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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.20549
                            _________________________

                                    FORM 10-K
                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2000
                                       OR
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period from _____to_____

                               Mirant Corporation
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             (Exact name of registrant as specified in its charter)

      Delaware                          001-16107                   58-2056305
--------------------------------------------------------------------------------
 (State or other Jurisdiction of  (Commission File Number)    (I.R.S. Employer
  Incorporation or Organization)                             Identification No.)

  1155 Perimeter Center West, Suite 100, Atlanta, Georgia             30338
--------------------------------------------------------------------------------
      (Address of Principal Executive Offices)                     (Zip Code)

                                 (678) 579-5000
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              (Registrant's Telephone Number, Including Area Code)
                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:
 Title of each class                             Name of each exchange on
                                                 which registered
 -------------------                            --------------------------------

Common Stock, par value $0.01 per share           New York Stock Exchange

Company obligated mandatorily redeemable
Preferred securities,
$27.50 liquidation amount                         New York Stock Exchange

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
  Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by  Section 13 or 15(d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for  such  shorter  period that the
registrant was required to file such reports), and (2) has been subject to  such
filing requirements for the past 90 days. Yes [X] No [_]

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

     Aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant was approximately  $1,667,576,400 on February 28, 2001, (based on $25
per share, the closing price in the daily composite list for transactions on the
New  York  Stock  Exchange  for  that  day.  As of March  1,  2001,  there  were
338,703,056  shares of the registrant's  Common Stock, $0.01 par value per share
outstanding.


<PAGE>


TABLE OF CONTENTS

          PART I                                                        Page
Item 1    Business.....................................................     4

Item 2    Properties...................................................    29

Item 3    Legal Proceedings............................................    30
Item 4    Submission of Matters to a Vote of Security Holders..........    31
Item 4A   Executive Officers of Mirant Corporation.....................    31

          PART II

Item 5    Market for Registrant's Common Equity and Related
          Stockholder Matters..........................................    33
Item 6    Selected Financial Data......................................    33
Item 7    Management's Discussion and Analysis of Financial
          Condition and Results of Operations..........................    36
Item 7A   Quantitative and Qualitative Disclosures About Market Risk...    53
Item 8    Financial Statements and Supplementary Data..................    67
Item 9    Changes In and Disagreements with Accountants on Accounting
          and Financial Disclosure.....................................    67

          PART III

Item 10   Directors and Executive Officers of the Registrant...........    67
Item 11   Executive Compensation.......................................    67
Item 12   Security Ownership of Certain Beneficial Owners
          and Management...............................................    67
Item 13   Certain Relationships and Related Transactions...............    67

          PART IV

Item 14   Exhibits, Financial Statement Schedules and Reports
          on Form 8-K..................................................    68




<PAGE>


DEFINITIONS


TERM                   MEANING
Bewag................. Berliner Kraft-und Licht (Bewag)-Aktiengesellschaft
                        (currently Bewag AG)
Birchwood............. Birchwood Power Partner, L.P.
Brazos................ Brazos Electric Power Cooperative
CAISO................. California Independent System Operator
CEMIG................. Companhia Energetica de Minas Gerais
Capital Funding....... Southern Company Capital Funding, Inc.
Clean Air Act......... Clean Air Act Amendments of 1990
EDELNOR............... Empresa Electrica del Norte Grande S.A.
EPA................... U.S. Environmental Protection Agency
FASB.................. Financial Accounting Standards Board
FERC.................. Federal Energy Regulatory Commission
Hyder................. Hyder plc
IPP................... Independent Power Producer
Mirant Americas
 Energy Marketing..... Mirant Americas Energy Marketing, LP, formerly
                        Southern Company Energy Marketing L.P.  (SCEM)
MMBtu................. Million British thermal unit
MW.................... Megawatts
Mirant................ Mirant Corporation, formerly Southern Energy, Inc. (SEI)
Mirant Asia - Pacific. Mirant Asia-Pacific Limited, formerly Southern Energy
                        Asia-Pacific Limited
Mirant Americas
 Energy Capital....... Mirant Americas Energy Capital, LP, formerly
                        Southern Producer Services L.P.
Mirant Canal.......... Mirant Canal, LLC, formerly Southern Energy Canal, L.L.C.
Mirant California..... Mirant California, LLC, formerly Southern Energy
                        California, L.L.C. (SE California)
Mirant Delta.......... Mirant Delta, LLC, formerly Southern Energy Delta, L.L.C.
                       (SE Delta)
Mirant Mid-Atlantic... Mirant Mid-Atlantic, LLC, formerly Southern Energy
                        Mid-Atlantic, LLC
Mirant Potrero........ Mirant Potrero, LLC, formerly Southern Energy Potrero,
                        L.L.C. (SE Potrero)
Mirant Services, LLC.. Mirant Services, LLC formerly Southern Energy
                        Resources LLC
Mobile Energy......... Mobile Energy Services Company, L.L.C.
PEPCO................. Potomac Electric Power Company
PUHCA................. Public Utility Holding Company Act of 1935, as amended
PURPA................. Public Utility Regulatory Policies Act of 1978,as amended
Power Contracts....... Power Purchase Agreements
PowerGen.............. The Power Generation Company of Trinidad and Tobago
PX.................... California Power Exchange Corporation
SEB................... Southern Electric Brasil Participacoes, Ltda.
SE Finance............ SE Finance Capital Corporation
SFAS.................. Statement of Financial Accounting Standards
SIPD.................. Shandong International Power Development Company Limited
Southern or Southern
 Company.............. The Southern Company
State Line Energy..... State Line Energy, LLC
Vastar................ Vastar Resources, Inc.
WPD................... South Western Electricity plc trading as Western
                        Power Distribution
WPDH.................. WPD Holdings UK

                                      3
<PAGE>

                                     PART I

Item 1.  Business

OVERVIEW

    Mirant  Corporation  and  its  subsidiaries  ("Mirant"  or  the  "Company"),
formerly known as Southern Energy,  Inc., is a global competitive energy company
with  leading  energy  marketing  and  risk  management  expertise.  Mirant  has
extensive  operations  in North  America,  Europe and Asia.  With an  integrated
business model, Mirant develops, constructs, owns and operates power plants, and
sells wholesale  electricity,  gas and other energy-related  commodity products.
Mirant  owns or  controls  more than 20,000  megawatts  of  electric  generating
capacity  around the world,  with  approximately  another 9,000  megawatts under
development. Mirant considers a project under development when it has contracted
to purchase machinery for the project,  it owns or controls the project site and
is in the permitting process. These projects may or may not have received all of
the necessary permits and approvals to begin construction. Mirant cannot provide
assurance  that these  projects or pending  acquisitions  will be completed.  In
North America,  Mirant also controls access to  approximately  3.7 billion cubic
feet per day of natural gas production, more than 2.1 billion cubic feet per day
of natural gas transportation and approximately 41 billion cubic feet of natural
gas storage.  At December 31, 2000, Mirant was approximately 80 percent owned by
Southern  Company,  which on February 19, 2001 announced  plans to distribute to
its stockholders all of its remaining interest in Mirant on April 2, 2001.

     Through Mirant's business development offices in the United States, Canada,
Amsterdam,  Hong Kong,  Singapore,  Milan,  Zurich,  Berlin and  others,  Mirant
monitors U.S. and  international  economies  and energy  markets to identify and
capitalize on business  opportunities.  Through  construction  and  acquisition,
Mirant has built a portfolio of power plants,  electric  distribution  companies
and  electric  utilities,  giving  the  Company a net  ownership  and  leasehold
interest of over 17,400 MW of electric generating capacity around the world, and
control of over 2,600 MW of additional  generating  capacity through  management
contracts.  Mirant's business also includes managing risk associated with market
price  fluctuations of energy and  energy-linked  commodities for itself and its
customers.  The Company uses its risk  management  capabilities  to optimize the
value of its  generating  and gas assets and offer risk  management  services to
others.  Mirant also owns electric  utilities with generation  transmission  and
distribution capabilities and electricity distribution companies.

     Mirant was incorporated in Delaware on April 20, 1993.

STRATEGY

     Mirant's strategy is to expand its business through  ownership,  leasing or
control of  additional  natural gas and  electricity  assets and to continue its
rapid growth by capitalizing on  opportunities  in markets where Mirant's unique
combination of strengths in physical asset management,  electricity  generation,
management  of gas assets  and energy  marketing  and risk  management  services
allows it to position the Company as a leading  provider of energy  products and
services.  Mirant is  implementing  its strategy  through the development of new
power plants  (greenfield  projects),  the  expansion  of existing  power plants
(brownfield  projects),  acquisitions  of  power  and gas  assets  competitively
positioned  in  Mirant's  targeted  markets,  contractual  arrangements  for the
control of generation capacity and gas management  facilities,  the expansion of
Mirant's  marketing and risk  management  activities and the  implementation  of
information technology and e-commerce  applications.  To secure wholesale supply
agreements or to provide additional  opportunities for growth,  profitability or
revenue  stability,  Mirant may enter into  agreements  to  acquire,  control or
manage  distribution  and  supply  businesses  or other  energy  aggregators  in
selected markets.

                                       4
<PAGE>

COMPETITION

    As a global competitive energy company,  Mirant faces intense competition in
all phases of the business in which it competes,  both in the United  States and
in international  markets.  Mirant encounters  competition from companies of all
sizes,  having varying levels of experience,  financial and human  resources and
differing  strategies.  On the power  generation  side,  Mirant  competes in the
development and operation of energy-producing  projects,  and its competitors in
this business include various  utilities,  industrial  companies and independent
power  producers  (including  affiliates  of  utilities).   In  Mirant's  energy
marketing and risk management business, it competes with international, national
and regional full service energy providers,  merchants,  producers and pipelines
in Mirant's ability to aggregate competitively priced supplies from a variety of
sources and locations and to utilize efficient transmission or transportation.

    During the transition of the energy industry to competitive  markets,  it is
difficult  for Mirant to assess its  position  versus the  position  of existing
power providers and new entrants.  This is due to the fact that each company may
employ  widely  differing  strategies  in their  fuel  supply  and  power  sales
contracts with regard to pricing, terms and conditions.  Further difficulties in
making  competitive  assessments of Mirant arise from the fact that many states
and countries are considering or implementing  different types of regulatory and
privatization  initiatives that are aimed at increasing competition in the power
industry.  Additionally,  Mirant's business is rapidly becoming more competitive
due to technological advances in power generation,  e-commerce enabling new ways
of  conducting  business,  the  increased  role of full  service  providers  and
increased efficiency of energy markets.

    In general,  however,  Mirant  believes that its experience and expertise in
assessing  and  managing  market  and  credit  risk  will  allow  it  to  remain
competitive during volatile or otherwise adverse market circumstances.

