this may constitute a "risk event" under Doga's Implementation Contract. A
risk event may permit Doga to request an increase in its tariff or, under certain circumstances, request a buyout of the project by the Ministry of Energy and Natural Resources.

On
October 3, 2002, Doga (and several other power producers in Turkey acting independently) filed a lawsuit in the Danistay, Turkey's high administrative court, against the Energy
Market Regulatory Authority seeking both an injunction and permanent invalidation of certain provisions of the new regulation on the grounds of the illegality and unconstitutionality of any new
license requirement that does not take into account the vested rights of a company operating pursuant to previously agreed terms of the Implementation Contract.

On
May 12, 2003, the Danistay rejected Doga's request for injunctive relief (as well as those of the other power companies with similar claims). On July 10, 2003, Doga
appealed the Danistay's ruling. Doga's appeal was heard by the General Council of the Administrative Chambers of Danistay on October 10, 2003 and was rejected. There are no further rights of
appeal against the decision regarding the injunction. The Danistay will continue to hear the merits of Doga's lawsuit. A decision is expected to be rendered late in 2004.

Supply Contract from NRG Power Marketing

EMMT is obligated to provide electricity to an unconsolidated 25%-owned affiliate, CL Power Sales Eight, L.L.C., referred to as CL Eight. EMMT has entered into
purchase agreements for a portion of the volumes due under the supply contract. Current market prices exceed the price which CL Eight is required to pay to EMMT for the electricity delivered. To the
extent EMMT suffers losses as a result of being required to resell such electricity for less than it paid to purchase it, EMMT and EME are indemnified by Peabody Energy Corporation pursuant to the
2000 Purchase and Sale Agreement for the acquisition of Citizens Power LLC.

Income Taxes

EME 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 EME's
opinion, it is unlikely that the resolution of any such matters will have a material adverse effect upon EME's financial condition or results of operations.

14

---



Litigation

EME experiences other routine litigation in the normal course of its business. None of such pending routine litigation is expected to have a material adverse
effect on EME's consolidated financial position or results of operations.

Environmental Matters and Regulations

EME 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. EME 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, future
proceedings that may be initiated by environmental authorities, and settlements agreed to by other companies could affect the costs and the manner in which EME conducts its business and could cause it
to make substantial additional capital expenditures. There is no assurance that EME would be able to recover these increased costs from its customers or that EME's financial position and results of
operations would not be materially adversely affected.

Typically,
environmental laws and regulations require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction, operation or modification of a
project or generating facility. 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. If EME fails to comply with applicable environmental laws, it may be subject to injunctive relief or penalties and fines imposed by
regulatory authorities.

Note 9. Business Segments

EME operates predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia Pacific and
Europe. EME's plants are located in different geographic areas, which mitigate somewhat the effects of regional markets, regional

15

---



economic
downturns or unusual weather conditions. These regions take advantage of the increasing globalization of the independent power market.

|Three Months Ended                                                                 |                          | Americas |     | Asia Pacific |   | Europe |     | Corporate/
Other |     | Total |  
|---------------------------------------------------------------------------------- | ------------------------ | -------- | --- | ------------ | - | ------ | --- | ---------------- | --- | ----- | -
|March 31, 2004                                                                     |                          |          |     |              |   |        |     |                  |     |       |  
|Operating revenues from consolidated subsidiaries                                  |                          | $        | 359 |              | $ | 261    |     | $                | 161 |       | $
|Net gains (losses) from price risk management and energy trading                   |                          |          | 1   |              |   | (1     | )   |                  | 2   |       |  
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  
|                                                                                   | Total operating revenues |          | $   | 360          |   | $      | 260 |                  | $   | 163   |  
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  
|Income (loss) from continuing operations before income taxes and minority interest |                          | $        | 83  |              | $ | 65     |     | $                | 38  |       | $
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  
|March 31, 2003                                                                     |                          |          |     |              |   |        |     |                  |     |       |  
|Operating revenues from consolidated subsidiaries                                  |                          | $        | 367 |              | $ | 193    |     | $                | 132 |       | $
|Net gains (losses) from price risk management and energy trading                   |                          |          | 4   |              |   | (6     | )   |                  | (5  | )     |  
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  
|                                                                                   | Total operating revenues |          | $   | 371          |   | $      | 187 |                  | $   | 127   |  
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  
|Income (loss) from continuing operations before income taxes and minority interest |                          | $        | 39  |              | $ | 16     |     | $                | 24  |       | $
|                                                                                   |                          |          |     |              |   |        |     |                  |     |       |  

Note 10. Investments in Unconsolidated Affiliates

The following table presents summarized financial information of the significant subsidiary investments in unconsolidated affiliates accounted for by the equity
method. The significant subsidiary investments include the California Power Group, Watson Cogeneration Company, PT Paiton Energy and ISAB Energy S.r.l. The California Power Group (not a legal entity)
consists of Kern River Cogeneration Company, Sycamore Cogeneration Company, Coalinga Cogeneration Company, Mid-Set Cogeneration Company, Salinas River Cogeneration Company, Sargent Canyon
Cogeneration Company, and Sunrise Power Company, LLC. For the three months ended March 31, 2003, the significant subsidiary investments also included Four Star Oil & Gas Company. EME
sold 100% of its stock of Edison Mission Energy Oil & Gas, which in turn holds minority interests in Four Star Oil & Gas, on January 7, 2004. Therefore, Four Star Oil & Gas
is not included in the balances for the three months ended March 31, 2004.

Three Months Ended
March 31,2004

2003Operating revenues

$
517

$
560Operating income


134


161Income before accounting change


82


122Net income


82


104


16

---



Note 11. Supplemental Statements of Cash Flows Information

Three Months Ended
March 31,2004

2003Cash paidInterest (net of amount capitalized)

$
133

$
111Income taxes (receipts)


26


(2
)Cash payments under plant operating leases


57


58Details of assets acquiredFair value of assets acquired

$


$
333Liabilities assumed





58Net cash paid for acquisitions

$


$
275Non-cash activities from de-consolidation of variable interest entitiesAssets

$
220

$
Liabilities


254





Note 12. Stock-based Compensation

Edison International has three stock-based employee compensation plans, which are described more fully in Note 16Stock Compensation Plans,
included in EME's annual report on Form 10-K for the year ended December 31, 2003. EME accounts for those plans using the intrinsic value method. Upon grant, no stock-based
employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates the effect on net income if EME had used the fair value accounting method.

Three Months Ended
March 31,2004

2003Net income (loss), as reported

$
31

$
(17
)Add: stock-based compensation expense included in reported net income (loss), net of related tax effects


3


1Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(1
)

(1
)Pro forma net income (loss)

$
33

$
(17
)


Note 13. Cumulative Effect of Change in Accounting Principle

Effective January 1, 2003, EME adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." 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 the 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. As of

17

---



January 1,
2003, EME recorded a $9 million, after tax, decrease to net income as the cumulative effect of the adoption of SFAS No. 143.

Note 14. New Accounting Pronouncements

Statement of Financial Accounting Standards Interpretation No. 46

In December 2003, the FASB re-issued Statement of Financial Accounting Standards Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46R). The primary objective of the interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through
means other than voting rights; such entities are known as variable interest entities. Under this interpretation, the primary beneficiary is the variable interest holder that absorbs a majority of
expected losses; or if no variable interest holder meets this criteria, then it is the variable interest holder that receives a majority of the expected residual returns. The primary beneficiary is
required to consolidate the variable interest entity unless specific exceptions or exclusions are met. This interpretation applies to variable interest entities created after January 31, 2003,
and applies to variable interest entities in which EME holds a variable interest that it acquired before February 1, 2003. This interpretation is effective for special purpose entities as of
December 31, 2003 and for all other entities as of March 31, 2004.

Variable Interest Entities

EME completed a review of the application of FIN 46R to its subsidiaries and affiliates and concluded that it has variable interests in variable interest entities
as defined in this interpretation. The following table summarizes the variable interest entities in which EME has a significant variable interest:

|Variable Interest Entity |  | Location              |  | Investment at
March 31, 2004 |     | Ownership
Interest at
March 31, 2004 |     | Description
|------------------------ |  | --------------------- |  | ---------------------------- | --- | ------------------------------------ | --- | -----------
|Paiton                   |  | East Java, Indonesia  |  | $                            | 580 |                                      | 45% |            
|EcoEléctrica             |  | Peñuelas, Puerto Rico |  |                              | 275 |                                      | 50% |            
|Watson                   |  | Carson, CA            |  |                              | 91  |                                      | 49% |            
|Sunrise                  |  | Fellows, CA           |  |                              | 84  |                                      | 50% |            
|ISAB                     |  | Sicily, Italy         |  |                              | 84  |                                      | 49% |            
|CBK                      |  | Manila, Philippines   |  |                              | 74  |                                      | 50% |            
|Sycamore                 |  | Bakersfield, CA       |  |                              | 53  |                                      | 50% |            
|Midway-Sunset            |  | Fellows, CA           |  |                              | 52  |                                      | 50% |            
|Kern River               |  | Bakersfield, CA       |  |                              | 42  |                                      | 50% |            
|IVPC4 Srl                |  | Italy                 |  |                              | 39  |                                      | 50% |            
|Doga                     |  | Esenyurt, Turkey      |  |                              | 24  |                                      | 80% |            
|Tri Energy               |  | Bangkok, Thailand     |  |                              | 19  |                                      | 25% |            

EME has determined that it is not the primary beneficiary in these entities and accordingly, EME will account for its variable interests on the
equity method. EME's maximum exposure to loss in these variable interest entities will continue to be generally limited to its investment in these entities.

18

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Deconsolidation of Variable Interest Entities

In accordance with FIN 46R, EME determined that it was not the primary beneficiary of the following two projects due to the provisions of long-term
power contracts which are variable interests. Accordingly, EME deconsolidated these projects at March 31, 2004:



Note 15. Subsequent Event

EME Financing Developments

On April 27, 2004, EME replaced its $145 million corporate credit facility with a new $98 million secured credit facility. This credit
facility matures on April 26, 2007. Loans made under this credit facility bear interest at LIBOR plus 3.50% per annum. As security for its obligations under this credit facility, EME pledged
its ownership interests in the holding companies through which it owns its interests in the Illinois Plants, the Homer City facilities, the Westside projects and the Sunrise project. EME also granted
a security interest in an account into which all distributions received by it from the Big 4
projects will be deposited. EME will be free to use these proceeds unless and until an event of default occurs under its corporate credit facility.

In
addition, EME completed the repayment of the remaining $28 million due under the Coal and Capex facility (guaranteed by EME) in April 2004. Accordingly, this credit
agreement has been terminated and EME no longer has a contingent liability related to this credit agreement.

Midwest Generation Financing Developments

On April 27, 2004, Midwest Generation completed a private offering of $1 billion aggregate principal amount of its 8.75% second priority senior
secured notes due 2034. Holders of the notes may require Midwest Generation to repurchase the notes on May 1, 2014 and on each one-year anniversary thereafter at 100% of their
principal amount, plus accrued and unpaid interest. Concurrently with the issuance of the notes, Midwest Generation borrowed $700 million under a new first priority senior secured institutional
term loan facility. The term loans mature on April 27, 2011 and bear interest at LIBOR plus 3.25% per annum. Midwest Generation has agreed to repay $1,750,000 of the term loans on each
quarterly payment date. Midwest Generation also entered into a new three-year $200 million working capital facility that replaced a prior facility. The new working capital facility
also provides for

19

---



the
issuance of letters of credit. Midwest Generation used the proceeds of the notes issuance and the term loans to refinance $693 million of indebtedness (plus accrued interest and fees) owed
by its direct parent, Edison Mission Midwest Holdings Co., which was guaranteed by Midwest Generation and was due in December of this year, and to make termination payments under the Collins Station
lease in the amount of approximately $960 million, including accrued interest and fees.

Midwest
Generation is permitted to use the new working capital facility and cash on hand to provide credit support for forward contracts with third party counterparties entered into by
Edison Mission Marketing & Trading for capacity and energy generated from the Illinois Plants. Utilization of this credit facility in support of such forward contracts is expected to provide
additional liquidity support for implementation of EME's contracting strategy for the Illinois Plants.

