<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   Form 10-Q
 
 
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended      September 30, 1998
                                    ----------------------------
 
                                      or
 
[_]  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 1-13434



                             Edison Mission Energy
            (Exact name of registrant as specified in its charter)

              California                                 95-4031807
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
      incorporation or organization)

        18101 Von Karman Avenue
        Irvine, California                                 92612
     (Address of principal executive offices)           (Zip Code)

      Registrant's telephone number, including area code:  (949) 752-5588


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

     Number of shares outstanding of the registrant's Common Stock as of
     November 13, 1998:  100 shares (all shares held by an affiliate of the
     registrant).
<PAGE>
 
                               TABLE OF CONTENTS



Item                                                                     Page
----                                                                     ----

                         PART I - Financial Information

1.  Financial Statements....................................................1

2.  Management's Discussion and Analysis of Financial Condition and
    Results of Operations..................................................10


                          PART II - Other Information

6.  Exhibits and Reports on Form 8-K.......................................21


                                    PART III

    Signatures.............................................................22
<PAGE>
 
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                   (Unaudited)               (Unaudited)
                                               Three Months Ended         Nine Months Ended
                                                  September 30,             September 30,
                                             -----------------------   -----------------------
                                                1998         1997         1998         1997
                                             ----------   ----------   ----------   ----------
<S>                                          <C>          <C>          <C>          <C>
Operating Revenues
   Electric revenues                           $132,398     $143,919    $ 475,597    $ 546,262
   Equity in income from energy projects         81,174       73,857      146,966      135,038                             
   Equity in income from oil and gas              3,155        6,244       13,582       28,970                             
   Operation and maintenance services            10,755       10,525       30,557       30,766                             
                                               --------     --------    ---------    ---------                             

       Total operating revenues                 227,482      234,545      666,702      741,036                             
                                               --------     --------    ---------    ---------                             
Operating Expenses                                                                                                         
   Fuel                                          36,817       39,797      126,529      143,552                             
   Plant operations                              30,855       31,892       93,324       98,139                             
   Operation and maintenance services             7,725        8,137       22,004       22,578                             
   Depreciation and amortization                 20,773       24,027       65,933       80,200                             
   Administrative and general                    27,928       39,524       85,090       85,169                             
                                               --------     --------    ---------    ---------                             

       Total operating expenses                 124,098      143,377      392,880      429,638                             
                                               --------     --------    ---------    ---------                             

   Income from operations                       103,384       91,168      273,822      311,398                             
                                               --------     --------    ---------    ---------                             
                                                                                                                           
Other Income (Expense)                                                                                                     
   Interest and other income                      9,967        9,826       33,186       23,010                             
   Gain on sale of assets                            --           --        1,148       26,642                             
   Interest expense                             (46,930)     (53,737)    (137,815)    (159,614)                             
   Dividends on preferred securities             (3,304)      (3,304)      (9,905)      (9,864)                             
   Minority interest                               (484)        (789)      (2,080)     (38,494)                             
                                               --------     --------    ---------    ---------                             

       Total other income (expense)             (40,751)     (48,004)    (115,466)    (158,320)                             
                                               --------     --------    ---------    ---------                             
                                                                                                                           
   Income before income taxes                    62,633       43,164      158,356      153,078                             

   Provision (credit) for income taxes           17,855       (2,937)      57,290       41,812                             
                                               --------     --------    ---------    ---------                             
                                                                                                                           
Income before extraordinary loss               $ 44,778     $ 46,101    $ 101,066    $ 111,266                             
Extraordinary loss on early                                                                                                
 extinguishment of debt, net of                                                                                            
 income tax benefit                                  --           --           --      (13,126)                             
                                               --------     --------    ---------    ---------                             
                                                                                                                           
Net Income                                     $ 44,778     $ 46,101    $ 101,066    $  98,140                             
                                               ========     ========    =========    =========         
</TABLE>

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

                                       1
<PAGE>
 
                     EDISON MISSION ENERGY AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                        
<TABLE>
<CAPTION>
                                                                      (Unaudited)
                                                                     September 30,   December 31,
                                                                          1998          1997
                                                                     ------------    -----------
<S>                                                                  <C>             <C>
Assets

Current Assets
   Cash and cash equivalents                                           $  668,574     $  585,883
   Accounts receivable - trade                                             51,982         76,935
   Accounts receivable - affiliates                                         9,254         18,139
   Prepaid expenses and other                                              25,249         13,630
                                                                       ----------     ----------

       Total current assets                                               755,059        694,587
                                                                       ----------     ----------
 
Investments
   Energy projects                                                        942,125        852,688
   Oil and gas                                                             60,303         67,101
                                                                       ----------     ----------

       Total investments                                                1,002,428        919,789
                                                                       ----------     ----------
 
Property, Plant and Equipment                                           3,105,500      3,142,551
   Less accumulated depreciation and amortization                         234,569        201,564
                                                                       ----------     ----------

       Net property, plant and equipment                                2,870,931      2,940,987
                                                                       ----------     ----------
 
Other Assets
   Long-term receivables                                                   28,339         25,957
   Goodwill                                                               316,990        312,606
   Restricted cash and other                                               61,006         91,219
                                                                       ----------     ----------

       Total other assets                                                 406,335        429,782
                                                                       ----------     ----------

Total Assets                                                           $5,034,753     $4,985,145
                                                                       ==========     ==========
</TABLE>

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

                                       2
<PAGE>
 
                     EDISON MISSION ENERGY AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                     (Unaudited)               
                                                    September 30,  December 31,
                                                        1998          1997    
                                                    ------------   ----------- 
<S>                                                 <C>            <C>         
Liabilities and Shareholder's Equity                                           
                                                                               