COMPLETED OR PLANNED ACQUISITIONS AND CONSTRUCTION ACTIVITIES

   The following  discussion  lists some plans and proposals  which are underway
and  which   Mirant   anticipates   will  be   realized;   however,   given  the
forward-looking  nature  of  these  discussions,  no  assurances  can  be  given
concerning  such  realization.  Please  refer  to the  "Special  Note  Regarding
Forward-Looking Statements" and the "Additional Factors that Could Affect Future
Performance" provided herein.

Completed or Planned Acquisitions

   Mirant Americas Energy Marketing, LP:

     Effective  August 10, 2000,  Mirant acquired Vastar  Resources,  Inc.'s 40%
interest in Mirant Americas Energy Marketing for $250 million.  Upon the closing
of the  transaction,  Vastar  transferred its interest in Mirant Americas Energy
Marketing to Mirant and Mirant Americas Energy  Marketing became Mirant's wholly
owned  indirect  subsidiary  and has been  consolidated  in  Mirant's  financial
statements since August 10, 2000.

     In August 2000, as part of Mirant's  acquisition of the remaining  interest
in Mirant Americas Energy  Marketing,  Mirant Americas Energy Marketing  amended
its gas  purchase  and sale  agreement  with  Vastar  to fix  Vastar's  delivery
obligations  to  1,075,000  MMBtu per day through  2001,  975,000  MMBtu per day
during 2002, and 875,000 MMBtu per day during 2003 through 2007.

     Mirant  Americas  Energy  Marketing  entered  into a three  and a half year
agreement, effective June 1, 2000, to manage the assets of Pan-Alberta Gas Ltd.,
the second-largest Canadian exporter of natural gas. As part of the transaction,
Mirant  Americas Energy  Marketing  subleased  Pan-Alberta's  office in Calgary,
Alberta and will administer Pan-Alberta's businesses with Mirant Americas Energy
Marketing's Atlanta-

                                       5
<PAGE>

based  marketing  and  risk  management  operations.   Pan-Alberta  retains  all
obligations  for current  transportation  and  customer  agreements,  and Mirant
Americas Energy  Marketing will be entitled to use the assets at its discretion.
Mirant  Americas  Energy  Marketing can optimize the use of these assets,  which
include  8.3  billion  cubic  feet  of  gas  storage  capacity  as  part  of the
transaction.

     In addition  to the  agreements  related to  Pan-Alberta,  Mirant  Americas
Energy Marketing announced on July 10, 2000 a similar  relationship with CanWest
Gas  Supply,  Inc.,  which is the  largest  natural  gas  aggregator  in British
Columbia,  marketing  the gas supply of more than 100  Canadian  producers.  The
Pan-Alberta  infrastructure  will be used to manage the  additional  500 million
cubic feet per day previously marketed by CanWest Gas Supply, Inc.

     Mirant  Americas  Energy  Marketing  has  formed a new  independent  energy
trading consortium with 14 of the largest gas and energy marketers in the United
States. In July 2000, the consortium joined the  Intercontinental  Exchange,  an
internet  commodity  marketplace  based in Atlanta.  The platform  began trading
energy  commodities  during  the  fourth  quarter of 2000.  Mirant  expects  the
platform will provide  increased trading liquidity and market efficiency as well
as cost savings.

     During  2000,  Mirant  Americas  Energy  Marketing  continued to enter into
numerous natural gas transportation and storage agreements to ensure a reliable,
cost-effective  supply of natural gas for Mirant's U.S. generating assets and to
obtain control of gas assets through financial contracts.

     In December  2000,  Mirant  Americas  Energy  Marketing  signed a long-term
agreement to manage all natural gas  transportation and storage capacity for the
primary Delaware and Maryland natural gas supply assets of Chesapeake  Utilities
Corporation.

     In January 2001,  Mirant Americas Energy  Marketing  signed an agreement to
manage   approximately  19  billion  cubic  feet  of  natural  gas  storage  and
approximately  .8 billion  cubic feet of  transportation  capacity  with Niagara
Mohawk Holding, Inc.

     In January 2001,  Mirant Americas Energy Marketing agreed to supply natural
gas to and manage plant  output of 120 MW of capacity of a  California  facility
owned by Thermo Ecotek.

   Acquisition of Hyder:

     On September  15,  2000,  WPD Limited,  a company  controlled  jointly by a
subsidiary of Mirant and PPL Corporation ("PPL"),  acquired control of Hyder. In
December 2000,  WPD Limited  completed its  acquisition  of all the  outstanding
shares of Hyder plc for a total purchase price for the ordinary  shares of Hyder
of approximately  (pound)565 million  (approximately $844 million), or 365 pence
(approximately  $5.45) per Hyder share,  plus the  assumption  of  approximately
(pound)2.1 billion (approximately $3.1 billion) of debt as of March 31, 2000. At
December  31,  2000,  Mirant had a 49%  economic  interest and 50% of the voting
control in WPD Limited.

     At the  time of the  acquisition,  Hyder  was  the  parent  of a  group  of
companies  whose  principal  operating  activities  included  the  provision  of
regulated water and wastewater services for substantially the whole of Wales and
electricity  distribution  in  South  Wales.  It also  owned  subsidiaries  that
operated in the managed services and infrastructure businesses, virtually all of
which have since been sold.

     On January 31, 2001, the water  industry  regulator gave its clearance to a
proposed sale of the water and  wastewater  treatment  business.  On February 5,
2001, a binding  agreement was signed with a third party to sell this  business.
Both the  sale  agreement  and the  regulator's  clearance  are  subject  to the
satisfaction of certain conditions.

     On March 16, 2001, ownership of South Wales Electricity plc was transferred
from WPD Limited to WPDH,  another company controlled jointly by a subsidiary of
Mirant and PPL. At the same time, other assets were transferred from WPD Limited
to WPDH together with the effective transfer of debt.

                                       6
<PAGE>
   Acquisition of PEPCO Generation Assets:

     On December 19, 2000,  Mirant,  through its  subsidiaries and together with
lessors in a lease  transaction,  closed the  acquisition of PEPCO's  generation
assets in Maryland and  Virginia.  The net  purchase  price for these assets was
approximately  $2.75  billion,   which  included  working  capital  and  capital
expenditures.  As part of the acquisition,  Mirant also assumed net liabilities,
primarily  transition  power  agreements  and  obligations  under power purchase
agreements,  of approximately $2.4 billion.  The acquired assets consist of four
generating  stations totaling 5,154 MW, three separate coal ash storage areas, a
51.5-mile oil pipeline,  and an engineering and maintenance service facility and
related  assets.  The Company also entered into a lease of the land on which the
Potomac River station is located,  power sales  agreements  with PEPCO under two
separate  transition  power  agreements  with terms of up to four years, a local
area support agreement with PEPCO requiring the Potomac River station to operate
for  purposes of  supporting a local load pocket,  a  three-year  operation  and
maintenance  agreement  for  PEPCO's  two  generating  stations  located  in the
District  of  Columbia  and the  assumption  of five of PEPCO's  power  purchase
agreements totaling 735 MW.

     The Mirant  Mid-Atlantic  assets provide a range of capacity across the PJM
Interconnection  dispatch curve.  The assets provide  approximately  2,699 MW of
average  (base load)  capacity,  1,400 MW of cycling  capacity,  and 1,233 MW of
peaking  capacity.  Likewise,  the  assets  consume  a wide  range of fuels  and
approximately 94% of the total generating capacity can burn multiple fuels.

     The Mirant Mid-Atlantic assets and leased facilities are located in the PJM
Interconnection  market,  which  encompasses all or a part of Pennsylvania,  New
Jersey, Maryland, Virginia and the District of Columbia. The PJM Interconnection
market is the largest  centrally-dispatched power pool in the United States with
over 220,000  gigawatt-hours  ("GWh") of annual sales.  The PJM  Interconnection
market enables the  participants to buy and sell energy and ancillary  services,
schedule bilateral transactions and reserve transmission service.

   Ilijan:

     On November  13,  2000,  Mirant  announced  that it  acquired,  through its
subsidiaries,  a 20% interest in a 1,251MW power station under  construction  in
the Philippines for  approximately $35 million.  The station,  fueled by natural
gas,  includes  a  20-year  energy  conversion  agreement  with  National  Power
Corporation  ("NPC").  NPC  receives  the  rights  to 1,200 MW of the  station's
capacity.  Mirant's partners in the project are Korea Electric Power Corporation
(51%), Mitsubishi Corporation (21%), and Kyushu Electric Corporation (8%).

     NPC is responsible for constructing a new 500 kilovolt ("kV")  transmission
line and has awarded the  contract to Sumitomo.  Construction  commenced in June
2000. The source of the natural gas is the Malampaya gas field in Palawan, which
is being developed by a consortium of Shell,  Texaco and the Philippine National
Oil Company.  The offshore and on-shore pipelines are reportedly on schedule for
completion  by October 2001,  consistent  with the schedule for the Ilijan power
plant.

     The  plant  is  currently  being  constructed  by  a  consortium  of United
Engineers  International,  Inc., Raytheon-Ebasco Overseas  Ltd. (now  Washington
Power),  and  Mitsubishi  Heavy  Industries.  Mirant expects the construction to
be completed on schedule in the first quarter of 2002.

   Jamaica Public Service Company Limited:

     Jamaica Public  Service  Company  Limited  ("JPSCo") is the state owned and
operated fully integrated  electric utility on the island of Jamaica,  the third
largest  island in the  Caribbean.  The utility owns and operates 23  generating
plants,  53 substations,  and 1,115 and 11,741  kilometers of  transmission  and
distribution  lines,  respectively.  JPSCo generates,  purchases,  and transmits
power  to  approximately   480,000  residential,   government,   commercial  and
industrial customers on the island.

                                       7
<PAGE>
     Mirant is proposing to acquire 80% of the stock of JPSCo, the sole provider
of electricity on the island,  for $201 million.  The acquisition is anticipated
to close on March 30, 2001.  Currently,  JPSCo is 99% owned by the Government of
Jamaica ("GOJ") and operates under a 39-year All-Island Electric License.  Under
the  provisions  of the  license,  the  Company  is under the  direction  of the
Ministry of Mining and Energy and is subject to monitoring  and rate  regulation
by the Office of Utilities  Regulation  ("OUR").  Including  capacity  available
under power  purchase  agreements  with IPPs on the island,  JPSCo has  electric
generation  capacity  of 668.4 MW and net  power  generation  of 3,159 GWh as of
March 31, 2000.