The
term loan and working capital facility share a first priority lien and the senior secured notes have a second priority lien in a collateral package which consists of, among other
things, substantially all of the coal-fired generating plants owned by Midwest Generation and the assets relating to those plants, as well as the equity interests of Midwest Generation and
its parent company and the intercompany notes entered into by EME and Midwest Generation in connection with the Powerton-Joliet sale-leaseback transaction.

Termination of the Collins Station Lease

On April 27, 2004, Midwest Generation terminated the Collins Station lease through a negotiated transaction with the lease equity investor. Midwest
Generation made a lease termination payment of approximately $960 million, including accrued interest and fees. This amount repaid the $774 million of lease debt outstanding, accrued
interest and fees, and the amount owing to the lease equity investor upon an early termination of the lease. Midwest Generation received title to the Collins Station as part of the transaction and,
subject to its power purchase agreement with Exelon Generation, plans to abandon the Collins Station or sell it to a third party. EME expects to record a pretax loss of approximately $1 billion
(approximately $620 million after tax) during the second quarter ended June 30, 2004, due to termination of the lease and the planned abandonment or sale of the asset. Prior to
termination of the lease, EME reached an agreement with the lease equity investors in the Powerton-Joliet leases to waive the net worth covenant included in the EME lease equity guarantee provided to
them and, accordingly, the reduction in shareholder equity resulting from the loss on termination of the Collins Station lease did not result in a default under this guarantee.

If
termination of the Collins Station lease is followed by abandonment or sale to a third party as currently planned, EME anticipates that the termination payment would result in a
substantial income tax deduction, thereby providing additional tax-allocation payments through the income tax-allocation agreement when such loss can be used by Edison
International in its consolidated and combined income tax returns.

20

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

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements.
These statements are based on Edison Mission Energy's (EME's) knowledge of present facts, current expectations about future events and assumptions about future developments. Forward-looking statements
are not guarantees of performance; they are subject to risks, uncertainties and assumptions that could cause actual future activities and results of operations to be materially different from those
set forth in this discussion. Important factors that could cause actual results to differ include risks set forth in "Market Risk Exposures" below, and under "Risks Related to the Business" in the
MD&A included in Item 7 of EME's annual report on Form 10-K for the year ended December 31, 2003.

The MD&A of this Form 10-Q discusses material changes in the results of operations, financial condition and other developments of EME since
December 31, 2003, and as compared to the three months ended March 31, 2003. This discussion presumes that the reader has read or has access to the MD&A included in Item 7 of
EME's annual report on Form 10-K for the year ended December 31, 2003.

The
MD&A presents a discussion of management's focus during the first quarter of 2004, and a discussion of EME's financial results and analysis of its financial condition. It is
presented in four major sections:

PageManagement's Overview; Critical Accounting Policies and Estimates

21Results of Operations

23Liquidity and Capital Resources

37Market Risk Exposures

48


MANAGEMENT'S OVERVIEW; CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Overview

Introduction

During the first quarter of 2004, management's focus has been particularly committed to the refinancing of the Illinois Plants and the sale of its international
assets.

Completion of Midwest Generation Refinancing

On April 27, 2004, Midwest Generation completed the issuance of $1 billion aggregate principal amount of its 8.75% second priority senior secured
notes and entered into a new credit agreement, which includes a $700 million, first priority senior secured term loan facility and a $200 million, first priority senior secured working
capital facility. Proceeds from these transactions were used to refinance $693 million of indebtedness (plus accrued interest and fees) and to make termination payments under the Collins
Station lease in the amount of approximately $960 million, including accrued interest and fees. The new working capital facility replaced an existing working capital facility. Completion of
these financings was a major goal of 2004. See "Liquidity and Capital ResourcesKey Financing DevelopmentsMidwest Generation Financing Developments" for further details
related to these financings. Also, see "Liquidity and Capital ResourcesTermination of the Collins Station Lease" for details related to termination of the Collins Station lease.

21

---



EME Financing Developments

On April 27, 2004, EME replaced its $145 million corporate credit facility with a new three-year $98 million secured credit
facility. In addition, EME repaid the remaining $28 million due under the Coal and Capex facility (guaranteed by EME) in April 2004. Accordingly, this credit agreement has been
terminated and EME no longer has a contingent liability related to this credit agreement.

Selling Some or All of EME's International Operations

As indicated in EME's annual report on Form 10-K, EME has engaged investment bankers to market for sale its international project portfolio.
The marketing efforts continue to progress, and an announcement will be made once one or more buyers are selected and successful negotiations are concluded.

Overview of EME's First Quarter Financial Performance

EME's financial performance in the first quarter of 2004 improved over the first quarter of 2003 with a number of important items affecting performance:



Elimination of Restrictions on Dividends to MEHC

EME amended its certificate of incorporation and bylaws to eliminate the so-called "ring-fencing" provisions that were implemented in
early 2001 during the California energy crisis. The ring fencing provisions were implemented to protect EME's credit rating from the negative events then affecting Edison International and its
subsidiary, Southern California Edison. Management believes that these provisions, which included dividend restrictions and a requirement to maintain an independent director, are no longer necessary.

EME
expects to make a dividend of approximately $75 million to its parent, Mission Energy Holding Company, or MEHC, during the next three months in order to provide funds for MEHC
to pay its obligations with respect to the exercise by its term loan lenders of a $100 million put option.

22

---



Expansion of PJM in Illinois

The Illinois Plants are located within the service territory of Exelon Generation's affiliate, Commonwealth Edison, which on April 27, 2004 was granted
approval by the Federal Energy Regulatory Commission, or the FERC, to join the PJM System effective May 1, 2004.

On
March 19, 2004, in a separate but related matter, the FERC issued an order having the effect of postponing to December 1, 2004 the effective date for elimination of
regional through and out rates in the region encompassed by PJM (as expanded by the addition of Commonwealth Edison and as to be further expanded by the addition of AEP) and the Midwest Independent
System Operation, or MISO. The effect of this order is that the so-called rate pancaking was not eliminated prior to Commonwealth Edison's integration into PJM, nor will it be eliminated
prior to AEP's scheduled date for integration into PJM. Rate pancaking occurs when energy must move through multiple, separately priced transmission systems to travel from its point of production to
its point of delivery, and each transmission owner along the line charges separately for the use of its system. Accordingly, EME will continue to have to pay transmission charges for power sold for
delivery outside of Commonwealth Edison's former control area, now known under PJM as PJM's Northern Illinois Control Area, or NICA. The FERC has included in its order a strong statement that the
existing through and out rates must be eliminated no later than December 1, 2004. See "Market Risk ExposuresCommodity Price RisksAmericasIllinois Plants."

EME
is continuing to monitor the activities at the FERC related to the expansion of PJM in Illinois and advocate regulatory positions that promote efficient and fair markets in which the
Illinois Plants compete.

Dispositions of Investments in Energy Plants

On March 31, 2004, EME completed the sale of its 50% partnership interest in Brooklyn Navy Yard Cogeneration Partners L.P. to a third party for a sales
price of approximately $42 million. EME
recorded an impairment charge of $53 million during the fourth quarter of 2003 related to the planned disposition of this investment and a pre-tax loss of approximately
$4 million during the first quarter of 2004 due to changes in the terms of the sale.

On
January 7, 2004, EME completed the sale of 100% of its stock of Edison Mission Energy Oil & Gas, which in turn holds minority interests in Four Star Oil & Gas, to
Medicine Bow Energy Corporation. Proceeds from the sale were approximately $100 million. EME recorded a pre-tax gain on the sale of approximately $47 million during the first
quarter of 2004.

Critical Accounting Policies and Estimates

For a discussion of EME's critical accounting policies, refer to "Critical Accounting Policies and Estimates" on page 47 of EME's annual report on
Form 10-K for the year ended December 31, 2003.

RESULTS OF OPERATIONS

Introduction

This section discusses operating results for the first quarters of 2004 and 2003, first from the point of view of EME on a consolidated basis and thereafter with
respect to each of the three regional

23

---



segments.
This section also discusses the effect of new accounting pronouncements on EME's consolidated financial statements. It is organized under the following headings:

PageConsolidated Operating Results

24Regional Operating Results

27New Accounting Pronouncements

35


Consolidated Operating Results

Net Income (Loss) Summary

Net income (loss) is comprised of the following components:

Three Months Ended March 31,2004

2003(in millions)Income (loss) from continuing operations

$
31

$
(8
)Cumulative changes in accounting





(9
)Net Income (Loss)

$
31

$
(17
)


EME's income from continuing operations for the first quarter of 2004 was $31 million compared to a loss from continuing operations of
$8 million for the first quarter of 2003. The 2004 increase in income from continuing operations from 2003 was primarily due to a $29 million, after tax, gain on the sale of EME's
interest in Four Star Oil & Gas, increased profitability at EME's Illinois Plants from higher energy margins, lower interest and operating expenses and improved operating performance from EME's
First Hydro plant and the Loy Yang B plant. Partially offsetting these items were higher debt restructuring costs and lower earnings from EME's Homer City facility due to an outage. In addition, the
first quarter 2003 earnings included earnings from EME's investment in Four Star Oil & Gas sold on January 7, 2004.

EME's
2003 loss from a change in accounting principle results from the adoption of a new accounting standard for asset retirement obligations. See "Cumulative Effect of
Change in Accounting Principle" for further discussion of this change in accounting.

Operating Revenues

Operating revenues increased 15% for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase was primarily due to increased electric
revenues from Contact Energy mostly due to increased retail revenues and an increase in the value of the New Zealand dollar compared to the U.S. dollar. In addition, operating revenues increased due
to higher electric revenues from the First Hydro plant primarily due to higher ancillary service revenue and an increase in the average exchange rate of the British pound compared to the U.S. dollar,
and higher energy revenues from the Illinois Plants. Partially offsetting these increases were lower electric revenues from the Homer City facilities due to lower generation.

24

---



Net
gains (losses) from price risk management and energy trading activities are comprised of:

Three Months Ended March 31,2004

2003(in millions)Price risk management

$
1

$
(22
)Energy trading


1


15Net gains (losses)

$
2

$
(7
)


Net gains and (losses) from price risk management activities result from recording derivatives at fair value under Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). Included in net gains (losses) from price risk management were:



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, is immediately recognized in earnings. EME recorded a net gain (loss) of approximately $5 million and $(8) million during the first quarters of 2004 and 2003, respectively,
representing the amount of the ineffective portion of the cash flow hedges. The ineffective gains and losses during the first quarters of 2004 and 2003 from Homer City were primarily attributable to
changes in the difference between energy prices at PJM West Hub (the delivery point under forward contracts) and the energy prices at the delivery point where power generated by the Homer City
facilities is delivered into the transmission system (referred to as the Homer City busbar). See "Market Risk ExposuresCommodity Price RiskAmericas" for more information
regarding forward market prices.

The
net gains from energy trading activities were primarily the result of net gains from transmission congestion contracts and other power contracts in markets in which EME has power
plants. Gains from energy trading activities decreased during the first three months of 2004 primarily due to less congestion in the PJM and New York Independent System Operator (NYISO) markets.

EME's
third quarter electric revenues are generally materially higher than revenues related to other quarters of the year because warmer weather during the summer months results in
higher electric revenues from the Homer City facilities and the Illinois Plants. By contrast, the First Hydro plants generally have higher electric revenues during their winter months.

Operating Expenses

Fuel costs increased 6% for the first quarter of 2004, compared to the first quarter of 2003. Fuel costs in 2004 increased partially due to increased fuel costs
from Contact Energy primarily due to an

25

---



increase
in the value of the New Zealand dollar compared to the U.S. dollar and increased purchased power costs from the First Hydro plant.

Plant
operations and transmission costs increased $15 million for the first quarter of 2004, compared to the first quarter of 2003. Transmission costs were $69 million and
$55 million for the first quarters of 2004 and 2003, respectively. The 2004 increase in transmission costs was primarily due to higher retail sales generated by Contact Energy.

Administrative
and general expenses increased $6 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase was primarily due to
$5 million of costs incurred in 2004,
compared to $1 million in 2003, to implement EME's restructuring plan described under "Management's Overview."