Current Liabilities                                                            
   Accounts payable - affiliates                      $   14,006    $   13,381 
   Accounts payable and accrued liabilities              206,751       208,411 
   Interest payable                                       31,307        42,627 
   Current maturities of long-term obligations           185,368        75,383 
                                                      ----------    ---------- 

       Total current liabilities                         437,432       339,802 
                                                      ----------    ---------- 

Long-Term Obligations Net of Current Maturities        2,372,927     2,532,121 
                                                      ----------    ---------- 
                                                                               
Long-Term Deferred Liabilities                                                 
   Deferred taxes and tax credits                        575,888       517,391 
   Deferred revenue                                      483,626       541,176 
   Other                                                  65,006        68,951 
                                                      ----------    ---------- 

       Total long-term deferred liabilities            1,124,520     1,127,518 
                                                      ----------    ---------- 

       Total liabilities                               3,934,879     3,999,441
                                                      ----------    ---------- 

Minority Interests                                        14,877         9,102 
                                                      ----------    ---------- 
                                                                               
Company - Obligated Mandatorily Redeemable                                     
   Security of Partnership Holding Solely Parent                               
   Debentures                                            150,000       150,000 
                                                      ----------    ---------- 
                                                                               
Commitments and Contingencies (Note 3)                                         
                                                                               
Shareholder's Equity                                                           
   Common stock, no par value; 10,000 shares                                   
    authorized; 100 shares issued and outstanding         64,130        64,130 
   Additional paid-in capital                            629,406       629,406 
   Retained earnings                                     203,382       102,620 
   Cumulative translation adjustments                     38,079        30,446 
                                                      ----------    ---------- 

       Total shareholder's equity                        934,997       826,602 
                                                      ----------    ---------- 
                                                                               
Total Liabilities and Shareholder's Equity            $5,034,753    $4,985,145 
                                                      ==========    ========== 
</TABLE>

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

                                       3
<PAGE>
 
                     EDISON MISSION ENERGY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)


<TABLE>
<CAPTION>
                                                   (Unaudited)               (Unaudited)
                                                Three Months Ended        Nine Months Ended
                                                   September 30,            September 30,
                                             -----------------------   -----------------------
                                                1998         1997         1998         1997
                                             ----------   ----------   ----------   ----------
 
<S>                                          <C>          <C>          <C>          <C>
Net Income                                      $44,778     $ 46,101     $101,066     $ 98,140
Other comprehensive income (expense),
net of tax:
   Foreign currency translation
       adjustments net of income
       tax benefit (expense) of
       $(272) and $2,111 for the
       three months and $(1,172)
       and $4,902 for the nine
       months ended September 30, 
       1998 and 1997, respectively                6,895      (16,917)       7,633      (36,552)
                                                -------     --------     --------     --------

Comprehensive Income                            $51,673     $ 29,184     $108,699     $ 61,588
                                                =======     ========     ========     ========
</TABLE>

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

                                       4
<PAGE>
 
                      EDISON MISSION ENERGY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)
 
<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                             Nine Months Ended
                                                                               September 30,
                                                                          -----------------------
                                                                             1998         1997
                                                                          ----------   ----------
<S>                                                                       <C>          <C>
Cash Flows From Operating Activities
    Net income                                                            $  101,066   $   98,140
    Adjustments to reconcile net income to net cash provided
       by operating activities:
        Equity in income from energy projects                               (146,966)    (135,038)     
        Equity in income from oil and gas                                    (13,582)     (28,970)     
        Distributions from energy projects                                    97,452       88,203      
        Dividends from oil and gas                                            19,537       38,078      
        Depreciation and amortization                                         65,933       80,200      
        Deferred taxes and tax credits                                        44,447      (41,859)     
        Gain on sale of assets                                                (1,148)     (26,642)     
        Extraordinary loss on early extinguishment of debt, net of tax            --       13,126      
    Decrease in accounts receivable                                           33,838       10,570      
    Decrease in prepaid expenses and other                                        11        2,079      
    Increase (decrease) in accounts payable and accrued liabilities           (7,039)      70,589  
    Decrease in interest payable                                             (11,320)     (11,495)       
    Other, net                                                                (9,737)      (2,758)       
                                                                          ----------   ----------        
        Net cash provided by operating activities                            172,492      154,223           
                                                                          ----------   ----------           
Cash Flows From Financing Activities 
    Borrowings on long-term obligations                                       66,016    1,033,946    
    Payments on long-term obligations                                        (72,224)    (809,472)   
    Cash dividend to parent                                                       --     (122,000)   
                                                                          ----------   ----------
        Net cash provided by (used in) financing activities                   (6,208)     102,474    
                                                                          ----------   ----------    
Cash Flows From Investing Activities                                                                   
    Investments in energy projects                                            (9,450)     (51,514)   
    Loans to energy projects                                                 (42,289)     (42,984)   
    Purchase of common stock of acquired companies                            (4,109)     (63,983)   
    Proceeds from sale of assets                                               4,100       71,166    
    Capital expenditures                                                     (62,725)     (65,233)   
    Decrease (increase) in restricted cash                                    34,169      (15,747)    
    Other, net                                                                (2,573)     (13,668)    
                                                                           ---------   ----------     
        Net cash used in investing activities                                (82,877)    (181,963)    
                                                                           ---------   ----------     

Effect of exchange rate changes on cash                                         (716)     (17,111)    
                                                                           ---------   ----------     
                                                        
Net increase in cash and cash equivalents                                     82,691       57,623     
Cash and cash equivalents at beginning of period                             585,883      383,634     
                                                                           ---------   ----------     
                                                                      
Cash and cash equivalents at end of period                                 $ 668,574   $  441,257     
                                                                           =========   ==========      
</TABLE>

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

                                       5
<PAGE>
 
                    EDISON MISSION ENERGY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1998


NOTE 1. GENERAL

     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 nine months ended September 30, 1998, are not necessarily indicative of
the operating results for the full year.