   Italy:

     Mirant, through an alliance with Energia Italiana S.p.A. and Verbund Italia
S.r.l., is  pursuing  the  acquisition of  certain  generating  assets  owned by
Elettrogen  S.p.A.,  the first bundle (5,400 MW) of generation  assets that Enel
S.p.A. is being required to sell.  The alliance submitted a non-binding offer on
February 9, 2001.

Construction Projects

   Wisconsin:

     On May 8, 2000,  Mirant commenced  operations of its Neenah plant, a 302 MW
natural gas-fired electric  generating plant located in Neenah,  Wisconsin.  The
plant provides electricity during periods of very high (peak) demand. All of the
capacity and electric power output from the plant are sold to Wisconsin Electric
Power Company  under an  eight-year  power  purchase  agreement  entered into in
August 1998.

     The  Company  has  approved  the  construction  of an 894 MW power plant in
Portage County,  Wisconsin.  The planned project is a 586 MW combined-cycle unit
and four peaking units totaling 308 MW.  Assuming  completion of state and local
permitting, the plant should be operational by summer of 2003.

   Michigan:

     Mirant  is  currently  developing  an 848  MW  natural  gas-fired  electric
generating  plant at a  previously  undeveloped  (greenfield)  site in  Zeeland,
Michigan. The Zeeland project is being built in two phases.

     Phase  I is a 298  MW  combustion  turbine  facility  designed  to  provide
electricity  during  peak  demand  periods.  This  phase is  expected  to become
operational  June 2001.  Mirant Zeeland,  LLC ("Mirant  Zeeland") will initially
sell all of the Phase I capacity and electricity power output to Mirant Americas
Energy  Marketing  under a five-year power purchase  agreement.  Mirant Americas
Energy  Marketing  has in turn agreed to sell the output of this phase to Engage
Energy.

     Phase II is a 550 MW combined-cycle facility which would allow the plant to
operate during periods of base load and higher than average  (intermediate load)
demand.  This phase is expected to be operational by July 2002.  Mirant plans to
sell the plant's  capacity to customers  in the East  Central  Area  Reliability
Council  market  through  marketing   agreements  with  Mirant  Americas  Energy
Marketing.

     Mirant has acquired the right to complete  development  of a 560 MW project
in Wyandotte,  Michigan,  south of Detroit.  The  development  will be on a site
formerly used for a variety of industrial purposes. The Company has obtained air
permits  for the  site.  This  project  will use  combined-cycle  configuration.
Expected operation is to begin summer 2003.

                                       8
<PAGE>
   California:

     Mirant is currently planning to expand its plants in the San Francisco area
by  1,050  MW.  In  January  2000,   Mirant  Delta  filed  an  application   for
certification  with the California Energy Commission for a proposed expansion of
the  Contra  Costa  plant.  Mirant  Potrero  filed  a  similar  application  for
certification  in May 2000.  Mirant expects these  projects to begin  commercial
operation during 2003.

   Nevada:

      Mirant is  developing a 500 MW natural  gas-fired  combined  cycle project
fifteen miles northeast of Las Vegas,  Nevada in the Apex  industrial  park. The
power  project is scheduled  for  commercial  operation in the first  quarter of
2003.  Mirant is also in the permitting  process of an additional 500 MW natural
gas-fired  combined cycle plant to be built on the Apex site.  Mirant expects to
complete the permitting  process by June 2001 and to begin commercial  operation
in the third  quarter  of 2003.  The Apex  project  will sell its  capacity  and
electric  power output in southern  Nevada,  desert  southwest or the California
SP-15  markets.  Mirant  Americas  Energy  Marketing  will assist the project in
marketing its output and procuring its fuel.

   New England:

     Mirant is planning to add approximately 835 MW total capacity to the plants
in Cambridge and  Sandwich,  Massachusetts,  and expects to commence  commercial
operation of these expansions in 2002 and 2004.

   New York:

    In March  2000,  Mirant  filed  an  application  with the  State of New York
Department of Public  Service for  authorization  to construct a 785 MW combined
cycle  facility on a 98-acre site  adjacent to the Bowline  plant.  In addition,
Mirant has filed an application  with the New York  Department of Public Service
to construct a 4.2-mile  24-inch natural gas line to meet the current and future
natural gas needs of the Bowline plant.  This line would connect directly to the
existing  Columbia gas transmission  system.  Mirant expects to start commercial
operation of the new power facility in 2003 and the new gas line in 2001.

   Texas:

     Mirant Texas, LP is currently  constructing Units 3 and 4, representing 248
MW,  of  its  natural  gas-fired  generating  plant  in  the  Dallas-Fort  Worth
metropolitan  area.  Mirant  expects these units to become  operational  in June
2001.  Mirant  Texas,  LP was formed to develop,  construct and operate a 546 MW
natural   gas-fired   electric   generating  plant  in  the  Dallas-Fort   Worth
metropolitan  area.  The  plant  will  operate  a total of four  units  with two
operating  during periods of peak demand and a third  combustion  turbine with a
corresponding steam turbine that can be operated during periods of base load and
intermediate  load demand (a combined-cycle  unit).  Units 1 and 2, representing
308 MW,  became  operational  on June 1,  2000.  Construction  has  begun on the
remaining 248 MW, Units 3 and 4, which Mirant  expects to become  operational in
June 2001.

   Arkansas:

     Mirant is currently constructing a 550 MW natural gas-fired, combined-cycle
project in  Wrightsville,  Arkansas.  The power project,  which is scheduled for
commercial  operation in June 2002, is being  undertaken by a limited  liability
company jointly owned by a subsidiary of Mirant (51%) and a subsidiary of Kinder
Morgan  (49%).  The  Kinder  Morgan  subsidiary  has   responsibility   for  the
engineering, procurement and construction of the power plant.

                                       9
<PAGE>

   Louisiana:

     A subsidiary of Mirant is currently constructing a 726 MW natural gas-fired
power plant at a previously  undeveloped  site near Perryville,  Louisiana.  The
project  subsidiary  has been  organized as a limited  liability  company  named
Perryville Energy Partners, LLC ("PEP") jointly owned by a subsidiary of Mirant,
and a subsidiary of Cleco  Corporation.  Each of the owners holds a 50% interest
in  the  limited  liability  company.  PEP  is in  the  process  of  negotiating
definitive project  agreements,  including a credit facility,  an operations and
maintenance   agreement  and  an  engineering,   procurement  and   construction
agreement.

     Mirant expects the first phase of the project, a 150 MW gas turbine peaking
plant  designed  to  operate  in periods  of peak  demand,  to be in  commercial
operation in the summer of 2001.  The second phase of the project,  which Mirant
expects to become  commercial  in  mid-2002,  is a 550 MW  combined-cycle  plant
designed  to supply  electricity  during  periods of base load and  intermediate
demand.  The project will primarily  serve the wholesale power market defined by
Entergy's  transmission  system.  PEP  has  agreed  to  sell  the  capacity  and
electricity  generated by the plant to Mirant Americas Energy  Marketing under a
20-year tolling agreement.

   Virginia:

     Mirant is planning to build a natural  gas-fueled  power plant in Danville,
Virginia. The initial phase is a 320 MW facility designed to provide electricity
during peak demand periods.  Assuming timely completion of appropriate state and
local  permitting,  Mirant plans to have the power plant  operational by 2003 or
2004. The power plant could potentially have 870 MW of generation  capacity when
expanded to a combined-cycle  configuration.  The conversion to a combined-cycle
configuration  would occur if Mirant  determines  that the power plant is needed
for its day-to-day electricity production needs.

   Illinois:

     Mirant is planning to build a 480 MW natural  gas-fueled power plant in the
industrial  center of  Rockdale,  Illinois,  a town  southwest  of Chicago.  The
proposed plant is a 480 MW facility designed to provide  electricity during peak
demand periods. Assuming timely completion of state and local permitting, Mirant
plans to have the power plant operational by 2003 or 2004.

   Indiana:

     Mirant approved  development of a power plant in Terre Haute,  Indiana. The
planned design calls for two turbines to initially run as a 300 MW peaking plant
in 2002.  The  permitting  process is underway,  and Mirant hopes to convert the
plant  to a  combined-cycle  configuration  by 2004  with  560 MW of  base  load
generation capacity.

   Maryland:

     Mirant plans to seek approval from the Maryland  Public Service  Commission
to add new natural gas-fired  electricity  generating  capacity at the Dickerson
Generating   Station  in  northwest   Montgomery  County,   Maryland.   Mirant's
Mid-Atlantic  subsidiary is planning to build two gas-fired  combustion turbines
equipped with a waste heat recovery system. The proposed  combined-cycle  system
would generate a total of 530 MW. The project also includes the  installation of
a 210 MW heat steam  generator  on two  existing  combustion  turbines to create
another combined cycle unit. The proposal would increase the Dickerson station's
generating capacity by 740 MW to a total of 1,577 MW.

   Italy:

     Mirant  with a  local  Italian  partner,  Techint  Finanziaria  S.r.l.,  is
developing a number of sites around Italy for the development  and  construction
of three to four 380 MW plants.  Mirant has filed its first Environmental Impact
Assessment  ("EIA") to build a 380 MW  combined-cycle  gas turbine  plant in the
Abruzzo  region of central  Italy.  The expected  permitting  process  period is
approximately 12 months.

                                       10
<PAGE>

BUSINESS SEGMENTS

     For selected financial information about Segments see Note 16 of the "Notes
to Consolidated Financial Statements".

AMERICAS

     Mirant has ownership and control of power generation and natural gas assets
and energy  marketing  operations in North America and generation,  transmission
and distribution operations in South America and the Caribbean.  Mirant owns and
leases power plants in North  America with a total  generation  capacity of over
12,300  MW, and it  controls  over 2,600 MW of  additional  generating  capacity
through  management  contracts.  This includes the  generating  assets  recently
acquired in Maryland and Virginia,  which when combined with the Company's other
generating  assets gives Mirant  generation assets within each of the major U.S.
markets which the Company has strategically  targeted.  Mirant also has projects
under  development or pending  acquisitions  of over 8,500 MW. In North America,
Mirant also  controls  access to  approximately  4 billion cubic feet per day of
natural gas  production,  more than 2 billion  cubic feet per day of natural gas
transportation and almost 40 billion cubic feet of natural gas storage.  Through
Mirant  Americas  Energy  Marketing,   Mirant  markets  and  trades  energy  and
energy-linked  commodities,  including  electricity,  gas,  coal,  oil, pulp and
paper,  weather  derivatives  and emission  allowances.  Mirant  Americas Energy
Marketing is one of the leading electricity and gas marketers in the U.S. In the
Caribbean  and  South  America,  Mirant  has  ownership  interests  in  electric
utilities, power plants and transmission facilities. These assets are located in
the Bahamas,  Trinidad and Tobago, Brazil and Chile. Mirant is pursuing the sale
of its Chilean  subsidiary and the acquisition of 80% of the outstanding  shares
of the Jamaica Public Service Company.