Other Income (Expense)

Interest and other income decreased $2 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 decrease was primarily due to
lower foreign exchange gains from EME's intercompany loans.

Gains
on sale of assets were $43 million in 2004 and none in 2003. Gains on sale of assets in 2004 consisted of a $47 million gain related to the sale of EME's stock of
Edison Mission Energy Oil & Gas and a $4 million loss related to the sale of EME's interest in Brooklyn Navy Yard Cogeneration Partners L.P. See "Management's
OverviewDispositions of Investments in Energy Plants" for more information related to these dispositions.

Interest
expense increased $19 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase was due to higher levels of borrowings at Contact
Energy and a change in classification of dividend payments on preferred securities recorded as interest expense commencing July 1, 2003. In addition, interest expense increased due to the
issuance of the $800 million secured loan received by EME's subsidiary, Mission Energy Holdings International, in December 2003 which was mostly offset by lower interest expense at
Midwest Generation due to a reduction of approximately $1.0 billion in debt partially from the proceeds of such transaction.

Income Taxes

EME's annual effective tax rate (excluding state tax reallocation benefits and the income tax provision related to the sale of Four Star Oil & Gas) was 41%
in each of the first quarters of 2004 and 2003. During the first three months of 2004 and 2003, EME recorded additional state tax benefits, net of federal income taxes, of $2 million and
$5 million, respectively, as a result of participation in a tax-allocation agreement with Edison International. During the first quarter of 2004, EME recorded a tax provision of
$18 million relating to the sale of 100% of its stock in Edison Mission Energy Oil & Gas, which in turn holds interests in Four Star Oil & Gas.

Minority Interest

Minority interest expense increased $8 million for the first quarter of 2004, compared to the first quarter of 2003. Minority interest primarily relates to
the 49% ownership of Contact Energy by the public in New Zealand.

26

---



Cumulative Effect of Change in Accounting Principle

Statement of Financial Accounting Standards No. 143

Effective January 1, 2003, EME adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." 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 the 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. As of
January 1, 2003, EME recorded a $9 million, after tax, decrease to net income as the cumulative effect of the adoption of SFAS No. 143.

Regional Operating Results

Overview

EME operates predominantly in one line of business, electric power generation, organized by three geographic regions: Americas, Asia Pacific and Europe. Operating
revenues are derived from EME's majority-owned domestic and international entities. Intercompany interest expense and income between EME and its consolidated subsidiaries have been eliminated in the
following project results, except as described below with respect to loans provided to EME from a wholly owned subsidiary, Midwest Generation. Equity in income from unconsolidated affiliates relates
to energy projects where EME'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 EME has
a significant influence but in which it does not have a controlling interest. With respect to entities accounted for under the equity method, EME recognizes its proportional share of the income or
loss of such entities.

EME's
results of operations for the Doga and Kwinana projects are consolidated for the three months ended March 31, 2004 and 2003. As described under "New Accounting
Pronouncements," EME will record these projects on the equity method of accounting beginning April 1, 2004 and accordingly, future results of operations will only reflect EME's proportional
share of the income or loss of such entities.

EME uses the words "earnings" or "losses" in this section to describe income or loss from continuing operations before income taxes and minority
interest.

27

---



Americas

General

The following section provides a summary of the Americas region's operating results for the first quarters of 2004 and 2003 together with discussions of the
contributions by specific projects and of other significant factors affecting these results.

|                                                                   |                           | Three Months Ended March 31, |    
|------------------------------------------------------------------ | ------------------------- | ---------------------------- | ---
|
|
|Operating Revenues from Consolidated Subsidiaries                  |                           |                              |    
|                                                                   | Illinois Plants           |                              | $  
|                                                                   | Homer City                |                              |    
|                                                                   | Other                     |                              |    
|                                                                   |                           |                              |    
|                                                                   |                           | $                            | 359
|                                                                   |                           |                              |    
|Income (Loss) before Taxes and Minority Interest (Earnings/Losses) |                           |                              |    
|                                                                   | Consolidated operations   |                              |    
|                                                                   | Illinois Plants           |                              | $  
|                                                                   | Homer City                |                              |    
|                                                                   | Other                     |                              |    
|                                                                   | Unconsolidated affiliates |                              |    
|                                                                   | Big 4 projects            |                              |    
|                                                                   | Four Star Oil & Gas       |                              |    
|                                                                   | Sunrise                   |                              |    
|                                                                   | March Point               |                              |    
|                                                                   | Other                     |                              |    
|                                                                   | Regional overhead         |                              |    
|                                                                   |                           |                              |    
|                                                                   |                           | $                            | 83 
|                                                                   |                           |                              |    

28

---



Illinois Plants

Three Months Ended March 31,2004

2003Statistics  Coal-Fired GenerationGeneration (in GWhr):Power purchase agreement


3,022


3,600Merchant


4,746


3,204Total coal-fired generation


7,768


6,804Equivalent Availability(1)


82.5%


74.4%Forced outage rate(2)


5.9%


6.7%Average realized energy price/MWhr:Power purchase agreement

$
17.64

$
18.02Merchant

$
28.90

$
25.48Total coal-fired generation

$
24.52

$
21.53Capacity revenues (in millions)

$
26

$
32


---

Operating revenues from the Illinois Plants increased $23 million for the first quarter of 2004, compared to the first quarter of 2003. The
2004 increase was primarily due to higher energy revenues due to increased merchant generation at the coal plants released from their power purchase agreement with Exelon Generation and higher
merchant energy prices. This increase was partially offset by lower capacity revenues resulting from the reduction in megawatts contracted under the power purchase agreements. The merchant generation
currently earns minimal capacity revenues. For more information on the power purchase agreements and wholesale energy markets, see "Market Risk ExposuresCommodity Price
RiskAmericasIllinois Plants."

Earnings
from the Illinois Plants increased $53 million for the first quarter of 2004, compared to the first quarter of 2003, due to the following factors:



The
earnings (losses) of the Illinois Plants included interest income related to loans to EME of $28 million for each of the first quarters of 2004 and 2003. In
August 2000, Midwest Generation, which owns or leases the Illinois Plants, entered into a sale-leaseback transaction of the Powerton-Joliet facilities. The proceeds from the sale of
these facilities were loaned to EME, which also provided a

29

---



guarantee
of the related lease obligations of Midwest Generation. The Powerton-Joliet sale-leaseback is recorded as an operating lease for accounting purposes.

Losses
from price risk management activities were $2 million for each of the first quarters of 2004 and 2003. The losses primarily reflect the ineffective portion of forward
contracts which are derivatives that qualify as cash flow hedges under SFAS No. 133. See "Consolidated Operating ResultsOperating Revenues" for further information.

Homer City

Three Months Ended
March 31,2004

2003StatisticsGeneration (in GWhr)


3,015


3,620Availability(1)


73.6%


88.9%Forced outage rate(2)


14.5%


6.7%Average realized energy price/MWhr

$
36.63

$
39.82Capacity revenues (in millions)

$
8

$
3


---

Operating revenues from Homer City decreased $31 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004
decrease primarily resulted from lower electric revenues from the Homer City facilities due to lower generation from an unplanned outage at Unit 1 in February 2004.

Earnings
from Homer City decreased $27 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 decrease in earnings is due to lower revenues as
described above and higher maintenance costs from the outage during the first quarter of 2004. See "Market Risk ExposuresCommodity Price RiskAmericasHomer City
Facilities."

Gains
(losses) from price risk management activities were $2 million and $(8) million for the first quarters of 2004 and 2003, respectively. The gains (losses) primarily represent
the ineffective portion of forward contracts which are derivatives that qualify as cash flow hedges under SFAS No. 133. See "Consolidated Operating ResultsOperating
Revenues" for further discussion.

Big 4 Projects

Earnings from the Big 4 projects decreased $5 million for the first quarter of 2004, compared to the first quarter of 2003. The change in earnings was
largely due to planned outages at the Sycamore Cogeneration plant and the Watson Cogeneration plant in March 2004. The earnings from the Big 4 projects included interest expense from Edison
Mission Energy Funding of $4 million for each of the first quarters of 2004 and 2003.

30

---



Four Star Oil & Gas

EME's share of earnings from Four Star Oil & Gas Company was $15 million for the first quarter of 2003 with no earnings recorded in 2004 from its
ownership interest due to the sale of the project. The 2004 earnings represent the gain on sale of 100% of EME's stock of Edison Mission Energy Oil & Gas, which in turn holds minority interests
in Four Star Oil & Gas, on January 7, 2004. See "Management's OverviewDispositions of Investments in Energy Plants."

Sunrise

Losses from the Sunrise project increased $3 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in losses
primarily resulted from higher interest expense due to the completion of the Sunrise project financing in September 2003.

March Point

Earnings from March Point increased $3 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings was
primarily due to the ineffective portion of fuel contracts entered into by March Point, which are derivatives that qualified as cash flow hedges under SFAS No. 133.

Other

Net earnings from other projects in the Americas region (consolidated subsidiaries and unconsolidated affiliates) decreased $8 million for the first
quarter of 2004, compared to the first quarter of 2003. The 2004 decrease was primarily due to lower gains from energy trading activities partially offset by higher earnings from the
EcoEléctrica project, mostly because of higher operating revenues in 2004 over 2003 resulting from plant outages from November 2002 through February 2003.

Seasonal Disclosure

EME's third quarter equity in income from its domestic energy projects is materially higher than equity in income related to other quarters of the year due to
warmer weather during the summer months and because a number of EME's domestic energy projects, located on the West Coast, have power sales contracts that provide for higher payments during the summer
months.

31

---



Asia Pacific

General

The following section provides a summary of the Asia Pacific region's operating results for the first quarters of 2004 and 2003 together with discussions of the
contributions by specific projects and of other significant factors affecting these results.

|                                                                   |                           | Three Months Ended
March 31, |    
|------------------------------------------------------------------ | ------------------------- | ---------------------------- | ---
|
|
|Operating Revenues from Consolidated Subsidiaries                  |                           |                              |    
|                                                                   | Contact Energy            |                              | $  
|                                                                   | Loy Yang B                |                              |    
|                                                                   | Other                     |                              |    
|                                                                   |                           |                              |    
|                                                                   |                           | $                            | 261
|                                                                   |                           |                              |    
|Income (Loss) before Taxes and Minority Interest (Earnings/Losses) |                           |                              |    
|                                                                   | Consolidated operations   |                              |    
|                                                                   | Contact Energy(1)         |                              | $  
|                                                                   | Loy Yang B                |                              |    
|                                                                   | Other                     |                              |    
|                                                                   | Unconsolidated affiliates |                              |    
|                                                                   | Paiton                    |                              |    
|                                                                   | Other                     |                              |    
|                                                                   | Regional overhead         |                              |    
|                                                                   |                           |                              |    
|                                                                   |                           | $                            | 65 
|                                                                   |                           |                              |    

---

Contact Energy

Operating revenues increased $44 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase was primarily due to
higher electricity retail and generation revenues arising from the Taranaki combined-cycle plant purchased in March 2003 and increased number of retail customers in 2003, as well as ongoing
strength in retail volumes, tariff adjustments and management of transmission constraints. In addition, there was a 23% increase in the average exchange rate of the New Zealand dollar compared to the
U.S. dollar during the first quarter of 2004, compared to the first quarter of 2003.

Earnings
from Contact Energy, included in the consolidated statements of income of EME as described above, increased $21 million for the first quarter of 2004, compared to the
first quarter of 2003. The 2004 increase is primarily due to increased margins due to the factors described above related to revenues.

32

---



Loy Yang B

Operating revenues increased $19 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in operating revenues was
primarily due to higher generation in the first quarter of 2004 over the same prior period resulting from a planned outage in March 2003 and a 29% increase in the average exchange rate of the
Australian dollar compared to the U.S. dollar during the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase was partially offset by lower pool prices for the power sold
into the wholesale energy market.

Earnings
from Loy Yang B increased $14 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings is due to higher electric
revenues discussed above.