     Edison Mission Energy's (EME) significant accounting policies are described
in Note 2 to EME's Consolidated Financial Statements as of December 31, 1997 and
1996, included in its 1997 Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 31, 1998. EME follows the same accounting
policies for interim reporting purposes. This quarterly report should be read in
connection with such financial statements.

     Certain prior period amounts have been reclassified to conform to the
current period financial statement presentation.

NOTE 2. INVESTMENTS

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

<TABLE>
<CAPTION>
                                                 (In thousands)
                                       (Unaudited)             (Unaudited)
                                   Three Months Ended       Nine Months Ended
                                      September 30,           September 30,
                                   -------------------   -----------------------
                                     1998       1997        1998         1997
                                   --------   --------   ----------   ----------
<S>                                <C>        <C>        <C>          <C>
Energy Projects                  
Operating Revenues                 $478,516   $447,228   $1,200,618   $1,184,932
Income from Operations              188,294    177,366      343,069      352,244
Net Income                          162,535    146,502      265,549      270,605
                                                                      
Oil and Gas                                                           
Operating Revenues                 $ 49,232   $ 64,940   $  155,180   $  225,215
Income from Operations                8,430     16,700       37,112       78,748
Net Income                            6,664     14,286       27,770       58,253
</TABLE>

                                       6
<PAGE>
 
NOTE 3. COMMITMENTS AND CONTINGENCIES
 
Firm Commitments for Asset Purchase
 
<TABLE> 
<CAPTION> 
Project                                                     U.S. ($ in millions)
-------                                                     --------------------
<S>                                                         <C> 
Homer City (i)                                                     1,801
</TABLE> 

(i)   Homer City is a 1,884-MW coal-fired generating plant in the mid-Atlantic
      region of the United States. A wholly owned subsidiary of EME executed an
      Asset Purchase Agreement to purchase 100% of the Homer City Electric
      Generating Station. The closing of the transaction is subject to receipt
      of various State and Federal regulatory approvals and is expected to be
      completed by the first quarter of 1999. Approvals have been obtained from
      the Pennsylvania Public Utility Commission and the New York State Public
      Service Commission. EME plans to finance the acquisition with a
      combination of debt secured by the project, corporate debt and cash.

Firm Commitments to Contribute Project Equity

<TABLE> 
<CAPTION> 
Projects                   Local Currency                   U.S. ($ in millions)
--------                   --------------                   --------------------
<S>                   <C>                                   <C> 
ISAB (i)              244 billion Italian Lira                       148
Paiton (ii)                                                           84
Tri Energy (iii)                                                      25
Doga (iv)                                                              8
</TABLE> 

(i)   ISAB is a 512-MW integrated gasification combined cycle power plant under
      construction near Siracusa in Sicily, Italy.  A wholly owned subsidiary of
      EME owns a 49% interest.  Equity will be contributed at commercial
      operation, which is currently scheduled for late 1999.

(ii)  Paiton is a 1,230-MW coal-fired power plant under construction in East
      Java, Indonesia.  A wholly owned subsidiary of EME owns a 40% interest.
      Equity contributions are currently being made and will continue until
      commercial operation, which is currently scheduled for the first half of
      1999.

(iii) Tri Energy is a 700-MW gas-fired power plant under construction in the
      Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25%
      interest. Equity will be contributed at commercial operation, which is
      currently scheduled for mid 2000.

(iv)  Doga is a 180-MW gas-fired power plant under construction near Istanbul,
      Turkey. A wholly owned subsidiary of EME owns an 80% interest. Equity
      contributions are currently being made and will continue until commercial
      operation, which is currently scheduled for the first half of 1999.

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

                                       7
<PAGE>
 
has no reason to believe that these events of default will occur to require
acceleration of the firm commitments.


Contingent Obligations to Contribute Project Equity

<TABLE> 
<CAPTION> 
Projects                                                  U.S. ($ in millions)
--------                                                  -------------------
<S>                                                       <C>  
Paiton (i)                                                         141
Tri Energy (i)                                                      20
Doga (i)                                                            15
All Other                                                           23
</TABLE> 

(i)   Contingent obligations to contribute additional equity to the project
      would be based on events principally related to capital cost overruns
      during plant construction, certain partner obligations or events of
      default.

  Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.

Other Commitments and Contingencies

  Certain of EME's subsidiaries entered into indemnification agreements whereby
the subsidiaries agreed to repay capacity payments to the projects' power
purchasers, in the event the projects unilaterally terminate their performance
or reduce their electric power producing capability during the term of the power
contract.  Obligations under these indemnification agreements as of September
30, 1998, if payment were required, would be $267 million.  Management has no
reason to believe that the projects will either terminate their performance or
reduce their electric power producing capability during the term of the power
contracts.