   Mirant Americas Energy Marketing

     Mirant Americas Energy Marketing  conducts marketing and risk management of
energy and energy-linked commodities,  including electricity,  natural gas, oil,
coal and emissions allowances in North America. Mirant Americas Energy Marketing
procures fuel for, and markets electricity generated by, Mirant's North American
facilities that are not committed under long-term contracts. In addition, Mirant
Americas Energy Marketing  provides  marketing of these and other  energy-linked
commodities to third parties. Mirant Americas Energy Marketing owns two seats on
and is a member of the New York Mercantile Exchange.

     Mirant Americas Energy Marketing  provides a full range of asset management
services  and  risk   management   products.   Services   include   natural  gas
transportation   management,    storage   optimization,   and   full   wholesale
requirements.  As part of its agreement with Brazos  Generation and Transmission
Cooperative,  Mirant  Americas  Energy  Marketing  meets Brazos' full  wholesale
requirements  and has the ability to market excess energy from Brazos' more than
1,650 MW of generating and contractual capacity.

   U.S. Generating Assets

   Mirant California:

     Mirant's wholly owned subsidiary, Mirant California, LLC through its wholly
owned  subsidiaries,  owns generating assets in California with a total capacity
of 2,938 MW, which include facilities that operate during both intermediate load
and peak demand levels. These plants are located in close proximity to or in San
Francisco.  The  output  from the plants is sold into the  California  market by
means of daily and hourly  energy sales to the  California  Department  of Water

                                       11
<PAGE>

Resources ("DWR"), bilateral agreements and reliability-must-run  contracts with
the CAISO for sales of real-time energy and ancillary services to the CAISO.

     The plants have entered into fuel supply,  service and marketing agreements
with Mirant  Americas  Energy  Marketing  through which Mirant  Americas  Energy
Marketing:  (i) supplies fuel to the plants; (ii) bids, schedules and dispatches
the units in the market;  (iii) handles the settlement  and billing  process for
counterparties;  and (iv) assists in the  administration  of and compliance with
Mirant  California's  obligations  under its  contracts  with the  CAISO.  For a
discussion on developments  in California and the western power markets,  please
see the "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Litigation and Other Contingencies" provided herein.

   Mirant New England:

     Mirant's wholly owned  subsidiary,  Mirant New England,  Inc.  ("Mirant New
England"),  owns various power  plants,  with a total  capacity of 1,238MW.  The
plants in Cambridge and Sandwich,  Massachusetts,  which are designed to operate
during  periods  of  intermediate  load and peak  demand,  are  located in close
proximity to Boston, a major center for electricity  demand in New England.  The
Martha's  Vineyard  diesel  units supply  electricity  on the island of Martha's
Vineyard  during  periods  of high  demand  or in the  event  of a  transmission
interruption.  The  Wyman  Unit  4  Interest  is a  1.4325%  ownership  interest
(equivalent  to 9 MW) in the 614.5 MW Wyman Unit 4 located on  Cousin's  Island,
Yarmouth,  Maine.  It is primarily  owned and operated by the Florida  Power and
Light  Group.  The project  companies  have  entered  into fuel  supply,  energy
services and power marketing agreements with Mirant Americas Energy Marketing.

   Mirant New York:

     Mirant's wholly owned subsidiaries  (collectively referred to as Mirant New
York) own various power plants and related  assets in the state of New York with
a total  generating  capacity of 1,668 MW. The project  companies  have  various
agreements with Orange and Rockland  Utilities through July 1, 2004, under which
Mirant New York will  operate the plants as called  upon by Orange and  Rockland
Utilities to ensure its system  reliability.  The project companies also entered
into  various  transition  agreements  with Orange and  Rockland  Utilities  and
Consolidated  Edison to provide  energy  and  installed  capacity  to Orange and
Rockland  Utilities  and  Consolidated  Edison for  specified  periods after the
closing.  A transition power sales agreement with Orange and Rockland  Utilities
under which Mirant  Americas  Energy  Marketing  was  obligated to sell capacity
(under an  assignment  from Mirant New York)  expired on October 31,  2000.  The
project  companies  have  entered into fuel  supply,  energy  services and power
marketing agreements with Mirant Americas Energy Marketing.

   Mirant Mid-Atlantic:

     See the description of Mirant  Mid-Atlantic  assets in the  "Acquisition of
PEPCO   Generation   Assets"  in  the  section  titled   "Completed  or  Planned
Acquisitions" above.

   State Line:

     Mirant through a subsidiary,  State Line Energy, owns the 515 MW State Line
facility  located  near  Chicago,  a major center of  electricity  demand in the
Midwest.  Exelon owns the switchyard and transmission  facilities connecting the
State  Line  station  to the  Exelon  transmission  system,  as well as the coal
inventory and the emissions allowances associated with the State Line facility.

     State Line Energy  supplies  power to Com Ed under a 15-year power purchase
agreement  expiring in 2012. Exelon territory  consists of northern Illinois and
contains 70% of Illinois'  population.  In its regulated  service  area,  Com Ed
delivers power to approximately 3.4 million customers.

                                       12
<PAGE>
   Birchwood:

     Birchwood is a limited  partnership which owns the nominal 242 MW Birchwood
power  facility.  The  facility  is  a  coal-fired  cogeneration  plant  located
approximately 12 miles southeast of Fredericksburg,  Virginia. Mirant owns a 50%
interest in Birchwood, with the remaining 50% owned by a subsidiary of Cogentrix
Energy, Inc. Power generated at the plant is sold to Virginia Power.

     Birchwood  sells  electricity  to  Virginia  Power  under a  25-year  power
purchase  agreement.  Under the power purchase  agreement,  Birchwood  sells all
electricity generated by the facility to Virginia Power through 2021.

   Mirant Wisconsin:

     See the  description of Mirant  Wisconsin  assets under  "Wisconsin" in the
section titled "Construction Projects" above.

   Mirant Wichita Falls:

     Mirant Wichita Falls, LP, an 77 MW gas-fired electric  generating plant, is
designed for periods of base load demand,  consisting  of three gas turbines and
one steam  turbine,  fueled by natural  gas.  The  turbines use propane gas as a
backup  fuel.  The  facility is operated  by  Vetrotex  CertainTeed  Corporation
("Vetrotex")  under  an  operations  and  steam  sales  agreement.   Under  this
agreement,  Vetrotex  also  purchases  steam from the plant.  In  addition,  the
Company has entered  into a four-year  tolling  agreement  with Mirant  Americas
Energy Marketing for capacity and electricity generated by the plant.

   Mirant Texas:

     See the  description  of Mirant Texas  assets under  "Texas" in the section
titled "Construction Projects" above.

   Mirant Americas Energy Capital, LP

     In February 1999, the Company formed Mirant Americas Energy Capital,  LP to
engage in the business of providing secured financing to proven  independent oil
and gas producers for the purpose of developing, acquiring or refinancing and/or
producing oil and gas  properties in North America as a way of obtaining  rights
to marketable oil and natural gas.  Mirant  believes that Mirant Americas Energy
Capital  also  enables  Mirant  Americas  Energy   Marketing  to  aggregate  gas
commodities for its marketing efforts. Typically, Mirant Americas Energy Capital
provides financing in exchange for the rights to market those commodities, which
rights would be exercised by Mirant Americas Energy  Marketing.  Mirant Americas
Energy  Capital  plans  to  utilize  various  structures  for  its  investments,
including  senior  secured  debt,  volumetric  production  payments,  prepayment
purchases, equity participation and mezzanine financings.  Mirant expects all of
Mirant  Americas  Energy  Capital's  investments to be secured by the underlying
commodity  available for  extraction  based on an  independent  appraisal of the
value of the assets and for repayment to be made from production proceeds.

     All of Mirant Americas  Energy  Capital's loans are secured with collateral
in  excess of the loan  amounts.  In  connection  with its  investments,  Mirant
Americas  Energy  Capital  intends  to realize  returns  from  interest  on debt
instruments, marketing rights, royalty income, equity and warrants. In addition,
Mirant  Americas Energy Capital  provides price risk management  services to its
customers. Mirant Americas Energy Capital has entered into a marketing agreement
with Mirant  Americas  Energy  Marketing  under  which  Mirant  Americas  Energy
Marketing has a right of first offer with respect to energy commodities obtained
by Mirant Americas Energy Capital.

                                       13
<PAGE>
     The Caribbean

   Freeport Power Company Limited ("Freeport Power"):

     Through  its  subsidiaries,   Mirant  owns  55.4%  of  Freeport  Power,  an
integrated utility that generates, transmits,  distributes and sells electricity
on Grand Bahama Island. It operates oil-fired generation facilities with a total
capacity of 126 MW and provides electricity to approximately 16,500 residential,
commercial and industrial customers on the island.

     Freeport Power has the exclusive  right and  obligation to supply  electric
power to Grand Bahama Island.  Freeport  Power's rates are approved by the Grand
Bahama Port Authority.

   Power Generation Company of Trinidad and Tobago ("PowerGen"):

     Through its subsidiaries,  Mirant owns a 39% interest in PowerGen,  a 1,045
MW power  generation  company  that owns and  operates  three  gas-fired  plants
located on the island of Trinidad in the Caribbean.  The electricity produced by
PowerGen is provided to the  Trinidad  and Tobago  Electricity  Commission,  the
state-owned  transmission and distribution monopoly, which serves nearly 300,000
customers  on the islands of Trinidad  and Tobago and which holds a 51% interest
in PowerGen.

     PowerGen initially entered into a 15-year power purchase agreement with the
Trinidad and Tobago Electricity Commission,  which expires in 2009. The Trinidad
and  Tobago  Electricity  Commission's  obligations  under  the  Trinidad  power
purchase agreement are unconditionally  guaranteed by the government of Trinidad
and Tobago.

     Since the acquisition of the facilities in 1994, PowerGen has substantially
improved the operations of the power plants.  During the four years prior to the
acquisition,  the plants were available for operation  approximately  65% of the
time. Since the acquisition,  the operating availability of these facilities has
risen to approximately 82%. PowerGen supplies approximately 74% of the energy in
Trinidad and Tobago. The InnCogen power plant, with an installed capacity of 225
MW of capacity, is the only other generation facility in Trinidad.