Paiton Energy

Earnings from Paiton Energy increased $10 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings was
primarily attributable to increased revenue mostly due to higher availability and an increase in EME's ownership interest (from 40% to 45%) resulting from the additional shares acquired in
January 2004. In addition, earnings increased due to a decrease in Indonesian income taxes resulting from interest expense from partner subordinated loans.

Other

Operating revenues from other consolidated subsidiaries in the Asia Pacific region increased $5 million for the first quarter of 2004, compared to the
first quarter of 2003. Earnings from other projects in the Asia Pacific region (consolidated subsidiaries and unconsolidated affiliates) increased $5 million for the first quarter of 2004,
compared to the first quarter of 2003. The 2004 increase in both operating revenues and earnings was primarily due to higher electric revenues from the Kwinana and Valley Power Peaker projects in
Australia, principally due to an increase in the value of the Australian dollar compared to the U.S. dollar.

33

---



Europe

General

The following section provides a summary of the Europe region's operating results for the first quarters of 2004 and 2003 together with discussions of the
contributions by specific projects and of other significant factors affecting these results.

Three Months Ended March 31,2004

2003(in millions)Operating Revenues from Consolidated SubsidiariesFirst Hydro

$
122

$
91Doga(1)


29


33Other


10


8$
161

$
132Income (Loss) before Taxes and Minority Interest (Earnings/Losses)Consolidated operationsFirst Hydro

$
18

$
5Doga


6


4Other


4


4Unconsolidated affiliatesISAB


8


11Other


7


4Regional overhead


(5
)

(4
)$
38

$
24


---

First Hydro

Operating revenues increased $31 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase resulted primarily from
higher electric revenues from the First Hydro plant due to higher ancillary services revenues and a 15% increase in the average exchange rate of the British pound compared to the U.S. dollar during
the first quarter of 2004, compared to the first quarter of 2003. The First Hydro plant is expected to provide for higher electric revenues during its winter months.

Earnings
from First Hydro increased $13 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings is primarily due to higher
electric revenues described above and a $2 million gain from price risk management activities for the first quarter of 2004, compared to a $5 million loss from price risk management
activities for the first quarter of 2003. First Hydro's gains (losses) from price risk management relate to the change in market value of commodity contracts that are recorded at fair value under SFAS
No. 133, with changes in fair value recorded through the income statement.

34

---



Doga

Revenues from Doga decreased $4 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 decrease was due to lower natural
gas prices. Earnings from Doga increased $2 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings is primarily due to lower plant costs.

ISAB

Earnings from ISAB decreased $3 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 decrease was primarily due to a
change in interest rates of interest rate swap contracts that did not qualify for hedge accounting under SFAS No. 133.

Other

Operating revenues from other consolidated subsidiaries in the Europe region increased $2 million for the first quarter of 2004, compared to the first
quarter of 2003. The 2004 increase in operating revenues was primarily due to increased operating revenues from EME's Spanish Hydro project largely due to higher generation caused by more rainfall in
the first quarter of 2004, compared to the first quarter of 2003. Earnings from other projects in the Europe region (consolidated subsidiaries and unconsolidated affiliates) increased
$3 million for the first quarter of 2004, compared to the first quarter of 2003. The 2004 increase in earnings was primarily due to increased earnings from EME's Italian Wind project mostly due
to higher generation caused by more wind in the first quarter of 2004, compared to the first quarter of 2003.

New Accounting Pronouncements

Statement of Financial Accounting Standards Interpretation No. 46

In December 2003, the FASB re-issued Statement of Financial Accounting Standards Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46R). The primary objective of the interpretation is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through
means other than voting rights; such entities are known as variable interest entities. Under this interpretation, the primary beneficiary is the variable interest holder that absorbs a majority of
expected losses; or if no variable interest holder meets this criteria, then it is the variable interest holder that receives a majority of the expected residual returns. The primary beneficiary is
required to consolidate the variable interest entity unless specific exceptions or exclusions are met. This interpretation applies to variable interest entities created after January 31, 2003,
and applies to variable interest entities in which EME holds a variable interest that it acquired before February 1, 2003. This interpretation is effective for special purpose entities as of
December 31, 2003 and for all other entities as of March 31, 2004.

Variable Interest Entities

EME completed a review of the application of FIN 46R to its subsidiaries and affiliates and concluded that it has variable interests in variable interest entities
as defined in this interpretation. The

35

---



following
table summarizes the variable interest entities in which EME has a significant variable interest:

|Variable Interest Entity |  | Location              |  | Investment at
March 31, 2004 |     | Ownership
Interest at
March 31, 2004 |     | Description
|------------------------ |  | --------------------- |  | ---------------------------- | --- | ------------------------------------ | --- | -----------
|Paiton                   |  | East Java, Indonesia  |  | $                            | 580 |                                      | 45% |            
|EcoEléctrica             |  | Peñuelas, Puerto Rico |  |                              | 275 |                                      | 50% |            
|Watson                   |  | Carson, CA            |  |                              | 91  |                                      | 49% |            
|Sunrise                  |  | Fellows, CA           |  |                              | 84  |                                      | 50% |            
|ISAB                     |  | Sicily, Italy         |  |                              | 84  |                                      | 49% |            
|CBK                      |  | Manila, Philippines   |  |                              | 74  |                                      | 50% |            
|Sycamore                 |  | Bakersfield, CA       |  |                              | 53  |                                      | 50% |            
|Midway-Sunset            |  | Fellows, CA           |  |                              | 52  |                                      | 50% |            
|Kern River               |  | Bakersfield, CA       |  |                              | 42  |                                      | 50% |            
|IVPC4 Srl                |  | Italy                 |  |                              | 39  |                                      | 50% |            
|Doga                     |  | Esenyurt, Turkey      |  |                              | 24  |                                      | 80% |            
|Tri Energy               |  | Bangkok, Thailand     |  |                              | 19  |                                      | 25% |            

EME has determined that it is not the primary beneficiary in these entities and accordingly, EME will account for its variable interests on the
equity method. EME's maximum exposure to loss in these variable interest entities will continue to be generally limited to its investment in these entities.

Deconsolidation of Variable Interest Entities

In accordance with FIN 46R, EME determined that it was not the primary beneficiary of the following two projects due to the provisions of long-term
power contracts which are variable interests. Accordingly, EME deconsolidated these projects at March 31, 2004:



36

---





LIQUIDITY AND CAPITAL RESOURCES

Introduction

The following discussion of liquidity and capital resources is organized in the following sections:

PageEME's Liquidity

37Key Financing Developments

37Termination of the Collins Station Lease

382004 Capital Expenditures

39EME's Historical Consolidated Cash Flow

39EME's Credit Ratings

40EME's Liquidity as a Holding Company

41Dividend Restrictions in Major Financings

44Off-Balance Sheet Transactions

47Environmental Matters and Regulations

47


For a complete discussion of these issues, read this quarterly report in conjunction with EME's annual report on Form 10-K for
the year ended December 31, 2003.

EME's Liquidity

At March 31, 2004, EME and its subsidiaries had cash and cash equivalents of $555 million and EME had available a total of $145 million of
borrowing capacity under a $145 million corporate credit facility. EME's consolidated debt at March 31, 2004 was $6.1 billion, including $693 million of debt maturing on
December 15, 2004 which was owed by EME's largest subsidiary, Edison Mission Midwest Holdings. In addition, EME's subsidiaries had $6.7 billion of long-term lease obligations
that are due over periods ranging up to 31 years.

Key Financing Developments

EME Financing Developments

On April 27, 2004, EME replaced its $145 million corporate credit facility with a new $98 million secured credit facility. This credit
facility matures on April 26, 2007. Loans made under this credit facility bear interest at LIBOR plus 3.50% per annum. As security for its obligations under this credit facility, EME pledged
its ownership interests in the holding companies through which it owns its interests in the Illinois Plants, the Homer City facilities, the Westside projects and the Sunrise project. EME also granted
a security interest in an account into which all distributions received by it from the Big 4 projects will be deposited. EME will be free to use these proceeds unless and until an event of default
occurs under its corporate credit facility.

In
addition, EME completed the repayment of the remaining $28 million due under the Coal and Capex facility (guaranteed by EME) in April 2004. Accordingly, this credit
agreement is terminated and EME no longer has a contingent liability related to this credit agreement.

Midwest Generation Financing Developments

On April 27, 2004, Midwest Generation completed a private offering of $1 billion aggregate principal amount of its 8.75% second priority senior
secured notes due 2034. Holders of the notes may

37

---



require
Midwest Generation to repurchase the notes on May 1, 2014 and on each one-year anniversary thereafter at 100% of their principal amount, plus accrued and unpaid interest.
Concurrently with the issuance of the notes, Midwest Generation borrowed $700 million under a new first priority senior secured institutional term loan facility. The term loans mature on
April 27, 2011 and bear interest at LIBOR plus 3.25% per annum. Midwest Generation has agreed to repay $1,750,000 of the term loans on each quarterly payment date. Midwest Generation also
entered into a new three-year $200 million working capital facility that replaced a prior facility. The new working capital facility also provides for the issuance of letters of
credit. Midwest Generation used the proceeds of the notes issuance and the term loans to refinance $693 million of indebtedness (plus accrued interest and fees) owed by its direct parent,
Edison Mission Midwest Holdings Co., which was guaranteed by Midwest Generation and was due in December of this year, and to make termination payments under the Collins Station lease in the amount of
approximately $960 million, including accrued interest and fees.

Midwest
Generation is permitted to use the new working capital facility and cash on hand to provide credit support for forward contracts with third party counterparties entered into by
Edison Mission Marketing & Trading for capacity and energy generated from the Illinois Plants. Utilization of this credit facility in support of such forward contracts is expected to provide
additional liquidity support for implementation of EME's contracting strategy for the Illinois Plants.

The
term loan and working capital facility share a first priority lien and the senior secured notes have a second priority lien in a collateral package which consists of, among other
things, substantially all of the coal-fired generating plants owned by Midwest Generation and the assets relating to those plants, as well as the equity interests of Midwest Generation and
its parent company and the intercompany notes entered into by EME and Midwest Generation in connection with the Powerton-Joliet sale-leaseback transaction.

Termination of the Collins Station Lease

On April 27, 2004, Midwest Generation terminated the Collins Station lease through a negotiated transaction with the lease equity investor. Midwest
Generation made a lease termination payment of approximately $960 million, including accrued interest and fees. This amount repaid the $774 million of lease debt outstanding, accrued
interest and fees, and the amount owing to the lease equity investor
upon an early termination of the lease. Midwest Generation received title to the Collins Station as part of the transaction and, subject to its power purchase agreement with Exelon Generation, plans
to abandon the Collins Station or sell it to a third party. EME expects to record a pretax loss of approximately $1 billion (approximately $620 million after tax) during the second
quarter ended June 30, 2004, due to termination of the lease and the planned abandonment or sale of the asset. Prior to termination of the lease, EME reached an agreement with the lease equity
investors in the Powerton-Joliet leases to waive the net worth covenant included in the EME lease equity guarantee provided to them and, accordingly, the reduction in shareholder equity resulting from
the loss on termination of the Collins Station lease did not result in a default under this guarantee.

If
termination of the Collins Station lease is followed by abandonment or sale to a third party as currently planned, EME anticipates that the termination payment would result in a
substantial income tax deduction, thereby providing additional tax-allocation payments through the income tax-allocation agreement when such loss can be used by Edison
International in its consolidated and combined income tax returns.

38

---



2004 Capital Expenditures

The estimated capital and construction expenditures of EME's subsidiaries for the final three quarters of 2004 are $72 million. These expenditures are
planned to be financed by existing subsidiary credit agreements and cash generated from their operations.

EME's Historical Consolidated Cash Flow

Consolidated Cash Flows from Operating Activities

Net cash provided by (used in) operating activities:

Three Months Ended March 31,2004

2003(in millions)Continuing operations

$
8

$
(2
)


Cash provided by operating activities from continuing operations increased $9 million in the first quarter of 2004, compared to the first
quarter of 2003. The 2004 increase is due to income during the quarter of 2004 versus losses during the first quarter of 2003, partially offset by tax-allocation payments of
$9 million paid to Edison International during the first three months of 2004, compared to $13 million in tax-allocation payments received by EME from Edison International
during the first three months of 2003. For further discussion of the tax-allocation payments, see "EME's Liquidity as a Holding CompanyIntercompany
Tax-Allocation Payments."