  Paiton is a 1,230-MW coal-fired power plant under construction in East Java,
Indonesia.  A wholly owned subsidiary of EME owns a 40% interest.  Construction
on the two-unit Paiton project is approximately 97% complete, and commercial
operation is expected in the first half of 1999.  The tariff is higher in the
early years and steps down over time, and the tariff for the Paiton project
includes infrastructure to be used in common by other units at the Paiton
complex.  The plant's output is fully contracted with the state-owned
electricity company, PT Perusahaan Listrik Negara (PLN), for payment in U.S.
dollars and supported by the Government of Indonesia.  The projected rate of
growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into
U.S. dollars have deteriorated significantly since the Paiton project was
contracted, approved and financed.  The project received substantial finance and
insurance support from the Export-Import Bank of the United States, The Export-
Import Bank of Japan, the U.S. Overseas Private Investment Corporation and the
Ministry of International Trade and Industry of Japan.  The Paiton project's
senior debt ratings have been reduced from investment grade to speculative grade
based on the rating agencies' perceived increased risk that PLN might not be
able to honor the electricity sales contract with Paiton.  The 

                                       8
<PAGE>
 
Government of Indonesia has arranged to reschedule sovereign debt owed to
foreign governments and has entered into discussions about rescheduling
sovereign debt owed to private lenders. A presidential decree has deemed some
independent power projects, but not including the Paiton project, subject to
review, postponement or cancellation. The Government of Indonesia has announced
that it will propose a policy with respect to independent power projects, which
is expected in the fourth quarter of 1998. The Paiton project continues to
discuss the situation in Indonesia with PLN, the Government of Indonesia and its
official and commercial lenders.

  Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn,
New York.  A wholly owned subsidiary of EME owns 50% of the project.  In
February 1997, the construction contractor asserted general monetary claims
under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners,
L.P. (BNY) for damages in the amount of $136.8 million.  BNY has asserted
general monetary claims against the contractor.  In connection with a $407
million non-recourse project refinancing in 1997, EME agreed to indemnify BNY
and its partner from all claims and costs arising from or in connection with the
contractor litigation, which indemnity has been assigned to the lenders.  EME
believes that the outcome of this litigation will not have a material adverse
effect on its financial position or results of operations.

  EME's projected construction expenditures that will be funded utilizing non-
recourse project financing are $40 million at September 30, 1998.

Litigation

  EME is routinely involved in litigation arising in the normal course of
business.  While the results of such litigation cannot be predicted with
certainty, management, based on advice of counsel, does not believe that the
final outcome of any pending litigation will have a material adverse effect on
EME's financial position or results of operations.

Environmental Matters

  EME is subject to environmental regulation by federal, state and local
authorities in the U.S. and foreign regulatory authorities with jurisdiction
over projects located outside the U.S.  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 operations.

  EME completed a review of some of its sites in 1995 and does not believe that
a material liability exists as of September 30, 1998.  The implementation of
Clean Air Act Amendments is expected to result in increased operating expenses;
however, these increased operating expenses are not expected to have a material
impact on EME's financial position or results of operations.

                                       9
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  This Quarterly Report on Form 10-Q includes certain forward-looking
statements, the realization of which may be affected by certain important
factors discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" thereunder and elsewhere herein.

GENERAL
-------

  Edison Mission Energy (EME) is one of the leading global producers of
electricity.  Through its subsidiaries, EME is engaged in the business of
developing, acquiring, owning and operating electric power generation facilities
worldwide.  EME's investments include 52 projects totaling 9,985 megawatts (MW)
of generation capacity, of which 7,363 are in operation and 2,622 are under
construction.

  EME's operating revenues are derived primarily from electric revenues and
equity in income from energy projects.  Operating revenues also include equity
in income from oil and gas investments and revenue attributable to operation and
maintenance services.

  Electric revenues are derived from consolidated results of operations of
several international entities.  Equity in income from energy projects relates
to EME's ownership interest of 50% or less in 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.

ACQUISITION
-----------

  In May 1997, Mission Energy Development Australia Pty Ltd, a subsidiary of
EME, completed a transaction with the State Government of Victoria (State)
acquiring the State's 49% interest in the 1,000-MW Loy Yang B Power Station (Loy
Yang B).  EME, through its subsidiaries, owns 100% of Loy Yang B.

  The acquisition was accounted for utilizing the purchase method.  The
consolidated statement of income for the nine months ended September 30, 1997
reflects the operations under the new contracts and the elimination of the
minority interest of Loy Yang B beginning in May 1997.

RESULTS OF OPERATIONS
---------------------

OPERATING REVENUES  Operating revenues decreased $7.1 million and $74.3 million
for the third quarter and nine months ended September 30, 1998, respectively,
compared with the corresponding periods of 1997, resulting primarily from
decreases in electric revenues and equity in income from oil and gas
investments, partially offset by 

                                       10
<PAGE>
 
increases in equity in income from energy projects. The third quarter decrease
in electric revenues is primarily the result of lower Australian currency
exchange rates and a scheduled maintenance outage at Roosecote. The decrease for
the nine months ended September 30, 1998 is primarily the result of Loy Yang B's
new series of power sales-related contracts associated with the 49% acquisition
in May 1997 and lower Australian currency exchange rates. The decreases were
partially offset by an increase of $19.7 million in revenues from the First
Hydro project, attributable to higher energy revenues as a result of higher
energy prices for the third quarter and nine months ended September 30, 1998.

  Equity in income from energy projects increased $7.3 million and $11.9 million
for the third quarter and nine months ended September 30, 1998, respectively,
compared with the corresponding periods of 1997.  These increases were
principally due to earnings from a geothermal project which were previously
deferred, partially offset by lower electric and steam revenues for several
cogeneration projects due to lower oil and gas prices upon which the revenues
are based.

  A significant number of EME's domestic energy projects are located on the West
Coast.  These projects generally have power sales contracts that provide for
higher payments during the summer months.  Accordingly, EME's third quarter
revenues from energy projects are materially higher than other quarters of the
year.