   South America

   CEMIG:

     Mirant through its subsidiaries  owns an indirect economic interest of 3.6%
in CEMIG, a fully integrated utility that generates, transmits,  distributes and
sells  electricity in the southeast  region of Brazil.  Mirant's  subsidiary SEB
(partners  are  The  AES   Corporation  and   institutional   investors)  has  a
shareholders agreement with the State of Minas Gerais (which retained a majority
of the CEMIG voting  shares).  The  agreement  establishes,  among other things,
SEB's vote in the  management  of CEMIG.  It grants SEB the right to elect three
members of the eight-member  management  council and grants SEB veto rights over
key operating issues such as significant changes in the budget. In addition, SEB
may elect four of the 11 members of the board of directors of CEMIG.

     CEMIG is the second largest Brazilian electric company,  as measured by GWh
of energy sold, providing approximately 97% of the electricity consumed in Minas
Gerais.  Minas  Gerais  is  the  second  most  populous  state  in  Brazil  with
approximately 17 million residents. Minas Gerais is one of the most mineral-rich
states  in  Brazil  and  has an  extensive  watershed.  Minas  Gerais  is also a
principal   place  of   business   for   companies   that  are  among  the  most
energy-intensive in  the  region  including  companies in the aluminum,  cement,
steel and mining industries.

     CEMIG has a  distribution  concession in Minas Gerais,  covering an area of
approximately  216,300 square miles that expires on February 18, 2016. CEMIG may

                                       14
<PAGE>

apply for a 20-year extension of the concession. CEMIG has approximately 200,000
miles of transmission  and  distribution  lines.  CEMIG supplies  electricity to
approximately  five million  customers and has added an average of approximately
200,000 new customers annually.

     Virtually  all of  CEMIG's  generation  capacity  is  hydroelectric.  As of
December 31, 2000,  CEMIG operated 37  hydroelectric  power plants,  two thermal
plants and one wind farm. Seven  hydroelectric  plants account for approximately
92% of CEMIG's total capacity of 4,955 MW.

   EDELNOR:

     Mirant,  through  its  subsidiaries,  has an 82.3%  ownership  interest  in
EDELNOR,  a partially  integrated  electric  utility  engaged in the generation,
transmission and marketing of electric power in the Sistema  Interconectado  del
Norte  Grande,  an  interconnected  power  grid in  northern  Chile.  The  major
purchasers of  electricity  in the Sistema  Interconectado  del Norte Grande are
industrial  mining  companies that produce copper,  Chile's largest export,  and
five electric distribution  companies that provide power to the region's 740,000
inhabitants and to some small industrial and commercial customers.

     EDELNOR owns generating  facilities with a total capacity of  approximately
538 MW, and operates 567MW,  including 28 MW which it leases.  EDELNOR also owns
and  operates  approximately  1,060  kilometers  (657  miles)  of  high  voltage
transmission lines, 15 substations and other ancillary transmission facilities.

     EDELNOR  currently owns an approximate 21% interest in Nor Andino,  a 1,066
kilometers (661 miles) natural gas pipeline project which transports natural gas
from gas fields in northern  Argentina to northern  Chile.  EDELNOR has invested
approximately  $91  million  in the  project.  Electroandina,  a  subsidiary  of
Tractebel,  has signed  U.S.  dollar-indexed,  substantially  "take-or-pay"  gas
transportation agreements with Nor Andino to supply two 412 MW gas-fired plants.
These  contracts  began  during the last  quarter of 1999.  EDELNOR has signed a
similar agreement sufficient to supply its Mejillones III combined-cycle unit.

     In December  1998,  Mirant  announced its intention and continues to pursue
the sale of its interest in EDELNOR.

EUROPE

     In Europe,  Mirant owns a 49% economic  interest in WPDH which  distributes
electricity  to  approximately  1.4 million  end-users in southwest  England and
approximately  1  million  end-users  in South  Wales.  Mirant  also  owns a 49%
economic interest in WPD Limited,  which provides water and wastewater treatment
services  to most of Wales  and  adjoining  parts of  England.  A  binding  sale
agreement has been signed to sell the water and  wastewater  treatment  services
business, subject to the satisfaction of certain conditions.  Mirant also owns a
26% interest in Bewag, an electric  utility serving over 2 million  customers in
Berlin, Germany.  Mirant's European marketing and risk management business began
trading power in the Nordic energy  markets in 1999.  Mirant began trading power
in Germany,  the  Netherlands  and  Switzerland in 2000 and expects to start gas
trading  in the UK on the  International  Petroleum  Exchange  ("IPE")  in 2001.
Mirant's other target markets for energy  marketing and trading include Austria,
Italy and central Europe.

     Mirant  Corporation  has  begun  permitting  activities  in  Italy  for the
construction of greenfield  projects and is pursuing  acquisition of Elettrogen,
the first  bundle of  generation  assets  that Enel is being  required  to sell.
Mirant has signed an agreement with General  Electric to purchase nine equipment
packages for use throughout Europe.

   Bewag:

     Mirant  holds a 26% economic  interest  and 28.68% of the voting  rights of

                                       15
<PAGE>

Bewag.  Bewag is a vertically  integrated  utility with 29 power and steam units
generating  2,955 MW of  electricity  and 5,740 MW of  thermal  energy  sold for
heating.  Electric  power is transmitted  to Bewag's  approximately  2.2 million
electric   customers  over  39,000   kilometers  of  cable,  most  of  which  is
underground.  In 2000, both sides of Berlin were  interconnected  with the supra
regional German 380 kV by a newly constructed 380 kV line.

     Bewag earns  approximately  75% of its revenues from electricity  sales. In
addition to  electricity,  Bewag  provides  district  heating for  approximately
500,000  residential and commercial  customers.  Bewag has an approximate market
share of 30% of the  heating  market  in Berlin  through  its  district  heating
system. Heat sales comprise approximately 22% of Bewag's revenue.

     Mirant  has  a  30-year  shareholders  agreement  with  PreussenElektra  AG
("Preussen"),   a  subsidiary   of  VEBA  AG   ("VEBA"),   and   Bayernwerk   AG
("Bayernwerk"),  a  subsidiary  of VIAG AG and VIAG AG ("VIAG")  that  specifies
governance issues and key financial elements.  Under the shareholders agreement,
decisions  on  major  business  items  (e.g.,  major  capital   investments  and
divestments,  establishment  of new business  lines,  amount of the dividend and
ratification  of Bewag's  annually  revised  five-year  business  plan)  require
approval by Mirant and Bayernwerk,  effectively  giving both members veto rights
over major decisions made by the utility.

    On June 16,  2000,  VEBA and VIAG merged to create a new company  named E.on
AG. Subsequently, on July 13, 2000, Preussen and Bayernwerk combined to create a
core energy subsidiary known as E.on Energie AG ("E.on  Energie").  E.on Energie
made concessions to the European Union to obtain approval for the merger.  Among
these concessions is the sell-down of several holdings,  including its 49% share
of Bewag,  its  shares in VEAG,  the East  German  generation  and  high-voltage
transmission  company,  and its  shares  in  Laubag,  a lignite  mining  company
supplying most of VEAG's fuel. As part of a separate  merger  approval  process,
the German  utility  RWE has also been  required  to sell its shares in VEAG and
Laubag.  VEAG  has  approximately  7,000  MW of  lignite-fired  and  2,700 MW of
pumped-storage  hydroelectric  power plants,  and has announced its intention of
merging with Laubag. E.on Energie and RWE have announced their intention to sell
their shares in VEAG and Laubag to Hamburgische Electricitaets-Werke AG ("HEW"),
and this  transaction is currently  awaiting  regulatory  approval.  In separate
negotiations  with HEW,  Bewag has  secured an option  expiring  in June 2002 to
increase its holding in VEAG from the current  level of 6.25% to a maximum level
of about 44% should HEW successfully complete the acquisition.

     Mirant has publicly stated its interest in acquiring a controlling position
in Bewag and supporting Bewag's participation in VEAG to strengthen its position
in the market. On August 10, 2000, E.on Energie announced that it had reached an
agreement with Hamburgische Electricitaets-Werke AG (HEW) to sell E.on Energie's
49% share of Bewag  effective  January 1, 2001.  On August 15, 2000,  the Berlin
high court issued a preliminary injunction,  at Mirant's request, to prevent the
sale of E.on  Energie's  shares in Bewag to HEW. This  injunction  was upheld on
December 4, 2000, but has been appealed by E.on Energie.  The appeal proceedings
are still in the early  stages.  The  matter is also in the  process  of binding
arbitration.  E.on  Energie has  submitted  a  counterclaim  to the  arbitrators
seeking,  among  other  things,  recovery  of damages it claims it suffered as a
result of the injunction.  Upon E.on Energie's request,  Mirant instituted legal
proceedings in the state court of Berlin seeking  confirmation of the injunction
of the Berlin  court.  The  outcome of the  pending  proceedings  is  uncertain.
Mirant,  through its subsidiaries,  has made an offer to purchase E.on Energie's
49%  interest in Bewag.  Mirant has also stated its  willingness  to negotiate a
settlement with E.on Energie and HEW that would result in joint control of Bewag
by HEW and Mirant.

   Regulatory Environment:

     In September 1999, the Federal Cartel Authority  announced that Bewag would
have to allow access by other  suppliers to  approximately  20% of the 400 MW of
transmission capacity into Berlin which is controlled by Bewag. Since completion
of the high voltage line in November 2000,  other power suppliers can now access
the Berlin network as required by the Federal Cartel Authority.

                                       16
<PAGE>

     The  European  Union has  endorsed a directive  which  broadly aims to open
electricity  markets to customer choice and  competition  known as the Directive
Concerning  Common Rules for the Internal Market in Electricity.  In response to
this  directive,  a new German Energy Industry Act was introduced in April 1998.
The Energy Policy Act of 1992 provides for customer  choice for all consumers of
electricity,  and Bewag's customers may now choose their electricity supplier on
a competitive  basis. In accordance with the requirements of the Energy Act, the
six integrated generation companies which own the high voltage grid entered into
two voluntary  agreements  providing for third-party  access to the transmission
system,  subject to the exceptions permitted under the Energy Act. The voluntary
agreements  have led to  published  pricing for  transmission  and  distribution
charges in several  areas of Germany  and  competition  for  customers.  Further
changes in the  regulatory  environment  are expected to  considerably  simplify
third-party  access and lead to a drop in fees.  Mirant believes that Bewag will
need  to  continue  to  reduce  its  costs  and  increase  its  supply   pricing
competitiveness  as a  result  of the  deregulation  of the  German  electricity
market.