Consolidated Cash Flows from Financing Activities

Net cash provided by (used in) financing activities:

Three Months Ended March 31,2004

2003(in millions)Continuing operations

$
(63
)
$
323


Cash used in financing activities from continuing operations increased $385 million in the first quarter of 2004, compared to the first
quarter of 2003. The 2004 increase was due to a lower level of borrowings in 2004 from 2003, primarily due to $275 million borrowings at Contact Energy used to finance the acquisition of the
Taranaki power station combined with net borrowings of $80 million on EME's corporate credit facility in 2003.

39

---



Consolidated Cash Flows from Investing Activities

Net cash provided by (used in) investing activities:

Three Months Ended March 31,2004

2003(in millions)Continuing operations

$
139

$
(328
)Discontinued operations





4$
139

$
(324
)


Cash provided by investing activities from continuing operations increased $468 million in the first quarter of 2004, compared to the first
quarter of 2003. The 2004 increase was due to a combination of the following:



EME's Credit Ratings

Overview

Credit ratings for EME and its subsidiaries, Midwest Generation, LLC and Edison Mission Marketing & Trading, are as follows:

Moody's Rating

S&P RatingEME

B2

BMidwest Generation, LLC:First priority senior secured rating

Ba3

B+Second priority senior secured rating

B1

B-Edison Mission Marketing & Trading

Not Rated

B


EME cannot provide assurance that its current credit ratings or the credit ratings of its subsidiaries will remain in effect for any given period
of time or that one or more of these ratings will not be lowered further. EME notes that these credit ratings are not recommendations to buy, sell or hold its securities and may be revised at any time
by a rating agency.

On
April 22, 2004, Moody's assigned ratings of "Ba3" and "B1" to Midwest Generation's new first priority senior secured credit facility and second priority senior secured notes,
respectively. On April 21, 2004, Standard & Poor's assigned ratings of "B+" and "B-" to Midwest Generation's new first priority senior secured credit facility and second
priority senior secured notes, respectively.

40

---



EME
does not have any "rating triggers" contained in subsidiary financings that would result in EME being required to make equity contributions or provide additional financial support to
its subsidiaries.

The
credit ratings of EME are below investment grade and, accordingly, EME has agreed to provide support to Edison Mission Marketing & Trading in the form of cash and letters of credit
for the benefit of counterparties for its price risk management and domestic trading activities related to accounts
payable and unrealized losses ($119 million as of April 30, 2004). As a result of the new working capital facility entered into by Midwest Generation described above, Midwest Generation
expects to provide credit support for forward contracts entered into by Edison Mission Marketing & Trading related to the Illinois Plants. A subsidiary of EME has also supported a portion of
First Hydro's United Kingdom hedging activities through a cash collateralized credit facility, under which letters of credit totaling £16 million have been issued as of
April 30, 2004.

EME
anticipates that sales of power from its Illinois Plants, Homer City facilities and First Hydro plants in the United Kingdom may require additional credit support, depending upon
market conditions and the strategies adopted for the sale of this power. Changes in forward market prices and margining requirements could further increase the need for credit support for the price
risk management and trading activities related to these projects. EME currently projects potential working capital required to support price risk management and trading activity to be between
$100 million and $200 million from time to time.

Credit Rating of Edison Mission Marketing & Trading

Pursuant to the Homer City sale-leaseback documents, a below investment grade credit rating of Edison Mission Marketing & Trading restricts the
ability of EME Homer City Generation L.P. to enter into permitted trading activities, as defined in the documents, with Edison Mission Marketing & Trading to sell forward the output of the
Homer City facilities. These documents include a requirement that the counterparty to such transactions, and EME Homer City, if acting as seller to an unaffiliated third party, be investment grade.
EME currently sells all of the output from the Homer City facilities through Edison Mission Marketing & Trading, which has a below investment grade credit rating, and EME Homer City is not
rated. Therefore, in order for EME to continue to sell forward the output of the Homer City facilities, either: (1) EME must obtain consent from the sale-leaseback owner participant
to permit EME Homer City to sell directly into the market or through Edison Mission Marketing & Trading; or (2) Edison Mission Marketing & Trading must provide assurances of
performance consistent with the requirements of the sale-leaseback documents. EME has obtained a consent from the sale-leaseback owner participant that will allow EME Homer
City to enter into such sales, under specified conditions. EME Homer City continues to be in compliance with the terms of the consent; however, the consent is revocable. The owner participant has not
indicated that it intends to revoke the consent; however, there can be no assurance that it will not do so in the future. Revocation of the consent would not affect trades between Edison Mission
Marketing & Trading and EME Homer City that had been entered into while the consent was still in effect. EME is permitted to sell the output of the Homer City facilities into the spot market at
any time. See "Market Risk ExposuresCommodity Price RiskAmericasHomer City Facilities."

EME's Liquidity as a Holding Company

Overview

At March 31, 2004, EME had corporate cash and cash equivalents of $232 million to meet liquidity needs. EME had no borrowings outstanding on the
$145 million line of credit in existence on

41

---



March 31,
2004. In April 2004, EME terminated the $145 million line of credit and entered into a new three-year $98 million secured line of credit. Cash
distributions from EME's subsidiaries and partnership investments, tax-allocation payments from Edison International and unused capacity under its corporate credit facility represent EME's
major sources of liquidity to meet its cash requirements. The timing and amount of distributions from EME's subsidiaries may be affected by many factors beyond its control. See "Dividend
Restrictions in Major Financings." In addition, the right of EME to receive tax-allocation payments, and the timing and amount of tax-allocation payments received by EME are
subject to factors beyond EME's control. See "Intercompany Tax-Allocation Payments."

EME's
new secured corporate credit facility provides credit available in the form of cash advances or letters of credit. At April 30, 2004, there were no cash advances outstanding
or letters of credit outstanding under the credit facility. In addition to the interest payments, EME pays a commitment fee of 0.50% on the unutilized portion of the facility. EME has agreed to
maintain a minimum interest coverage ratio and a minimum recourse debt to recourse capital ratio (as such ratios are defined in the credit agreement).

As
security for its obligations under its new corporate credit facility, EME pledged its ownership interests in the holding companies through which it owns its interests in the Illinois
Plants, the Homer City facilities, the Westside projects and the Sunrise project. EME also granted a security interest in an account into which all distributions received by it from the Big 4 projects
will be deposited. EME will be free to use these proceeds unless and until an event of default occurs under its corporate credit facility.

Historical Distributions Received By EME

The following table is presented as an aid in understanding the cash flow of EME and its various subsidiary holding companies which depend on distributions from
subsidiaries and affiliates to fund general and administrative costs and debt service costs of recourse debt.

Three Months Ended March 31,2004

2003(in millions)Domestic ProjectsDistributions from Consolidated Operating Projects:EME Homer City Generation L.P. (Homer City facilities)

$
41

$
21Holding companies of other consolidated operating projects





1Distributions from Unconsolidated Operating Projects:Edison Mission Energy Funding Corp. (Big 4 Projects)


21


20Holding companies for Westside projects


3


9Holding companies of other unconsolidated operating projects


1


2Total Distributions from Domestic Projects

$
66

$
53


42

---



International Projects (Mission Energy Holdings International)Distributions from Consolidated Operating Projects:Loy Yang B

$


$
12Contact Energy


27


16Valley Power


4


5Kwinana





2Holding companies of other consolidated operating projects


6


Distributions from Unconsolidated Operating Projects:IVPC4 (Italian Wind project)


1


3Paiton





9Holding companies of other unconsolidated operating projects


6


Total Distributions from International Projects

$
44

$
47Total Distributions

$
110

$
100


Intercompany Tax-Allocation Payments

EME is included in the consolidated federal and combined state income tax returns of Edison International and is eligible to participate in
tax-allocation payments with other subsidiaries of Edison International. These arrangements depend on Edison International continuing to own, directly or indirectly, at least 80% of the
voting power of the stock of EME and at least 80% of the value of such stock. A foreclosure by MEHC's financing parties on EME's stock would make EME ineligible to participate in the
tax-allocation payments. The arrangements are subject to the terms of tax allocation and payment agreements among Edison International, MEHC, EME, and other Edison International
subsidiaries. The agreements to which EME is a party may be terminated by the immediate parent company at any time, by notice given before the first day of the first tax year with respect to which the
termination is to be effective. However, termination does not relieve any party of any obligations with respect to any tax year beginning prior to the notice. EME has historically received
tax-allocation payments related to domestic net operating losses incurred by EME. The right of EME to receive and the amount and timing of tax-allocation payments are dependent
on the inclusion of EME in the consolidated income tax returns of Edison International and its subsidiaries and other factors, including the consolidated taxable income of Edison International and its
subsidiaries, the amount of net operating losses and other tax items of EME, its subsidiaries, and other subsidiaries of Edison International and specific procedures regarding allocation of state
taxes. EME receives tax-allocation payments for tax losses when and to the extent that the consolidated Edison International group generates sufficient taxable income in order to be able
to utilize EME's tax losses in the consolidated income tax returns for Edison International and its subsidiaries. Based on the application of the factors cited above, EME may be obligated during
periods it generates taxable income to make payments under the tax-allocation agreements. During the first quarter of 2004, EME paid $9 million in tax-allocation
payments to Edison International. During the first quarter of 2003, EME received $13 million in tax-allocation payments from Edison International.

43

---



Dividend Restrictions in Major Financings

General

Each of EME's direct or indirect subsidiaries is organized as a legal entity separate and apart from EME and its other subsidiaries. Assets of EME's subsidiaries
are not available to satisfy EME's obligations or the obligations of any of its other subsidiaries. However, unrestricted cash or other assets
that are available for distribution may, subject to applicable law and the terms of financing arrangements of the parties, be advanced, loaned, paid as dividends or otherwise distributed or
contributed to EME or to its subsidiary holding companies.

Key Ratios of EME's Principal Subsidiaries Affecting Dividends

Set forth below are key ratios of EME's principal subsidiaries, other than Midwest Generation, for the twelve months ended March 31, 2004:

|Subsidiary                                             |  | Financial Ratio                    |  | Covenant                           |  | Actual      
|------------------------------------------------------ |  | ---------------------------------- |  | ---------------------------------- |  | ------------
|EME Homer City Generation L.P. (Homer City facilities) |  | Senior Rent Service Coverage Ratio |  | Greater than 1.7 to 1              |  | 3.43 to 1   
|Edison Mission Energy Funding Corp. (Big 4 Projects)   |  | Debt Service Coverage Ratio        |  | Greater than or equal to 1.25 to 1 |  | 2.58 to 1   
|Mission Energy Holdings International                  |  | Interest Coverage Ratio            |  | Greater than or equal to 1.3 to 1  |  | 2.50 to 1(1)
|First Hydro Holdings                                   |  | Interest Coverage Ratio            |  | Greater than 1.2 to 1              |  | 1.6 to 1(2) 

---

For a more detailed description of the covenants binding EME's principal subsidiaries that may restrict the ability of those entities to make
distributions to EME directly or indirectly through the other holding companies owned by EME, refer to "Dividend Restrictions in Major Financings" on page 82 of EME's annual report on
Form 10-K for the year ended December 31, 2003.

Midwest Generation Financing Restrictions on Distributions

Midwest Generation is no longer bound by the covenants, including restrictions on the ability to make distributions, in the Edison Mission Midwest Holdings credit
agreement, which was repaid on April 27, 2004. However, Midwest Generation is now bound by the covenants in its new credit facility and indenture. These covenants include restrictions on the
ability to, among other things, incur debt, create liens on its property, merge or consolidate, sell assets, make investments, engage in transactions with affiliates, make distributions, make capital
expenditures, enter into agreements restricting its ability to make distributions, engage in other lines of business or engage in transactions for any speculative purpose. In addition, the credit
facility contains financial covenants binding on Midwest Generation.