  Equity in income from oil and gas investments decreased $3.1 million and $15.4
million for the third quarter and nine months ended September 30, 1998,
respectively, compared with the same prior year periods.  The decreases were
primarily due to lower oil and gas prices.

OPERATING EXPENSES  Operating expenses decreased $19.3 million and $36.8 million
for the third quarter and nine months ended September 30, 1998, respectively,
compared with the same prior year periods. The decrease for the third quarter
was due to lower fuel, depreciation and amortization, and administrative and
general expenses.  The decrease for the nine months ended September 30, 1998 was
primarily due to lower fuel and depreciation and amortization expenses.  The
third quarter decrease in fuel expense is primarily the result of a scheduled
maintenance outage at Roosecote.  The decrease in fuel expense for the nine
months ended September 30, 1998 is primarily due to the new fuel supply
agreement entered into by Loy Yang B related to the 49% acquisition in May 1997,
partially offset by higher fuel expense for First Hydro as a result of higher
prices and increased generation in 1998.

  The third quarter decrease in depreciation and amortization expense is
primarily the result of lower Australian currency exchange rates.  The decrease
in depreciation and amortization expense for the nine months ended September 30,
1998 resulted from an extension in the useful life of Loy Yang B's plant and
equipment from approximately 30 years, the term of the previous power purchase
agreement, to 50 years, the projected economic life of the plant, as a result of
the May 1997 acquisition.

                                       11
<PAGE>
 
  The administrative and general expense decrease for the third quarter was
primarily related to a decrease in compensation expense as a result of charges
associated with EME's phantom stock plan.

OTHER INCOME (EXPENSE)  Interest and other income increased $10.2 million for
the nine months ended September 30, 1998 compared with the same prior year
period.  The increase was primarily due to interest earned on higher cash
balances.

  Gain on sale of assets in 1997 was comprised of an after-tax gain of
approximately $14 million on the sale of EME's ownership interest in B.C. Star
Partners (B.C. Star) to Remington Energy Ltd.

  Interest expense, net of capitalized interest, decreased $6.8 million and
$21.8 million in the third quarter and nine months ended September 30, 1998,
respectively, compared with the corresponding periods in 1997.  The decreases
were due to lower Australian currency exchange rates, higher capitalized
interest in 1998 compared to the same period in 1997 as a result of higher
accumulated construction expenditures and a lower principal balance on the $450
million of securities issued by Edison Mission Energy Funding Corp.

  Minority interest expense decreased $36.4 million for the nine months ended
September 30, 1998 compared with the corresponding period in 1997.  The decrease
resulted from the acquisition of the remaining 49% ownership interest in Loy
Yang B in May 1997.

PROVISION FOR INCOME TAXES  EME recorded an effective tax provision rate of 36%
for the nine months ended September 30, 1998, compared with a 27% rate for the
same prior year period.  The increase in the 1998 effective tax rate was
primarily due to a lower reduction in the corporate income tax rates in the
United Kingdom (U.K.) in 1998 compared to 1997.  In July 1998, the U.K.
government decreased the corporate tax rate from 31% to 30%, effective as of
April 1999.  In  August 1997, the U.K. government decreased the corporate tax
rate from 33% to 31%, effective as of April 1997.  In accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", these
reductions in U.K. income tax rates result in one-time reductions in income tax
expense of approximately $10 million and $20 million in 1998 and 1997
respectively, to adjust the U.K. deferred income tax liability (primarily First
Hydro) to the new lower rates.

LIQUIDITY AND CAPITAL RESOURCES  For the nine months ended September 30, 1998,
net cash provided by operating activities increased to $172.5 million from
$154.2 million for the same period in 1997.  The 1998 improvement primarily
reflects lower income taxes and higher distributions from energy projects,
partially offset by an increase in working capital requirements principally due
to a decrease in accrued liabilities and lower distributions from oil and gas.

  Net cash used in financing activities totaled $6.2 million during the first
nine months of 1998, compared to net cash provided by financing activities of
$102.5 million in 1997.  

                                       12
<PAGE>
 
The 1998 decrease is primarily due to the Loy Yang B financing of $964 million
(1.265 billion Australian dollars), the proceeds of which were primarily used to
repay Loy Yang B's existing debt facilities of $713 million (935.5 million
Australian dollars) in May 1997, partially offset by a cash dividend paid to
Edison International of $122 million in June 1997.

  Net cash used in investing activities decreased to $82.9 million for the nine
months ended September 30, 1998 from $182.0 million for the nine months ended
September 30, 1997.  The decrease is primarily due to the purchase of common
stock of acquired companies related to the acquisition of the remaining 49%
ownership interest in Loy Yang B in May 1997, a reduction in restricted cash
balances required for debt payments primarily for the $450 million of securities
issued by Edison Mission Energy Funding Corp. and lower investments in energy
projects in 1998 primarily for the Paiton project.  These were partially offset
by the proceeds from the sale of EME's ownership interest in B.C. Star in April
1997.

  At September 30, 1998, EME had cash and cash equivalents of $668.6 million and
had available $410 million of borrowing capacity under a $500 million revolving
credit facility that expires in 2001.  This borrowing capacity under the
revolving credit facility may be reduced by borrowings for firm commitments to
contribute project equity and to fund capital expenditures and construction
costs of its project facilities.