   WPD Holdings UK:

     Mirant owns a 49% economic  interest and 50% of the voting control in WPDH,
with the balance of ownership  being held by a subsidiary  of PPL. WPDH owns WPD
and  South  Wales  Electricity  plc.  These are two of the  privatized  regional
electricity  companies  in England  and Wales  licensed to  distribute  and to a
limited extent,  generate electricity.  A distribution company owns, manages and
operates  electricity  power  lines.  The  primary  activity  is the  receipt of
electricity from the national grid  transmission  system and its distribution to
end-users of electricity that are connected to the distribution  company's power
lines.  These  end-users are customers of licensed supply  businesses,  which in
turn are the distribution business customers. Virtually all electricity supplied
to end-users  in WPD's and South Wales  Electricity  plc's areas is  transported
through its distribution  network,  thus providing  distribution  volume that is
stable  from year to year.  WPD and  South  Wales  Electricity  plc are the only
distributor of electricity in their  authorized  areas, and Mirant believes that
economic, environmental and regulatory factors are likely to prevent competitors
from entering the distribution business in their authorized areas.

     WPD's  authorized  area extends  from Bristol and Bath in the  northeast to
Lands End and the Isles of Scilly in the southwest. The largest cities and towns
in this area are Bath, Bristol,  Exeter,  Plymouth and Taunton and the principal
industrial end-users,  in terms of electricity usage, are involved in china clay
extraction, ship repair, fertilizer production,  aerospace, defense engineering,
cement and paper manufacturing and water supply.  WPD's fastest growing category
of  end  user  is  commercial.   Commercial  activity  in  the  area  is  mostly
service-based and includes retail, financial and business services, electronics,
and technology-related businesses. There are approximately 1.4 million end-users
connected to WPD's network.

     South Wales Electricity plc operates the electricity network in South Wales
with  approximately  18,700 kilometers of overhead  electricity lines and 14,300
kilometers  of  underground  cable.  Most of the  population  in South  Wales is
concentrated  in a  coastal  belt to the west and  east of  Cardiff,  and in the
valleys  to the  north of this  belt;  the  remainder  of the  area is  sparsely
populated.  The region has a substantial  manufacturing  sector with the highest
concentration of electronics,  electrical and optical instrument  manufacture in
the UK. South Wales Electricity plc's distribution  network provides electricity
to approximately 1 million end-users.

   Ancillary Businesses:

     WPDH  also  has  ancillary  business   activities  that  support  its  main
electricity distribution businesses.  These include electricity generation, real
estate  and  telecommunications.  WPDH  owns  generating  assets  with  11 MW of
capacity  used to back up the  distribution  network.  In  addition,  WPDH  owns
minority  interests in windfarms and a 15.4% interest in Teesside Power Limited,
owner of a 1,925 MW natural  gas-fired,  combined-cycle  plant. WPDH markets and
develops  real  estate  no longer  used in the  distribution  businesses  and is
developing  an income  stream  from the rental of fiber optic  cables  primarily
attached to the overhead distribution networks.

                                       17
<PAGE>
   WPD Limited UK:

     See the  description of WPD Limited in the  "Acquisition  of Hyder" section
titled "Completed or Planned Acquisitions" above.

   Regulatory Environment:

     The political and  regulatory  climate in the UK has changed  significantly
since  Mirant's  acquisition  of WPD in 1995.  There are  currently  a number of
issues affecting the electricity industry,  including separation of distribution
and supply businesses,  market dominance and new generation build-up. Mirant has
proactively  taken steps to adjust to these changes,  and it does not expect any
of these changes to have a material adverse impact on Mirant.

    Virtually  all  electricity  end-users in England and Wales are connected to
the distribution system of the regional electricity  companies and cannot choose
their electricity  distributor.  The Office of Gas and Electricity  Markets (the
industry  regulator)  controls  the  revenues  earned  by WPD  and  South  Wales
Electricity  plc in their  distribution  businesses  by applying a price control
formula that sets the maximum average price per unit of electricity distributed.
The  elements  used in the formula  are  generally  established  for a five-year
period  and are  subject  to review by the  regulator.  In  December  1999,  the
regulator   published  final  price  proposals   following  its  review  of  the
distribution  revenue for  distribution  businesses.  For WPD,  these  proposals
represent a 20% reduction to distribution prices from April 1, 2000, followed by
a reduction  in real terms of 3% each year after April 1, 2001.  For South Wales
Electricity  plc,  these  proposals  represent a 26%  reduction to  distribution
prices from April 1, 2000, followed by a reduction in real terms of 3% each year
after April 1, 2001.  This price  control is  scheduled  to operate  until March
2005.  In  response,  WPD has  implemented  a plan to  maximize  efficiency  and
customer service as a focused  distribution  company.  In order to achieve these
objectives, WPD has reduced staffing levels by approximately 10%. The reductions
primarily affected  administrative and corporate functions,  with minimal impact
on field staff, in order that customer service is not affected. WPD is currently
evaluating  further   opportunities  to  reduce  ongoing  operating  costs.  The
combination  of  the  two   distribution   businesses  is  expected  to  deliver
significant  savings on overhead  costs,  particularly in respect of information
technology  where the  incremental  cost of a second  distribution  business  is
relatively  low.  Other savings are expected  through the  application  of WPD's
experience in managing information technology projects, in purchasing efficiency
savings and in the use of technology to manage more  efficiently the maintenance
of the South Wales network.

     The  UK  electricity  regulator  is  introducing  competition  in  metering
activities, namely meter fixing (providing, installing, certifying and repairing
meters)  and meter  reading.  Meter  fixing  must be  undertaken  by  authorized
providers,  of which both WPD and South Wales  Electricity plc are two. Based on
the anticipated  regulation,  the original carrying value of metering assets was
impaired. As a result, WPD recorded an impairment loss of (pound)22 million ($31
million)  in the  fourth  quarter  of 1999 to  reflect  the  amount by which the
carrying value of metering assets exceeded their fair value.  The fair value was
determined  by  computing  the  present  value of  estimated  future  cash flows
attributable to the assets.

     WPD and South Wales  Electricity  plc also face a legal  issue  relating to
their use of a pension  surplus to offset the employers' cost of providing early
pensions to terminated employees and certain other items. An independent pension
arbitrator has issued a ruling directing that another  industry  employer should
refund such amounts  with  interest to the  Electricity  Supply  Pension  Scheme
("ESPS"). The ESPS provides pension and other related defined benefits, based on
final pensionable pay, to substantially all employees throughout the electricity
supply  industry in the UK. This ruling is currently being appealed to the House
of Lords; a determination is not expected before April or May 2001. The majority
of both WPD's and South Wales Electricity plc's employees are ESPS members.  The
Company cannot  provide  assurance that this appeal will succeed or that neither
WPD nor South Wales Electricity plc's will be required to refund to the ESPS any
amounts  previously  used to  fund  early  retirement  costs,  which  management

                                       18
<PAGE>
estimates to be approximately  (pound)29  million  (approximately  $43 million).
Under SFAS No. 87  "Accounting  for  Pensions,"  Mirant does not  anticipate any
immediate impact to its net income.

   Mirant Europe B.V. ("Mirant Europe"):

     Mirant  Europe,  based in  Amsterdam,  supports  the  Company's  asset  and
business  development  activities,  acquisition  efforts  and future  generation
facilities in Europe through market research and analysis, financial structuring
consultation and joint marketing efforts.  Mirant Europe's services include fuel
procurement,  risk  management  and control,  and physical and financial  energy
trading. The Company coordinates, where possible, Mirant Europe's infrastructure
development,  risk policies and procedures and overall corporate activities with
Mirant Americas Energy Marketing to ensure that knowledge,  experiences, systems
and governance philosophies are appropriately leveraged.

     During the second quarter of 1999, Mirant Europe began trading  electricity
in the Nordic  power  market,  the most liquid and  liberalized  power market in
Europe at the time. By December 31, 2000, Mirant Europe had traded approximately
210  terawatt-hours  ("TWh") in the Nordic  market,  primarily  on the Nord Pool
power exchange.

     In addition to trading on the Nord Pool power  exchange,  Mirant Europe has
met all requirements  necessary for physical spot trading on the Amsterdam Power
Exchange,  on the Leipzig  Power  Exchange and the European  Energy  Exchange in
Frankfurt. Mirant expects that activity levels will depend on market development
and liquidity of those markets.  Mirant is also able to actively  participate in
physical and  financially  settled  trading  throughout  Mirant's  target market
extending  through  the  North-South  corridor  from the Nordic  region  through
Central Europe to Northern Italy.  Mirant Europe began trading power in Germany,
The  Netherlands  and  Switzerland  in 2000.  Mirant's  other target markets for
energy marketing and trading include Austria, Italy and central Europe.

     Through  coordinated efforts with Mirant's European asset development team,
Mirant Europe intends to position its European  energy business as a significant
industry participant in the wholesale fuels,  electricity  generation and energy
commodity trading segments of the European energy market.  Mirant has identified
the  liberalizing  markets of  Western  and  Central  Europe as the focus of its
growth strategy in Europe.  In conjunction with Mirant's  trading  operations in
Amsterdam,  Mirant's goal is to integrate  generation assets with energy trading
and marketing.  In addition to Mirant's  operations in Amsterdam,  it has opened
regional  marketing  and  business  development  offices in  Germany,  Italy and
Switzerland.  Each office is charged with developing  opportunities ranging from
structured and  origination  transactions to acquisition of assets or control of
assets through  contractual  arrangements.  Mirant  intends to support  existing
participants  in the market  and to forge  alliances  that will  prove  mutually
beneficial with local partners.

ASIA-PACIFIC

     Mirant through wholly owned subsidiaries owns Mirant  Asia-Pacific,  one of
Asia's  largest  independent  power  producers  with  experience in  developing,
constructing, owning and operating electric power generation facilities in Asia.
The  majority of Mirant  Asia-Pacific's  assets are located in the  Philippines,
with  additional  assets  located  in  China  and  Australia.  Mirant  has a net
ownership  interest  in  approximately  3,100 MW of  generation  capacity in the
Philippines  and  China,  with  ownership  interest  in  another  250  MW  under
construction in the Philippines and another 59 MW under construction in China, a
coal mining  company in Australia  and a development  team and  corporate  staff
based  in  Hong  Kong.  Mirant  is  currently  conducting  business  development
activities in six countries:  Australia,  China,  India, the Philippines,  South
Korea and Singapore.  Most of Mirant's revenues in the Asia-Pacific  region have
been derived from  contracts with  government  entities or regional power boards
and are  predominantly  linked to the U. S. dollar to mitigate  foreign currency
exchange risk.

                                       19
<PAGE>
   Philippines

     Mirant  Asia-Pacific  has a net  ownership  interest  in six  plants in the
Philippines  totaling 2,040 MW of capacity.  Mirant  Asia-Pacific  has long-term
energy  conversion  agreements with NPC, for almost all of this capacity.  Under
the energy conversion agreements,  Mirant Asia-Pacific accepts fuel from NPC and
converts  that fuel to energy.  NPC is the  national  electric  company  and the
majority  of its  obligations  to  Mirant  Asia-Pacific  project  companies  are
supported by Republic of the Philippines' guarantees.