44

---



Covenants in Credit Facility

In order for Midwest Generation to make a distribution, it must be in compliance with covenants specified under its new credit facility. Compliance with the
covenants in its credit facility includes maintaining the following two financial performance requirements:



In
addition, Midwest Generation's distributions are limited in amount. The aggregate amount of distributions made by Midwest Generation after April 27, 2004 may not exceed the sum
of (i) 75% of excess cash flow (as defined in the credit facility) generated since that date, plus (ii) up to 100% of the amount of equity contributions or subordinated loans made by EME
or a subsidiary of EME to Midwest Generation after April 27, 2004, but in this latter case only to the extent excess cash flow not used for a dividend under (i) is available for such
payments. If Midwest Generation is rated investment grade, the aggregate amount of distributions made by Midwest Generation since April 27, 2004 may not exceed 100% of excess cash flow
generated since becoming investment grade.

Covenants in Indenture

Midwest Generation's new indenture contains restrictions on its ability to make a distribution substantially similar to those in the credit facility. Under the
indenture, however, failure to achieve the conditions required for distributions will not result in a default, nor does the indenture contain any other financial performance requirements.

Mission Energy Holdings International Interest Coverage Ratio

Under the credit agreement governing its term loan, Mission Energy Holdings International has agreed to a minimum interest coverage ratio of 1.30 to 1 beginning
March 2004 for the trailing twelve-month period.

45

---



The
following table sets forth the major components of the interest coverage ratio for the twelve months ended March 31, 2004 and the year ended December 31, 2003 on a pro
forma basis assuming the term loan had been in existence at the beginning of 2003:

|                                    |                                                                           | March 31, 2004 |     | December 31, 2003 |  
|----------------------------------- | ------------------------------------------------------------------------- | -------------- | --- | ----------------- | -
|
|
|Funds Flow from Operations          |                                                                           |                |     |                   |  
|                                    | Historical distributions from international projects(1)                   |                | $   | 155               |  
|                                    | Other fees and cash payments considered distributions under the term loan |                |     | 7                 |  
|                                    | Administrative and general expenses                                       |                |     | (2                | )
|                                    |                                                                           |                |     |                   |  
|Total Flow of Funds from Operations |                                                                           | $              | 160 |                   | $
|                                    |                                                                           |                |     |                   |  
|Term Loan Interest Expense          |                                                                           | $              | 20  |                   | $
|                                    |                                                                           |                |     |                   |  
|Interest Coverage Ratio             |                                                                           |                |     |                   |  
|                                    |                                                                           |                |     |                   |  

---

The above details of Mission Energy Holdings International's interest coverage ratio are provided as an aid to understanding the components of the
computations that are set forth in the term loan credit agreement. The terms Funds Flow from Operations and Interest Expense are as defined in the term loan and are not the same as would be determined
in accordance with generally accepted accounting principles.

Summarized
combined financial information (unaudited) of Mission Energy Holdings International, Inc. and its subsidiaries and Edison Mission Project Co. is set forth below:

Three Months Ended March 31,2004

2003(in millions)Revenues

$
423

$
314Expenses


374


295Net income (loss)

$
49

$
19


46

---



March 31,
2004

December 31,
2003(in millions)Current assets

$
466

$
628Noncurrent assets


6,630


6,723Total assets

$
7,096

$
7,351Current liabilities

$
495

$
587Noncurrent liabilities


4,742


4,994Minority interest


756


746Equity


1,103


1,024Total liabilities and equity

$
7,096

$
7,351


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

Off-Balance Sheet Transactions

For a discussion of EME's off-balance sheet transactions, refer to "Off-Balance Sheet Transactions" on page 96 of EME's annual
report on Form 10-K for the year ended December 31, 2003.

Environmental Matters and Regulations

For a discussion of EME's environmental matters, refer to "Environmental Matters and Regulations" on page 98 of EME's annual report on
Form 10-K for the year ended December 31, 2003 and the notes to the Consolidated Financial Statements set forth therein. There have been no other significant developments
with regard to environmental matters that affect disclosures presented in the annual report.

47

---



MARKET RISK EXPOSURES

Introduction

EME's primary market risk exposures are associated with the sale of electricity from and the procurement of fuel for its uncontracted generating plants. These
market risks arise from fluctuations in electricity and fuel prices, emission allowances, transmission rights, interest rates and foreign currency exchange rates. EME manages these risks in part by
using derivative financial instruments in accordance with established policies and procedures. See "Management's Overview; Critical Accounting Policies and Estimates" and "Liquidity and Capital
ResourcesEME's Credit Ratings" for a discussion of market developments and their impact on EME's credit and the credit of its counterparties.

This
section discusses these market risk exposures under the following headings:

PageCommodity Price Risk

48Credit Risk

55Interest Rate Risk

56Foreign Exchange Rate Risk

57Fair Value of Financial Instruments

58Regulatory Matters

59


For a complete discussion of these issues, read this quarterly report in conjunction with EME's annual report on Form 10-K for
the year ended December 31, 2003.

Commodity Price Risk

General Overview

EME's merchant power plants and energy trading activities expose EME to commodity price risks. Commodity price risks are actively monitored by a risk management
committee to ensure compliance with EME's risk management policies. Policies are in place which define risk tolerances for each EME regional business unit. Procedures exist which allow for monitoring
of all commitments and positions with regular reviews by the risk management committee. In order to provide more predictable earnings and cash flow, EME may hedge a portion of the electric output of
its merchant plants, the output of which is not committed to be sold under long-term contracts. When appropriate, EME manages the spread between electric prices and fuel prices, and uses
forward contracts, swaps, futures, or options contracts to achieve those objectives. There is no assurance that contracts to hedge changes in market prices will be effective.

EME's
revenues and results of operations 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 and emission credits in the market areas where EME's merchant plants are located. Among the factors that influence the price of power in these markets are:



48

---





A
discussion of commodity price risk by region is set forth below.

Americas

Introduction

Electric power generated at EME's domestic merchant plants is generally sold under bilateral arrangements with utilities and power marketers under
short-term transactions with terms of two years or less or, as has been the case for the Homer City facilities, to the PJM and/or the NYISO markets. As discussed further below, beginning
in 2003, EME has been selling a significant portion of the power generated from its Illinois Plants into wholesale power markets.

EME's
merchant operations expose it 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 by a risk management committee to ensure compliance with EME's risk management policies. Policies are in place which define the risk tolerance for EME's merchant
activities. Procedures exist which allow for monitoring of all commitments and positions with regular reviews by the risk management committee. Despite this, there can be no assurance that all risks
have been accurately identified, measured and/or mitigated.

Illinois Plants

Energy generated at the Illinois Plants has historically been sold under three power purchase agreements between EME's wholly owned subsidiary, Midwest
Generation, and Exelon Generation Company, under which Exelon Generation is obligated to make capacity payments for the plants under contract and energy payments for the energy produced by these
plants and taken by Exelon Generation. The power purchase agreements began on December 15, 1999 and expire in December 2004. The capacity payments provide the units under contract with
revenue for fixed charges, and the energy payments compensate those units for all, or a portion of, variable costs of production.

Approximately
40% and 58% of the energy and capacity sales from the Illinois Plants in the first quarters of 2004 and 2003, respectively, were to Exelon Generation under the power
purchase agreements. As a result of Exelon Generation's election to release units from contract for 2004, Midwest Generation's reliance on sales into the wholesale market increased in 2004 from 2003.
As discussed in detail below, 3,859 MW of Midwest Generation's generating capacity remains subject to power purchase agreements with Exelon Generation in 2004. 2004 is the final contract year under
these power purchase agreements.

In
June 2003, Exelon Generation exercised its option, in accordance with the terms of its power purchase agreement, to contract 687 MW of capacity and the associated energy
output (out of a possible total of 1,265 MW subject to option) during 2004 from Midwest Generation's coal-fired units

49

---



in
accordance with the terms of the existing power purchase agreement related to Midwest Generation's coal-fired generation units. As a result, 578 MW of capacity at the Crawford
Unit 7, Waukegan Unit 6 and Will County Unit 3 has not been subject to the power purchase agreement since January 1, 2004. For 2004, Midwest Generation has 2,383 MW
of capacity related to its coal-fired generation units under contract with Exelon Generation.

In
October 2003, Exelon Generation exercised its option to retain under a power purchase agreement for calendar year 2004 the 1,084 MW of capacity and energy from Midwest
Generation's Collins Station. Exelon Generation also exercised its option to release from a related power purchase agreement 302 MW of capacity and energy (out of a possible total of 694 MW subject to
the option) from Midwest Generation's natural gas and oil-fired peaking units, thereby retaining under that contract 392 MW of the capacity and energy of such units for calendar year 2004.

The
energy and capacity from units not subject to a power purchase agreement with Exelon Generation are sold under terms, including price and quantity, negotiated by Edison Mission
Marketing & Trading with customers through a combination of bilateral agreements, forward energy sales and spot market sales. These arrangements generally have a term of two years or less.
Thus, EME is subject to market risks related to the price of energy and capacity from those units. EME expects that capacity prices for merchant energy sales will, in the near term, be substantially
less than those Midwest Generation currently receives under its existing agreements with Exelon Generation. EME further expects that the lower revenues resulting from this difference will be offset in
part by energy prices, which EME believes will, in the near term, be higher for merchant energy sales than those Midwest Generation currently receives under its existing agreements, as indicated below
in the table of forward-looking prices. EME intends to manage this price risk, in part, by accessing both the wholesale customer and over-the-counter markets described below as
well as using derivative financial instruments in accordance with established policies and procedures.

Presently,
the primary markets available to Midwest Generation for wholesale sales of electricity from the Illinois Plants are expected to be direct "wholesale customers" and
broker-arranged "over-the-counter customers," and, after May 1, 2004, bilateral and spot sales into the expanded PJM. The most liquid
over-the-counter markets in the Midwest region have historically been for sales into the control area of Cinergy, referred to as "Into Cinergy," and, to a lesser extent, for
sales into the control areas of Commonwealth Edison and American Electric Power, referred to as "Into ComEd" and "Into AEP," respectively. "Into Cinergy," "Into ComEd" and "Into AEP" are bilateral
markets for the sale or purchase of electrical energy for future delivery. Due to geographic proximity, "Into ComEd" has been the primary market for Midwest Generation. Following Commonwealth Edison's
joining PJM as of May 1, 2004, sales of electricity from the Illinois Plants now include bilateral and spot sales into PJM, with spot sales being based on locational marginal pricing. These
sales will replace sales previously made as bilateral sales and spot sales "Into ComEd." See "Regulatory Matters" for a more detailed discussion of recent developments regarding
Commonwealth Edison's application to join PJM and "Homer City Facilities" below for a discussion of locational marginal pricing. Performance of transactions in these markets is subject to
contracts that generally provide for liquidated damages supported by a variety of credit requirements, which may include independent credit assessment, parent company guarantees, letters of credit,
and cash margining arrangements.

50

---



The
following table depicts the historical average market prices for energy per megawatt-hour "Into ComEd" and "Into Cinergy" for the first three months of 2004. Market
prices are included for "Into Cinergy" for illustrative purposes.

Into ComEd*

Into Cinergy*Historical Energy PricesOn-Peak(1)

Off-Peak(1)

24-Hr

On-Peak(1)

Off-Peak(1)

24-HrJanuary

$
43.30

$
15.18

$
27.88

$
41.97

$
19.17

$
29.46February


43.05


18.85


29.98


44.42


24.85


33.85March


40.38


21.15


30.66


41.75


23.88


32.72Quarterly Average

$
42.25

$
18.39

$
29.51

$
42.71

$
22.63

$
32.01


---

Midwest Generation intends to hedge a portion of its merchant portfolio risk through Edison Mission Marketing & Trading. To the extent it
does not do so, the unhedged portion will be subject to the risks and benefits of spot market price movements. The extent to which Midwest Generation will hedge its market price risk through forward
over-the-counter sales depends on several factors. First, Midwest Generation will evaluate over-the-counter market prices to determine whether sales at
forward market prices are sufficiently attractive compared to assuming the risk associated with spot market sales. Second, Midwest Generation's ability to enter
into hedging transactions will depend upon its and Edison Mission Marketing & Trading's credit capacity and upon the over-the-counter forward sales markets having
sufficient liquidity to enable Midwest Generation to identify counterparties who are able and willing to enter into hedging transactions with it. See "Credit Risk," below.