Firm Commitments for Asset Purchase

<TABLE> 
<CAPTION> 
Project                                                     U.S. ($ in millions)
-------                                                     --------------------
<S>                                                         <C> 
Homer City (i)                                                     1,801
</TABLE> 

(i)   Homer City is a 1,884-MW coal-fired generating plant in the mid-Atlantic
      region of the United States. A wholly owned subsidiary of EME executed an
      Asset Purchase Agreement to purchase 100% of the Homer City Electric
      Generating Station, which is currently scheduled to close during the first
      quarter of 1999.

Firm Commitments to Contribute Project Equity

<TABLE> 
<CAPTION>  
Projects                        Local Currency              U.S. ($ in millions)
--------                        --------------              --------------------
<S>                        <C>                              <C> 
ISAB (i)                   244 billion Italian Lira                 148
Paiton (ii)                                                          84
Tri Energy (iii)                                                     25
Doga (iv)                                                             8
</TABLE> 

(i)   ISAB is a 512-MW integrated gasification combined cycle power plant under
      construction near Siracusa in Sicily, Italy.  A wholly owned subsidiary of
      EME owns a 49% interest.  Equity will be contributed at commercial
      operation, which is currently scheduled for late 1999.

                                       13
<PAGE>
 
(ii)  Paiton is a 1,230-MW coal-fired power plant under construction in East
      Java, Indonesia.  A wholly owned subsidiary of EME owns a 40% interest.
      Equity contributions are currently being made and will continue until
      commercial operation, which is currently scheduled for the first half of
      1999.

(iii) Tri Energy is a 700-MW gas-fired power plant under construction in the
      Ratchaburi Province, Thailand. A wholly owned subsidiary of EME owns a 25%
      interest. Equity will be contributed at commercial operation, which is
      currently scheduled for mid 2000.

(iv)  Doga is a 180-MW gas-fired power plant under construction near Istanbul,
      Turkey.  A wholly owned subsidiary of EME owns an 80% interest.  Equity
      contributions are currently being made and will continue until commercial
      operation, which is currently scheduled for the first half of 1999.

    Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities.  Management has no reason to believe that these events of default
will occur to require acceleration of the firm commitments.

Contingent Obligations to Contribute Project Equity

<TABLE>
<CAPTION>
Projects                                                    U.S. ($ in millions)
--------                                                    --------------------
<S>                                                         <C>
Paiton (i)                                                          141
Tri Energy (i)                                                       20
Doga (i)                                                             15
All Other                                                            23
</TABLE>

(i)   Contingent obligations to contribute additional equity to the project
      would be based on events principally related to capital cost overruns
      during plant construction, certain partner obligations or events of
      default.

    Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.

Other Commitments and Contingencies

    Certain of EME's subsidiaries entered into indemnification agreements
whereby the subsidiaries agreed to repay capacity payments to the projects'
power purchasers, in the event the projects unilaterally terminate their
performance or reduce their electric power producing capability during the term
of the power contract. Obligations under these indemnification agreements as of
September 30, 1998, if payment were required, would be $267 million. Management
has no reason to believe that the projects will either terminate their
performance or reduce their electric power producing capability during the term
of the power contracts.

                                       14
<PAGE>
 
  Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in Brooklyn,
New York.  A wholly owned subsidiary of EME owns 50% of the project.  In
February 1997, the construction contractor asserted general monetary claims
under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners,
L.P. (BNY) for damages in the amount of $136.8 million.  BNY has asserted
general monetary claims against the contractor.  In connection with a $407
million non-recourse project refinancing in 1997, EME agreed to indemnify BNY
and its partner from all claims and costs arising from or in connection with the
contractor litigation, which indemnity has been assigned to the lenders.  EME
believes that the outcome of this litigation will not have a material adverse
effect on its financial position or results of operations.

  EME's projected construction expenditures that will be funded utilizing non-
recourse project financing are $40 million at September 30, 1998.

  EME and its subsidiaries may incur additional obligations to make equity and
other contributions to projects in the future.  EME believes that it will have
sufficient liquidity on both a short and long-term basis to fund pre-financing
project development costs, make equity contributions to partnerships, pay
corporate debt obligations and pay other administrative and general expenses as
they are incurred from (1) distributions from energy projects and dividends from
investments in oil and gas, (2) proceeds from the repayment of loans to energy
projects and (3) funds available from EME's revolving credit facility.

CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, FOREIGN CURRENCY
FLUCTUATIONS AND OTHER CONTRACTUAL OBLIGATIONS    Changes in interest rates,
changes in electricity pool pricing and fluctuations in foreign currency
exchange rates can have a significant impact on EME's results of operations.
Interest rate changes affect the cost of capital needed to construct and finance
projects.  EME has mitigated the risk of interest rate fluctuations by arranging
for fixed rate financing or variable rate financing with interest rate swaps or
other hedging mechanisms for the majority of its project financing.  Interest
expense included $15.6 million and $13.5 million for the nine months ended
September 30, 1998 and 1997, respectively, as a result of interest rate swap and
collar agreements.  EME has entered into several interest rate swap and collar
agreements whereby the maturity date of the swaps and collars occurs prior to
the final maturity of the underlying debt.  EME does not believe that interest
rate fluctuations will have a materially adverse effect on its financial
position or results of operations.