     The Mirant  Asia-Pacific  subsidiaries  receive  compensation  under energy
conversion  agreements for fixed capacity fees,  variable  energy fees and other
incidental  fees.  The  energy  conversion  agreements  are  executed  under the
government's  build-operate-transfer  program.  At the  end of the  term of each
energy conversion agreement,  the associated plant is required to be transferred
to NPC, free from any lien or payment of compensation. NPC acts as both the fuel
supplier and the energy off-taker under the energy  conversion  agreements.  NPC
procures  all of the  fuel  necessary  for  each  plant,  at no cost  to  Mirant
Asia-Pacific's  subsidiary,  and has accepted  substantially  all fuel risks and
fuel related obligations other than each plant's actual fuel burning efficiency.
Over 90% of the revenues are expected to come from fixed  capacity  charges that
are paid  without  regard to the  dispatch  level of the plant.  The majority of
capacity  fees are  denominated  in U.S.  dollars.  The  energy  fees and  other
incidental  fees have both U.S.  dollar and Philippine  Peso components that are
both indexed to inflation rates.

     The energy conversion  agreements contain a provision under which NPC bears
most of the financial  risks for both political force majeure and change of law.
The majority of NPC's  obligations  under the energy  conversion  agreements are
guaranteed by the full faith and credit of the Philippine government.

     All of the  projects in the  Philippines  have been  granted  preferred  or
pioneer  status  which,  among other things,  has qualified  them for income tax
abatements of three to six years.  The  expiration  dates of the  abatements for
Pagbilao and Sual are 2002 and 2005, respectively.

   Sual

     Mirant  Asia-Pacific  holds a 91.91% interest in the Sual plant, a 1,218 MW
coal-fired plant at Sual, Pangasinan,  located approximately 216 kilometers (130
miles) north of Manila in the Philippines. The Sual plant consists of two 609 MW
units that commenced  commercial  operation in October 1999.  The  International
Finance  Corporation  and  CDC  Group  plc  (formerly  Commonwealth  Development
Corporation)  are the other  shareholders.  NPC  purchases  1,000 MW of the Sual
plant's  capacity.  Most  revenues  are paid in U.S.  dollars  into an  offshore
account  administered  by a loan trustee.  Mirant  Asia-Pacific is attempting to
sell the  remaining  capacity  of the  Sual  plant  to  other  customers  in the
Philippines.

   Pagbilao

     Mirant Asia-Pacific holds an 87.2% interest in the Pagbilao plant, a 735 MW
coal-fired  plant located 100  kilometers  (62 miles)  southeast of Manila.  The
Pagbilao  plant  consists  of  two  367.5 MW units.  The  International  Finance
Corporation,  CDC  Group  plc and  the  Asia  Development  Bank  are  the  other
shareholders.  Most revenues are paid in U.S.  dollars into an offshore  account
administered by a loan trustee.

   Navotas I and II

     Mirant  Asia-Pacific  holds a 90% interest in the Navotas I plant, a 190 MW
fuel oil-fired plant located at the Navotas Fishport  Complex,  north of Manila.
The Asian Development Bank is the other  shareholder.  Mirant  Asia-Pacific also
holds a 100%  interest in the  Navotas II plant,  a 95 MW fuel  oil-fired  plant
located at the Navotas Fishport Complex.

                                     20
<PAGE>
   Southern Energy Mobile, Inc.("SEMI")

     Mirant Asia-Pacific subsidiary, SEMI, owns four units totaling 14 MW. Three
units  comprise an  "inside-the-fence"  plant located in the province of Bulacan
where it provides power to a yarn  manufacturing  company under a 15-year energy
generation  agreement.  The other unit provides  power to a local utility in the
province of Mindoro under a 20-year power sales agreement. SEMI has also entered
a long-term  energy supply agreement in the province of Bataan where it supplies
electricity to a polyethylene  plant.  The source of electricity for this energy
supply agreement will be jointly from Sual and NPC.

   Deregulation and Privatization

     In  April  2000,  the  Philippine  House  of  Representatives   passed  the
Electricity Industry Reform Act ("Reform Bill") substantially in the form of the
government  legislative bill which had proposed  comprehensive  restructuring in
order to deregulate the market for electricity.  Counterpart  legislative  bills
have also been  passed in the  Senate,  the last piece of which was  approved in
June  2000,  that  seek to  deregulate  the  local  electricity  industry  along
different lines. The two power restructuring bills are now pending consideration
in a House-Senate  Bicameral Conference Committee for consolidation.  In January
2001,  a  new  President   and   administration   took  office.   Recent  policy
announcements by the new administration indicate that restructuring  legislation
remains a  priority  in the new  government's  legislative  agenda  and that its
passage  is  currently  being  pursued  by both the  Executive  and  Legislative
Departments before the 11th Congress adjourns in June 2001.

     The  Reform  Bill  seeks  to   establish,   within  three  years  from  its
effectiveness,  competition in the retail supply of electricity  and open access
to  the  transmission  and  distribution  systems.   Prior  thereto,   concerned
government  agencies  are  mandated to  establish a wholesale  electricity  spot
market,  ensure the unbundling of transmission and  distribution  wheeling rates
and remove existing  cross-subsidies provided by industrial and commercial users
to residential customers.

     Moreover,  within  three years from the  effectiveness  of the Reform Bill,
privatization  is mandated for at least 70% of the NPC's  generating  assets and
contracts. Power Sector Assets and Liabilities Management Corporation ("PSALM"),
a government-owned and controlled corporation, was created to manage the orderly
sale,  disposition and  privatization of all existing assets,  liabilities,  IPP
contracts, real estate and all other disposable assets of the NPC. PSALM is also
mandated to  administer  and conserve the assets and IPP  contracts,  as well as
liquidate all liabilities transferred to it.

     The Reform Bill, as currently  drafted,  is not expected to have a material
impact on the existing assets and operations of Mirant Asia-Pacific.  Consistent
with the  announced  policy of the  government,  the  Reform  Bill  contemplates
continued  payments of NPC's obligations  under its energy conversion  agreement
contracts  such as those  with  Mirant  Asia-Pacific  subsidiaries.  The  energy
conversion  agreements  of  Mirant  Asia-Pacific  are not  assignable  and will,
therefore, remain with NPC or its successor corporation following privatization.
NPC or its successor  corporation may sell its beneficial interest in the energy
conversion agreements as part of the privatization.

   Clean Air Act

     In July 1999, the Philippines enacted  legislation,  Republic Act No. 8749,
otherwise  known as the  Philippine  Clean  Air Act of 1999,  which  applies  to
stationary  emission  sources and other  operating  plants.  The  Department  of
Environment  and Natural  Resources  has  promulgated  Administrative  Order No.
2000-81,  the Act's  Implementing  Rules and  Regulations  ("IRRs"),  which took
effect on November  25, 2000 and which are in the process of being  implemented.
Provisions of the Clean Air Act affect the  compliance  of operating  plants and
their  ability to serve as base load  capacity for the grid.  However,  the IRRs
provided  regulatory  flexibility for existing  stationary  sources,  which have
difficulty  complying  with  the  requirements  of  the  Act,  to  achieve  full
compliance by July 2004.

                                       21
<PAGE>
     The  provisions of the Clean Air Act and past practice of the Department of
Environment and Natural Resources  suggest  potentially  increasingly  stringent
standards  in  emissions  from all  sources to maintain  and/or  improve the air
quality.  This may require  additional  controls or  equipment on some of Mirant
Asia-Pacific's  plants in order to comply with the emission  reduction goals and
targets set forth in the Clean Air Act.

     Mirant   believes   that  the  Sual  plant  can  comply  with  the  current
requirements  of the  Clean  Air Act and the  IRRs.  Some  additional  pollution
controls  or other  expenditures  may be  required  for the  Pagbilao  plant and
Bulacan plant to comply with the IRRs. Mirant does not expect these expenditures
to be material.  Mirant  believes that the Navotas I and II will not be affected
significantly  by the Clean Air Act and the IRRs.  Mirant  Asia-Pacific has been
closely following the development of the Implementing  Rules and Regulations and
is making contingency plans which are capable of meeting the standards under the
IRRs within the timeframe of the implementation of the IRRs.

   China

   Shajiao C

     Mirant Asia-Pacific holds a 32% interest in the Shajiao C plant, a 1,914 MW
coal-fired  power  plant  located  close  to  Hong  Kong at  Shajiao,  Guangdong
Province,  China.  Shajiao C is the largest  coal-fired power plant in Guangdong
Province.  The  plant is made up of three  638 MW units  that  began  commercial
operation in June 1996. The operation and off-take agreement has an initial term
of 20 years and expires in June 2016.

     All power produced at the plant is sold to Guangdong Generation Corporation
and Guangdong Electric Power Holding Company. These two entities are responsible
for  operating  and  maintaining  the  plant and are also  responsible  for coal
supply.  Each of them  receives an  operations  fee,  calculated on the basis of
electricity   generated  and  a  minimum  take-or-pay   requirement.   Guangdong
Generation  Corporation and Guangdong Electric Power Holding Company bear demand
risk through a  contractual  take-or-pay  requirement,  which  imposes a minimum
annual  offtake  quantity of  approximately  62% of total  generation  capacity,
subject to risks  such as force  majeure  and  construction  defects.  Guangdong
Generation  Corporation  and Guangdong  Electric Power Holding Company also bear
fuel risks. Force majeure affecting fuel delivery does not relieve them of their
take-or-pay obligation.

     While  Guangdong  Generation  Corporation  operates the plant pursuant to a
contractual  agreement between the parties, a subsidiary of Mirant Asia-Pacific,
in its  capacity as a partner in the  Guangdong  Power joint  venture,  provides
management and operational support for the facilities on a day-to-day basis.

   Shandong International Power Development Company Limited

     Mirant has a 9.99%  interest in Shandong  International  Power  Development
Company Limited ("Shandong  International Power").  Shandong International Power
is the largest independent power producer in China's Shandong province. Shandong
Electric Power (Group) Company, the sole purchaser of electricity as well as the
grid  operator in Shandong  province,  is the  largest  shareholder  of Shandong
International  Power.  Shandong  International  Power  sells  power to  Shandong
Electric under an offtake  contract,  pursuant to which Shandong Electric agrees
to purchase power in an amount based on average  generation of comparably  sized
units in all  Shandong  Province  plants  under its  jurisdiction.  The power is
purchased by Shandong Electric at a price pursuant to a tariff intended to allow
Shandong  International  Power to recover  costs plus a specified  return on its
average net book value of fixed  assets.  Shandong  Electric has also granted to
Shandong  International  Power an option to acquire,  develop and operate future
power projects  within Shandong  Province for which Shandong  Electric Power has
development rights.