In
addition to the prevailing market prices, Midwest Generation's ability to derive profits from the sale of electricity from the released units will be affected by the cost of
production, including costs incurred to comply with environmental regulations. The costs of production of the released units vary and, accordingly, depending on market conditions, the amount of
generation that will be sold from the released units is expected to vary from unit to unit. In this regard, Midwest Generation suspended operations of Will County Units 1 and 2 at the end of 2002
pending improvement in market conditions.

Under
PJM's proposed revisions to the PJM Tariff, the integration of Commonwealth Edison into PJM could result in market power mitigation measures being imposed on future power sales by
Midwest Generation in the Northern Illinois Control Area energy and capacity markets. In addition, power produced by Midwest Generation not under contract with Exelon Generation has been sold in the
past using transmission obtained from Commonwealth Edison under its open-access tariff filed with the Federal Energy Regulatory Commission, or the FERC, and the application of the PJM
Tariff to Commonwealth Edison's transmission system could also affect the rates, terms and conditions of transmission service received by Midwest Generation. EME and Midwest Generation contested the
appropriateness of Commonwealth Edison joining PJM on an "islanded" basis, but such integration was approved by the FERC and was implemented on May 1, 2004. EME and Midwest Generation continue
to oppose the imposition of market power mitigation measures proposed by PJM for the Northern Illinois Control Area energy and capacity markets. EME is unable to predict the outcome of these efforts,
the effect of integration of Commonwealth Edison into PJM on an "islanded" basis, the timing or effect of integration of American Electric Power into PJM, or any final integration configuration for
PJM on the markets into which Midwest Generation sells its power.

51

---





In addition to the price risks described previously, Midwest Generation's ability to transmit energy to counterparty delivery points to consummate spot sales and hedging transactions may
also be affected by transmission service limitations and constraints and new standard market design proposals proposed by and currently pending before the FERC. Although the FERC and the relevant
industry participants are working to minimize such issues, Midwest Generation cannot determine how quickly or how effectively such issues will be resolved.

Homer City Facilities

Electric power generated at the Homer City facilities is sold under bilateral arrangements with domestic utilities and power marketers pursuant to transactions
with terms of two years or less, or to the PJM or the NYISO markets. These pools have short-term markets, which establish an hourly clearing price. The Homer City facilities are situated
in the PJM control area and are physically connected to high-voltage transmission lines serving both the PJM and NYISO markets.

The
following table depicts the average market prices per megawatt-hour in PJM during the first quarters of 2004 and 2003:

24-Hour PJM
Historical Energy Prices*2004

2003January

$
51.12

$
36.56February


47.19


46.13March


39.54


46.85Quarterly Average

$
45.95

$
43.18


---

As shown on the above table, the average historical market prices at the Homer City busbar (delivery point) during the first three months of 2004
were higher than the average historical market prices during the first three months of 2003. Forward market prices in PJM fluctuate as a result of a number of factors, including natural gas prices,
transmission congestion, changes in market rules, electricity demand which is affected by weather and economic growth, plant outages in the region, and the amount of existing and planned power plant
capacity. The actual spot prices for electricity delivered into these markets may vary materially from the forward market prices set forth in the table below.

Sales
made in the real-time or day-ahead market receive the actual spot prices at the Homer City busbar. In order to mitigate price risk from changes in spot
prices at the Homer City busbar, EME may enter into forward contracts with counterparties for energy to be delivered in future periods. Currently, there is not a liquid market for entering into
forward contracts at the Homer City busbar. A liquid market does exist for a delivery point known as the PJM West Hub, which EME's price risk management activities use to enter into forward contracts.
EME's revenues with respect to such forward contracts include:



52

---





Under
the PJM market design, locational marginal pricing (sometimes referred to as LMP), which establishes hourly prices at specific locations throughout PJM by considering factors
including generator bids, load requirements, transmission congestion and losses, has the effect of raising prices at those delivery points affected by transmission congestion. During the past
12 months, an increase in transmission congestion at delivery points east of the Homer City facilities has resulted in prices at the PJM West Hub (which includes delivery points east of the
Homer City facilities) being higher than those at the Homer City busbar on an average of two percent.

By
entering into forward contracts using the PJM West Hub as the delivery point, EME is exposed to "basis risk," which occurs when forward contracts are executed on a different basis (in
this case PJM West Hub) than the actual point of delivery (Homer City busbar). In order to mitigate basis risk resulting from forward contracts using PJM West Hub as the delivery point, EME has
participated in purchasing fixed transmission rights in PJM, and may continue to do so in the future. A fixed transmission right is a financial instrument that entitles the holder thereof to receive
actual spot prices at one point of delivery and pay prices at another point of delivery that are pegged to prices at the first point of delivery, plus or minus a fixed amount. Accordingly, EME's price
risk management activities include using fixed transmission rights alone or in combination with forward contracts to manage the risks associated with changes in prices within the PJM market.

The
following table sets forth the forward market prices for energy per megawatt-hour as quoted for sales into the PJM West Hub at March 31, 2004:

24-Hour PJM West Forward Energy Prices*2004April

$
39.31May


38.17June


41.96July


52.46August


52.09September


38.88October


37.24November


37.91December


38.802005 Calendar "strip"(1)

$
40.79


---

The ability of EME's subsidiary, EME Homer City, to make payments under the long-term lease entered into as part of the
sale-leaseback transaction depends on revenues generated by the Homer City facilities, which depend in part on the market conditions for the sale of capacity and energy. These market
conditions are beyond EME's control.

53

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Europe

United Kingdom

The First Hydro plant sells electrical energy and ancillary services through bilateral contracts of varying terms in the England and Wales wholesale electricity
market.

The
electricity trading arrangements introduced in March 2001 provide, among other things, for the establishment of a range of voluntary short-term power exchanges and
brokered markets operating from a year or more in advance to 1 hour prior to the delivery or receipt of power. In the final hour after the notification of all contracts, the system operator can
accept bids and offers in the Balancing Mechanism to balance generation and demand and resolve any transmission constraints. There is 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 system operator can also
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 up to a year and can consist of both fixed amounts and variable amounts represented by prices for services that are only paid for when actually called upon by the grid operator. A
key feature of the trading arrangements is the requirement for firm physical delivery, which means that a generator must deliver, and a consumer must take delivery of, its net contracted positions or
pay for any energy imbalance at the imbalance prices calculated by the system operator based on the prices of bids and offers accepted in the Balancing Mechanism. This provides an incentive for
parties to contract in advance and for the development of forwards and futures markets. Under these arrangements, there has been an increased emphasis on credit quality, including the need for parent
company guarantees or letters of credit for companies below investment grade.

The
wholesale price of electricity has decreased significantly in recent years. The reduction has been driven principally by surplus generating capacity and increased competition. During
2003, prices were more volatile. There was further downward pressure on wholesale prices in the first part of the year followed by some recovery during the summer in prices and in the peak/off peak
differentials for the 2003-2004 winter period. That recovery tailed off towards the end of the year with a considerable narrowing in the peak/off peak differentials which has continued
during the first quarter of 2004. Compliance with First Hydro's bond financing documents is subject to market conditions for electric energy and ancillary services, which are beyond First Hydro's
control.

Asia Pacific

Australia

The Loy Yang B plant and the Valley Power Peaker project sell 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 spot price each half-hour. To mitigate exposure to price volatility of the electricity traded into the pool, the Loy Yang B plant and the Valley
Power Peaker project have 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 2003 to July 2014, approximately 77% of the Loy Yang B plant output sold is hedged under the State Hedge. From August 2014 to
October 2016,

54

---



approximately
56% of the Loy Yang B plant output sold is hedged under the State Hedge. Additionally, the Loy Yang B plant and the Valley Power Peaker project have entered into a number of derivative
contracts to mitigate further against price volatility inherent in the electricity pool. These contracts consist of fixed forward electricity contracts and/or cap contracts that expire on various
dates through December 31, 2006.

New Zealand

Contact Energy generates about 30% of New Zealand's electricity and is the largest retailer of natural gas and electricity in New Zealand. A substantial portion
of Contact Energy's generation output is matched with the demand of its retail electricity customers or sold through forward contracts with other wholesale electricity counterparties. The forward
contracts and/or option contracts have varying terms that expire on various dates through June 30, 2010, although the majority of the forward contracts are short term (less than two years).

In
May 2003, the New Zealand government announced that it would establish a new governance body to be known as the Electricity Commission along with a set of rules to govern the
market. The
Electricity Governance Regulations and Rules were finalized in 2003. The Regulations came into force on January 16, 2004, and the Rules came into force during February and March of 2004.

During
the winter of 2003, wholesale electricity prices increased significantly in response to lower hydro inflows, higher demand and anticipated restrictions on the availability of
thermal fuel. The New Zealand government responded by calling for nationwide energy savings in the order of 10%. Recent rains and anticipated snowmelt have largely improved the earlier conditions with
wholesale electricity prices returning to more normal levels. The national energy savings program ended in July 2003.

However,
there are ongoing concerns that new investment in generation has not been forthcoming and that there is a significant risk that similar events may arise in subsequent years. As
a consequence the New Zealand government took the following steps:



The
New Zealand government announced in July 2003 that it would purchase a new 155 MW power plant before winter 2004 to increase electricity security. The plant is to be situated
at Whirinaki, Hawkes Bay. The Electricity Commission will include this plant in its portfolio of reserve energy. The Whirinaki plant, which is expected to be operational in May 2004, will be
located on a site leased to the government from Contact Energy and will also be operated under contract by Contact Energy.

Credit Risk

In conducting EME's price risk management and trading activities, EME contracts with a number of utilities, energy companies and financial institutions,
collectively referred to as counterparties. In the event a counterparty were to default on its trade obligation, EME would be exposed to the risk of possible loss associated with reselling the
contracted product at a lower price if the non-performing counterparty were unable to pay the resulting liquidated damages owed to EME. Further, EME would be exposed to the risk of
non-payment of accounts receivable accrued for products delivered prior to the time such counterparty defaulted.

55

---



To
manage credit risk, EME looks at the risk of a potential default by counterparties. Credit risk is measured by the loss that would be incurred if counterparties failed to perform
pursuant to the terms of their contractual obligations. EME measures, monitors and mitigates, to the extent possible, credit risk. To mitigate counterparty risk, master netting agreements are used
whenever possible and counterparties may be required to pledge collateral when deemed necessary. EME also takes other appropriate steps to limit or lower credit exposure. Processes have also been
established to determine and monitor the creditworthiness of counterparties. EME manages the credit risk on the portfolio based on credit ratings using published ratings of counterparties and other
publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements
including master netting agreements. A risk management committee regularly reviews the credit quality of EME's counterparties. Despite this, there can be no assurance that these efforts will be wholly
successful in mitigating credit risk or that collateral pledged will be adequate.

EME
measures credit risk exposure from counterparties of its merchant energy activities by the sum of: (i) 60 days of accounts receivable, (ii) current fair value of
open positions, and (iii) a credit value at risk. EME's subsidiaries enter into master agreements and other arrangements in conducting price risk management and trading activities which
typically provide for a right of setoff in the event of bankruptcy or default by the counterparty. Accordingly, EME's credit risk exposure from counterparties is based on net exposure under these
agreements. At March 31, 2004, the credit ratings of EME's counterparties were as follows:

S&P Credit Rating

March 31, 2004(in millions)A or higher

$
20A-


13BBB+


110BBB


18BBB-


3Below investment grade


16Total

$
180


Exelon Generation accounted for 14% and 19% of EME's consolidated operating revenues for the first quarters of 2004 and 2003, respectively. The
percentage is less in the first quarter of 2004 because a smaller number of plants are subject to contracts with Exelon Generation. See "Commodity Price
RiskAmericasIllinois Plants." Any failure of Exelon Generation to make payments under the power purchase agreements could adversely affect EME's results of operations and
financial condition.

EME's
contracted power plants and the plants owned by unconsolidated affiliates in which EME owns an interest sell power under long-term power purchase agreements. Generally,
each plant sells its output to one counterparty. Accordingly, a default by a counterparty under a long-term power purchase agreement, including a default as a result of a bankruptcy, would
likely have a material adverse affect on the operations of such power plant.