  Projects in the U.K. currently sell their electrical energy and capacity
through a centralized electricity pool, which establishes a half-hourly clearing
price (also referred to as the "pool price") for electrical energy.  The pool
price is extremely volatile and can vary by as much as a factor of ten or more
over the course of a few hours, due to the large differentials in demand
according to the time of day.  First Hydro mitigates a portion of the market
risk of the pool by entering into contracts for differences (electricity rate
swap agreements), related to either the selling or purchasing price of power,
whereby a contract specifies a price at which the electricity will be traded,
and the parties to the agreement 

                                       15
<PAGE>
 
make payments, calculated based on the difference between the price in the
contract and the pool price for the element of power under contract. These
contracts can be sold in two structures: one-way contracts, where a specified
monthly amount is received in advance and difference payments are made when the
pool price is above the price specified in the contract, and two-way contracts,
where the counter party pays First Hydro when the pool price is below that in
the contract instead of a specified monthly amount. These contracts act as a
means of stabilizing production revenues or purchasing costs by removing an
element of First Hydro's net exposure to pool price volatility. First Hydro
electric revenues were increased by $35.8 million for the nine month period
ended September 30, 1998, compared to a $27.2 million increase for the
corresponding period in 1997, as a result of electricity rate swap agreements.
On July 29, 1998, the Director General of Electricity Supply proposed to the
Minister for Science, Energy and Industry that the current structure of
contracts-for-differences and compulsory trading via the pool at half-hour
clearing prices bid a day ahead be abolished. He proposed in its place, among
other things, the establishment of voluntary forwards and futures markets,
organized by independent market operators and evolving in response to demand; a
short-term bilateral market operating from 24 to 4 hours before a trading
period; a balancing market to enable the system operator to balance generation
and demand and resolve any transmission constraints; a settlement process for
recovering imbalances between contracted and metered volumes with stronger
incentives for being in balance; and a Balancing and Settlement Code Panel to
oversee governance of the short-term bilateral and balancing markets. The
Minister for Science, Energy and Industry has recommended that the proposal be
implemented by April 2000. Further definition of the proposal will be required
before the effects of the changes can be evaluated. Implementation of the
proposal may also require legislation.

  Loy Yang B sells their electrical energy through a centralized electricity
pool (the National Electricity Market) 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 Victorian Power Exchange, operator and
administrator of the pool, determines a system marginal price each half hour.
To mitigate the exposure to price volatility of the electricity traded into the
pool, Loy Yang B has entered into a number of financial hedges.  From May 8,
1997 to December 31, 2000, approximately 53% to 64% of the plant output sold is
hedged under "Vesting Contracts" with the remainder of the plant capacity hedged
under the "State Hedge" described below.  Vesting Contracts were put into place
by the State, between each generator and each distributor, prior to the
privatization of electric power distributors in order to provide more
predictable pricing for those electricity customers that were unable to choose
their electricity retailer.  Vesting Contracts set base strike prices at which
the electricity will be traded, and the parties to the agreement make payments,
calculated based on the difference between the price in the contract and the
half-hourly pool clearing price for the element of power under contract.  These
contracts can be sold as one-way or two-way contracts which are structured
similar to the electricity rate swap agreements described above.  These
contracts are accounted for as electricity rate swap agreements.  The State
Hedge is a long-term contractual arrangement based upon a fixed price commencing
May 8, 1997 and terminating October 31, 2016.  The State guarantees SECV's
obligations under the 

                                       16
<PAGE>
 
State Hedge. Loy Yang B's electric revenues were increased by $51.8 million for
the nine-month period ended September 30, 1998, compared to a $43.1 million
increase for the corresponding period in 1997, as a result of hedging contract
arrangements. The State Hedge and Vesting Contracts were entered into in
connection with the 49% acquisition of Loy Yang B in May 1997, and therefore
electric revenues were not impacted prior to May 1997.

  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 foreign projects.  As EME continues to expand into foreign markets,
fluctuations in foreign currency exchange rates can be expected to have a
greater impact on EME's results of operations in the future.  At times, EME has
hedged a portion of its current exposure to fluctuations in foreign exchange
rates where it deems appropriate 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.  There can be no assurance, however, that
fluctuations in exchange rates will be fully offset by hedges or that currency
movements and the relationship between certain macro economic variables will
behave in a manner consistent with historical or forecasted relationships.

  Construction on the two-unit Paiton project is approximately 97% complete, and
commercial operation is expected in the first half of 1999.  The tariff is
higher in the early years and steps down over time, and the tariff for the
Paiton project includes infrastructure to be used in common by other units at
the Paiton complex.  The plant's output is fully contracted with the state-owned
electricity company, PT Perusahaan Listrik Negara (PLN), for payment in U.S.
dollars and supported by the Government of Indonesia.  The projected rate of
growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into
U.S. dollars have deteriorated significantly since the Paiton project was
contracted, approved and financed.  The project received substantial finance and
insurance support from the Export-Import Bank of the United States, The Export-
Import Bank of Japan, the U.S. Overseas Private Investment Corporation and the
Ministry of International Trade and Industry of Japan.  The Paiton project's
senior debt ratings have been reduced from investment grade to speculative grade
based on the rating agencies' perceived increased risk that PLN might not be
able to honor the electricity sales contract with Paiton.  The Government of
Indonesia has arranged to reschedule sovereign debt owed to foreign governments
and has entered into discussions about rescheduling sovereign debt owed to
private lenders.  A presidential decree has deemed some independent power
projects, but not including the Paiton project, subject to review, postponement
or cancellation.  The Government of Indonesia has announced that it will propose
a policy with respect to independent power projects, which is expected in the
fourth quarter of 1998.  The Paiton project continues to discuss the situation
in Indonesia with PLN, the Government of Indonesia and its official and
commercial lenders.

                                       17
<PAGE>
 
  The electric power generated by EME's domestic operating projects is generally
sold to electric utilities pursuant to long-term (typically, 15 to 30-year)
power sales contracts and is expected to result in consistent cash flow under a
wide range of economic and operating circumstances.  To accomplish this, EME
structured its power sales contracts so that fluctuations in fuel costs would
produce similar fluctuations in electric and/or steam revenues and entered into
long-term fuel supply and transportation agreements.