Interest Rate Risk

Interest rate changes affect the cost of capital needed to operate EME's projects. EME 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
$15 million and $9 million of additional interest

56

---



expense
for the three months ended March 31, 2004 and 2003, respectively, as a result of interest rate hedging mechanisms. EME 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.

EME
had short-term obligations of $36 million at March 31, 2004, consisting of promissory notes related to Contact Energy. The fair values of these obligations
approximated their carrying values at March 31, 2004, 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 EME's total long-term obligations (including current portion) was $6.1 billion at
March 31, 2004, compared to the carrying value of $6.0 billion.

Foreign Exchange Rate Risk

Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of EME's equity contributions to, and distributions
from, its international projects. At times, EME 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, EME has used
statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. EME cannot provide assurances, however, that fluctuations in exchange rates will be
fully offset by hedges or that currency movements and the relationship between certain macroeconomic variables will behave in a manner that is consistent with historical or forecasted relationships.

The
First Hydro plant in the U.K. and the plants 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, EME 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
the first three months of 2004, foreign currencies in the U.K., Australia and New Zealand increased in value compared to the U.S. dollar by 3%, 1% and 1%, respectively (determined
by the change in the exchange rates from December 31, 2003 to March 31, 2004). The increase in value of these currencies was the primary reason for the foreign currency translation gain
of $22 million during the first three months of 2004.

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 February 2006. At March 31, 2004, the outstanding notional amount of the contracts totaled
$18 million and the fair value of the contracts totaled $(2) thousand.

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 and
floating-rate U.S. and Australian dollar loans into floating-rate New Zealand dollar loans with varying maturities through April 2018.

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

57

---



Fair Value of Financial Instruments

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 (in millions):

March 31,
2004

December 31,
2003Derivatives:Interest rate:Interest rate swap/cap agreements

$
(37
)
$
(29
)Interest rate options


(1
)

(1
)Commodity price:Electricity


(175
)

(126
)Foreign currency forward exchange agreements


(2
)

(2
)Cross currency interest rate swaps


(114
)

(91
)


In assessing the fair value of EME's non-trading derivative financial instruments, EME uses a variety of methods and assumptions based
on the market conditions and associated risks existing at each balance sheet date. The fair value of commodity price contracts takes into account quoted market prices, time value of money, volatility
of the underlying commodities and other factors. The following table summarizes the maturities, the valuation method and the related fair value of EME's commodity price risk management assets and
liabilities as of March 31, 2004 (in millions):

Total Fair
Value

Maturity
<1 year

Maturity 1 to 3 years

Maturity 4 to 5 years

Maturity
>5 yearsPrices actively quoted

$
(87
)
$
(87
)
$


$


$
Prices based on models and other valuation methods


(88
)

29


27


(13
)

(131
)Total

$
(175
)
$
(58
)
$
27

$
(13
)
$
(131
)


The fair value of the electricity rate swap agreements (included under commodity price-electricity) entered into by the Loy Yang B plant and the
First Hydro plant has been estimated by discounting the future net cash flows resulting from the difference between the average aggregate contract price per MW and a forecasted market price per MW
multiplied by the number of MW remaining to be sold under the contract.

Energy Trading Derivative Financial Instruments

EME's risk management and trading operations are conducted by its subsidiary, Edison Mission Marketing & Trading. As a result of a number of industry and
credit-related factors, Edison Mission Marketing & Trading has minimized its price risk management and trading activities not related to EME's power plants or investments in energy projects. To
the extent Edison Mission Marketing & Trading engages in trading activities, Edison Mission Marketing & Trading seeks to manage price risk and to create stability of future income by
selling electricity in the forward markets and, to a lesser degree, to generate profit from price volatility of electricity and fuels by buying and selling these commodities in wholesale markets. EME
generally balances forward sales and purchase contracts and manages its exposure through a value at risk analysis as described under "Commodity Price Risk."

58

---



The
fair value of the commodity financial instruments related to energy trading activities as of March 31, 2004 and December 31, 2003, are set forth below (in millions):

March 31, 2004

December 31, 2003Assets

Liabilities

Assets

LiabilitiesElectricity

$
107

$
14

$
104

$
11Other





1





1Total

$
107

$
15

$
104

$
12


The change in the fair value of trading contracts for the quarter ended March 31, 2004, was as follows (in millions):

Fair value of trading contracts at January 1, 2004

$
92Net gains from energy trading activities


1Amount realized from energy trading activities


(1
)Fair value of trading contracts at March 31, 2004

$
92


Quoted market prices are used to determine the fair value of the financial instruments related to energy trading activities, except for the power
sales agreement with an unaffiliated electric utility that EME's subsidiary purchased and restructured and a long-term power supply agreement with another unaffiliated party. EME's
subsidiary recorded these agreements at fair value based upon a discounting of future electricity prices derived from a proprietary model using a discount rate equal to the cost of borrowing the
non-recourse debt incurred to finance the purchase of the power supply agreement. The following table summarizes the maturities, the valuation method and the related fair value of energy
trading assets and liabilities (as of March 31, 2004) (in millions):

Total Fair
Value

Maturity
<1 year

Maturity 1 to 3 years

Maturity 4 to 5 years

Maturity
>5 yearsPrices actively quoted

$


$


$


$


$
Prices based on models and other valuation methods


92


(3
)

6


5


84Total

$
92

$
(3
)
$
6

$
5

$
84


Regulatory Matters

For a discussion of EME's regulatory matters, refer to "Regulatory Matters" on page 24 of EME's annual report on Form 10-K for the year ended
December 31, 2003. There have been no significant developments with regard to regulatory matters that affect disclosures presented in the annual report, except as follows:

Commonwealth
Edison's application to join PJM was finally approved by the Federal Energy Regulatory Commission, or the FERC, on April 27, 2004, with an effective date for
integration set for May 1, 2004.

On
March 19, 2004, in a separate but related matter, the FERC issued another order having the effect of postponing to December 1, 2004 the effective date for elimination of
regional through and out rates in the region encompassed by PJM (as expanded by the addition of Commonwealth Edison and as to be further expanded by the addition of AEP) and the MISO. The effect of
this order is that

59

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so-called
rate pancaking was not eliminated prior to Commonwealth Edison's integration into PJM, nor will it be eliminated prior to AEP's scheduled date for integration into PJM. Rate
pancaking occurs when energy must move through multiple, separately priced transmission systems to travel from its point of production to its point of delivery, and each transmission owner along the
line charges separately for the use of its system. Accordingly, Midwest Generation will continue to have to pay transmission charges for power sold for delivery outside of Commonwealth Edison's former
control area, now known under PJM as PJM's Northern Illinois Control Area, or NICA. The FERC included in its order a strong statement that the existing through and out rates must be eliminated no
later than December 1, 2004.

On
March 24, 2004, the FERC, in another order, rejected a proposal by PJM for certain market mitigation procedures to be applied to the new NICA. On April 23, 2004, PJM
filed a request for
rehearing of one aspect of the March 24 order and an "Explanation" relating to another aspect of such order, and supplemented its filing on April 26, 2004. EME and Midwest Generation
have filed a motion for a procedural schedule that will allow 30 days for EME and Midwest Generation to prepare and submit analyses responding to PJM's filings. It is not possible at this time
to predict the outcome of this matter or the impact of the market monitor's proposed mitigation measures should they or some form of them be adopted.

Apart
from the uncertainties regarding the market mitigation issues discussed previously, the direct impact on Midwest Generation of the above-described matters will for the most part be
limited to the delay in the elimination of regional through and out rates. This is not expected to have a material effect on Midwest Generation's financial results with respect to the period between
the May 1, 2004 integration of Commonwealth Edison and the mandated elimination of the through and out rates on December 1, 2004. The impact on power prices in the new NICA and in the
surrounding bilateral markets by reason of the islanded integration of Commonwealth Edison is difficult to predict, but it is not currently anticipated that it will have a material effect upon Midwest
Generation's financial results in the period prior to the integration of AEP into PJM, currently scheduled for October 1, 2004.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of market risk sensitive instruments, refer to "Market Risk Exposures" on page 106 of EME's annual report on Form 10-K
for the year ended December 31, 2003. Refer to "Market Risk Exposures" in Item 2 for an update to that disclosure.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

EME's management, with the participation of the company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of EME's disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, EME's disclosure controls
and procedures are effective.

Internal Control Over Financial Reporting

There have not been any changes in EME's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, EME's internal
control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|Exhibit No. |  | Description                                                                                                                                                                                                                                                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Certificate of Incorporation of Edison Mission Energy, dated August 14, 2001, incorporated by reference to Exhibit 3.1 to Edison Mission Energy's Form 8-K dated October 26, 2001.                                                                                  
|3.1.1       |  | Certificate of Amendment to the Certificate of Incorporation of Edison Mission Energy dated May 4, 2004.                                                                                                                                                            
|3.2         |  | By-laws of Edison Mission Energy amended May 4, 2004.                                                                                                                                                                                                               
|10.1        |  | Edison Mission Energy BV Sale Incentive Plan, effective as of February 19, 2004.                                                                                                                                                                                    
|10.2        |  | Edison Mission Energy BV Sale Severance Plan, effective as of February 19, 2004.                                                                                                                                                                                    
|10.3        |  | Edison Mission Energy BV Sale Incentive Plan - Australia, effective as of February 19, 2004.                                                                                                                                                                        
|10.4        |  | Edison Mission Energy BV Sale Retention Plan - Australia, effective as of February 19, 2004.                                                                                                                                                                        
|10.5        |  | Edison Mission Energy BV Sale Severance Plan - Australia, effective as of February 19, 2004.                                                                                                                                                                        
|10.6        |  | Edison Mission Energy BV Sale Incentive Plan - Singapore, effective as of February 19, 2004.                                                                                                                                                                        
|10.7        |  | Edison Mission Energy BV Sale Retention Plan - Singapore, effective as of February 19, 2004.                                                                                                                                                                        
|10.8        |  | Edison Mission Energy BV Sale Severance Plan - Singapore, effective as of February 19, 2004.                                                                                                                                                                        
|10.9        |  | Edison Mission Energy BV Sale Incentive Plan - UK, effective as of February 19, 2004.                                                                                                                                                                               
|10.10       |  | Edison Mission Energy BV Sale Retention Plan - UK, effective as of February 19, 2004.                                                                                                                                                                               
|10.11       |  | Edison Mission Energy BV Sale Severance Plan - UK, effective as of February 19, 2004.                                                                                                                                                                               
|10.12       |  | Terms and conditions for 2004 long-term compensation awards under the Equity Compensation Plan and the 2000 Equity Plan, incorporated by reference to Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended March 31, 2004
(File No. 1-9936).      
|10.13       |  | Credit Agreement, dated as of April 27, 2004, among Edison Mission Energy, the Lenders referred to therein, the Issuing Lenders referred to therein and Citicorp North America, Inc., as Administrative Agent for the Lenders and the Issuing Lenders
party thereto.
|10.14       |  | Security Agreement, dated as of April 27, 2004, between Edison Mission Energy and Citicorp North America, Inc., as Administrative Agent.                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                     

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|10.15 |  | Reimbursement Agreement, dated as of October 26, 2001, between Edison Mission Energy and Midwest Generation, LLC.
|----- |  | -----------------------------------------------------------------------------------------------------------------
|31.1  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.                  
|31.2  |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.                  
|32    |  | Statement Pursuant to 18 U.S.C. Section 1350.                                                                    
|99.1  |  | Homer City Facilities Funds Flow From Operations for the twelve months ended March 31, 2004.                     
|99.2  |  | Illinois Plants Funds Flow From Operations for the twelve months ended March 31, 2004.                           

(b)   Reports on Form 8-K

Date of Report

Date Filed

Item(s) ReportedJanuary 7, 2004

January 8, 2004

5February 26, 2004

February 26, 2004

12
*


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SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| |  | EDISON MISSION ENERGY(REGISTRANT)
| |  | ---------------------------------
| |  | By:                              
| |  | Date:                            

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