ENVIRONMENTAL MATTERS  EME is subject to environmental regulation by federal,
state and local authorities in the U.S. and foreign regulatory authorities with
jurisdiction over projects located outside the U.S.  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 operations.

  EME completed a review of some of its sites in 1995 and does not believe that
a material liability exists as of September 30, 1998.  The implementation of
Clean Air Act Amendments is expected to result in increased operating expenses;
however, these increased operating expenses are not expected to have a material
impact on EME's financial position or results of operations.

YEAR 2000 ISSUE  EME has a comprehensive program in place to remediate potential
Year 2000 impacts.  EME divides its Year 2000 Issue activities into five phases:
inventory, impact assessment, remediation, documentation and certification.
EME's plan for critical systems is to be 75% complete by year-end 1998, and 100%
complete by July 1999.  A critical system is defined as those applications and
systems, including embedded processor technology, which if not appropriately
remediated may have a significant impact on customers, the revenue stream,
regulatory compliance, or the health and safety of personnel.  EME is currently
in the remediation and documentation phase.

  Assurances from third party operated plants have been received indicating
aggressive Year 2000 remediation programs.  Monitoring of these efforts is
ongoing.  Plants under construction have obtained assurances from new
construction and development contractors, who have been requested to ensure this
is part of their goals.  General warranty of plants would likely include any
equipment issues that may arise regarding Year 2000 in the coming year.

  The other essential component of the EME Year 2000 readiness program is to
identify and assess vendor products and business partners for Year 2000
readiness.  EME has a process in place to identify and contact vendors and
business partners to determine their Year 2000 status, and is evaluating the
responses.  EME's general policy requires that all newly purchased products be
Year 2000-ready or otherwise designed to allow EME to determine whether such
products present Year 2000 issues.

                                       18
<PAGE>
 
  Although EME is confident that its critical systems will be fully remediated
prior to year-end 1999, EME believes that prudent business practices call for
the development of contingency plans.  Such contingency plans shall include
developing strategies for dealing with Year 2000-related processing failures or
malfunctions due to EME's internal systems or from external parties.  EME's
contingency plans are expected to be completed by March 1999; therefore, these
risk factors are not yet fully known, and EME's reasonably likely worst case
scenario also is unknown at this time.  EME does not expect the Year 2000 issue
to have a material adverse effect on its results of operations or financial
position; however, if not effectively remediated, negative effects from Year
2000 issues, including those related to internal systems, vendors, business
partners, the independent system operator, the power exchange or customers,
could cause results to differ.

STATEMENT OF POSITION 98-5 In April 1998, the American Institute of Certified
Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities", which will be effective in January 1999.  The
Statement requires that certain costs related to start-up activities be expensed
as incurred and that certain previously capitalized costs be expensed and
reported as a cumulative change in accounting principle.  The impact of adopting
SOP 98-5 on EME's financial statements has not been quantified at this time.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133  In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
will be effective in January 2000.  The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.  A
derivative's gains and losses for qualifying hedges offset related results on
the hedged item in the income statement and a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.  The impact of adopting Statement 133 on EME's financial statements
has not been quantified at this time.

GENERATING STATION ACQUISITION  On August 2, 1998, EME entered into agreements
to acquire the 1,884-MW Homer City Generating Station, one of the largest coal-
fired generating plants in the mid-Atlantic region of the United States, for
approximately $1.8 billion.  Homer City, jointly owned by subsidiaries of GPU,
Inc. and New York State Electric & Gas Corporation, is the only major regional
coal-fired facility with direct high voltage interconnection to both the New
York Power Pool and the Pennsylvania-New Jersey-Maryland Power Pool.  The plant
is located approximately 45 miles northeast of Pittsburgh, Pennsylvania.  EME
will operate the plant, which is one of the lowest-cost generation facilities in
the region.

                                       19
<PAGE>
 
  The closing of the transaction is subject to receipt of various State and
Federal regulatory approvals and is expected to be completed by the first
quarter of 1999.  Approvals have been obtained from the Pennsylvania Public
Utility Commission and the New York State Public Service Commission.   EME plans
to finance the acquisition with a combination of debt secured by the project,
corporate debt and cash.  The acquisition is expected to have no effect on
earnings in 1999 and a positive effect on earnings in 2000 and beyond.

                                       20
<PAGE>
 
PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

    Exhibit Nos.   Description
    ------------   -----------
       10.47       Guarantee by EME dated June 30, 1998 in favor of Tri Energy
                   Company Limited and the Sanwa Bank, Limited to guarantee
                   payment of 25% of Tri Energy Company Limited's
                   aggregate capital contributions under the Equity Bridge Loan
       10.48       Guarantee by EME dated June 30, 1998 in favor of Tri Energy
                   Company Limited and the Sanwa Bank, Limited to guarantee
                   payment of 37.5% of Tri Energy Company Limited's
                   aggregate capital contributions attributable to Banpu Gas
                   and BANPU
        27         Financial Data Schedule


(b) Reports on Form 8-K

    No reports on Form 8-K were filed during the quarter ended September 30,
    1998.

                                       21
<PAGE>
 
                                  SIGNATURES

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


                                             Edison Mission Energy
                                             ---------------------
                                                 (Registrant)
                              
                              
Date: November 12, 1998                      /s/ JAMES V. IACO, JR.
-----------------------                      ----------------------
                                              JAMES V. IACO, JR.,
                                           Senior Vice President and
                                            Chief Financial Officer

 

                                       22