                                       22
<PAGE>
     At December 31, 2000,  Shandong  International  Power held  interests in 19
coal-fired  power generating  units  including  two 567 MW  units, five 114.8 MW
units,  two 278 MW units,  eight 282 MW units  and two 284 MW units  for a total
installed capacity of 5,088 MW, of which its  net ownership  interest represents
4,439 MW.

     Shandong province,  with a population of 88 million people and an installed
electricity   generating  capacity  of  approximately  18,000  MW,  has  China's
second-largest  independent  provincial power grid.  Shandong is also one of six
provinces and municipalities  that the Chinese central government has designated
as pilot sites for the deregulation of the power industry.

   Australia

   Kogan Creek

     Mirant  Asia-Pacific  has entered  into a  shareholders  agreement  with CS
Energy  Limited  ("CS  Energy")  to develop  the Kogan  Creek  Power  Station in
Queensland  and has also  formed an  alliance  with CS Energy to  develop  other
energy projects in Australia.  The agreements stipulate the joint development of
the Kogan  Creek  station,  which is expected  to be a 750 MW  coal-fired  power
station located 280 kilometers  west of Brisbane.  CS Energy has acquired 40% of
the project while Mirant Asia-Pacific has retained 60%.

     Based on evaluations of the supply and demand balance in Queensland, Mirant
and CS  Energy  are aware of a  current  surplus  of  generating  capacity,  and
consequently,  plan to proceed with the Kogan Creek  project at an  undetermined
future date based on market demand.  Financial  close of Kogan Creek is unlikely
prior to 2003.

   Allied Queensland Coal Pty. Ltd. ("Allied Queensland Coal")

     Mirant Asia-Pacific also holds a 100% interest in Allied Queensland Coal, a
coal mining company located in Queensland, Australia. Allied Queensland Coal has
certain  exploration  and mining rights over  approximately  1.3 billion tons of
high  quality,  low-sulfur  steaming  coal.  Allied  Queensland  Coal  mines and
processes  up to  800,000  tons of coal each year for sale to a  combination  of
domestic and export markets.

   India

   Balagarh

     Mirant is currently pursuing partial ownership of a 500 MW coal-fired power
project to be constructed  north of Calcutta,  India.  Mirant has entered into a
shareholders  agreement with the Calcutta  Electricity Supply Company Limited, a
private  sector  company  which is the  local  public  utility  supplying  power
exclusively to major parts of Calcutta.  The Calcutta Electricity Supply Company
is the main sponsor of the project, and Mirant is the co-sponsor.

   Hirma

     Mirant is in initial  development  of a 3,960 MW mine-mouth  project in the
state of Orissa,  in eastern India.  This plant would provide power to the Power
Trading  Corporation of India Limited ("PTC"),  a Government of India controlled
corporation  set up in 1999. The project has been qualified by the Government of
India as a Mega Project under the  Government of India's  recently  revised Mega
Power  Project  Policy and would  therefore  be  eligible to receive a waiver of
import taxes and duties.  In January  1999, a Joint  Development  Agreement  was
signed with Reliance  Industries Limited to be an equal co-sponsor.  Key project
agreements  are currently  being  negotiated  with the PTC and other  Government
Authorities.  The tariff has been approved by the Central Electricity Regulatory
Commission and a review petition is awaiting hearing. At the present time, there
is no fixed target date for financial close.

                                       23
<PAGE>

Regulatory Environment

  International Regulation

     Mirant's  international  operations  are subject to  regulation  by various
foreign  governments and regulatory  authorities.  The laws and regulations that
apply to each of Mirant's  international projects are more fully discussed under
the description of the particular project listed above.

  U.S. Public Utility Regulation

     The U.S.  electric  industry is subject to comprehensive  regulation at the
federal and state levels. Currently, most of Mirant's U.S. facilities are exempt
wholesale  generators  under PUHCA.  Mirant's  exempt  wholesale  generators are
subject to regulation  by the FERC under the Federal  Power Act  regarding  rate
matters and by state public utility commissions  regarding non-rate matters. The
majority of Mirant's  generation  from exempt  wholesale  generators  is sold at
market prices under market rate authority granted by the FERC, although the FERC
has the  authority to impose cost of service rate  regulation  if it  determines
that market pricing is not in the public  interest.  Mirant's  exempt  wholesale
generators  are also subject to the FERC  regulation  relating to accounting and
reporting  requirements,  as well as  oversight  of  mergers  and  acquisitions,
securities issuances and dispositions of facilities.

     State or local authorities have historically regulated the distribution and
retail sale of electricity,  as well as the need for siting and the construction
of generating facilities. In addition,  Mirant's exempt wholesale generators may
be subject to a variety of state and local regulations regarding maintenance and
expansion of their facilities and financing  capital  additions if the financing
is  subject  to state  public  service  commission  regulation.  Outside  of the
Electric  Reliability  Council of Texas,  the wholesale  power sales of Mirant's
exempt wholesale generators are subject exclusively to the FERC regulation under
the Federal Power Act and to market  regulation  institutions,  such as regional
transmission group and independent system operator market monitoring initiatives
authorized by the FERC.

     Prior to the  distribution  of Mirant's  common  stock by Southern  Company
currently  planned for April 2, 2001, Mirant remains subject to regulation under
the PUHCA, as a subsidiary of a public utility holding company and must continue
to conduct  its  business in  accordance  with SEC orders  authorizing  Southern
Company and Mirant to engage in the business of developing  energy  projects and
owning and operating exempt  wholesale  generators,  foreign utility  companies,
qualifying  facilities,  domestic  and  Canadian  marketing  of natural  gas and
electricity  and other  energy-related  activities.  Prior to the  distribution,
Mirant may not acquire public utility assets or the securities of public utility
companies,  unless  these  assets  or  companies  qualify  as  exempt  wholesale
generators,  foreign  utility  companies or qualifying  facilities,  without SEC
approval under the PUHCA.

     It is possible  that one or more  regulatory  authorizations  for  Southern
Company and Mirant to conduct its operations may expire. The authorization under
the PUHCA  which  allows  Mirant  and its  subsidiaries  to pay  dividends  from
unearned  surplus in accordance  with  applicable  corporate law and  applicable
covenants to security holders,  has been extended and will expire June 30, 2001.
If Southern  Company has not completed the distribution of Mirant's common stock
by June 30,  2001,  and if the SEC does not extend the order  beyond  that date,
cash  may be  trapped  in some  of  Mirant's  subsidiaries,  reducing  its  cash
management  flexibility and increasing its need for working capital and external
financing.

     Following  the  distribution,  Mirant  does not expect to be subject to the
PUHCA unless or until it acquires the securities of a public utility  company or

                                       24
<PAGE>
public  utility  assets  that are not exempt as an exempt  wholesale  generator,
foreign utility company or qualifying facility. The PUHCA, the Federal Power Act
and  applicable  state  laws  may  limit  Southern  Company  and  its  remaining
subsidiaries' ability to contract with or provide services to Mirant.

     Following the  distribution of Mirant's stock by Southern  Company,  Mirant
will  compete  with  Southern  Company.   As  a  result  of  market  information
restrictions  imposed by the FERC Code of Conduct,  Mirant has not had access to
market  intelligence  concerning  the  Southeast  region  that is  possessed  by
Southern  Company  and other  energy  marketers  that  have  been  active in the
Southeast region for a number of years.

     Congress is  considering  legislation  to modify federal laws affecting the
electric industry. Bills have been introduced that propose to both PURPA and the
PUHCA. The previous Congress also introduced legislation that would allow retail
customers  to choose  their  energy  supplier.  Mirant can expect to see similar
legislation  in the 107th  Congress.  In  addition,  various  states have either
enacted or are considering legislation designed to deregulate the production and
sale of  electricity.  Deregulation  is  expected  to  result  in a  shift  from
cost-based rates to market-based rates for electric energy and related services.
Although the legislation and regulatory  initiatives vary, common themes include
the availability of market pricing, retail customer choice, recovery of stranded
costs and separation of generation  assets from  transmission,  distribution and
other assets. It is unclear whether or when all power customers will obtain open
access  to  power  supplies.   Decisions  by  regulatory  agencies  may  have  a
significant impact on the future economics of the power marketing business.

     In emergency  conditions,  such as have  recently  occurred in  California,
Mirant's public utility  operations may be subject to  extraordinary  and costly
emergency service requirements.  The United States Department of Energy recently
exercised its emergency authority to require interconnections and sales of power
into the California market, and further orders of this nature may be issued with
respect  to  either  the  California  market or other  markets  in the event the
Department  of  Energy  or  other  state or  federal  regulatory  agencies  deem
emergency conditions to exist.

     The FERC has issued  power and gas  transmission  initiatives  that require
electric and gas  transmission  services to be offered on an  open-access  basis
unbundled  from commodity  sales.  Although  these  initiatives  are designed to
encourage  wholesale market  transactions for electricity and gas, Mirant cannot
predict the timing of industry  changes as a result of these  initiatives or the
adequacy of transmission additions in specific markets.

     In Canada,  Canadian  national and provincial  governments  have instituted
natural  gas   regulations   also  designed  to  encourage  the  development  of
competitive markets.  However, Mirant cannot predict the timing and scope of the
development  of a competitive  market in Canada or the effect of these or future
regulations on these markets.

     Mirant's  Birchwood  facility  is subject  to  regulation  as a  qualifying
facility under PURPA.  As a qualifying  facility,  Birchwood is exempt from most
provisions of the Federal Power Act and state laws relating to securities,  rate
and financial  regulation.  PURPA  requires  electric  utilities (i) to purchase
electricity generated by qualifying facilities at a price based on the utility's
avoided cost of purchasing  electricity or generating  electricity  itself,  and
(ii) to sell  supplementary,  back-up,  maintenance and  interruptible  power to
qualifying  facilities on a just,  reasonable and  non-discriminatory  basis. To
qualify for  qualifying  facility  status,  the Birchwood  facility must satisfy
requirements  regarding  the  production  of  useful  thermal  energy as well as
limitations on the extent of ownership by utilities or utility affiliates.

   Environmental Regulation

     Mirant's  operations  are subject to extensive  federal,  state,  local and
foreign laws and  regulations  relating to air  quality,  water  quality,  waste
management,  natural  resources  and health and safety.  Mirant's  projects  and
facilities in foreign markets create  exposures and obligations to the national,
provincial  and  local  laws  of  each  host  country,  including  environmental
standards  and  other  requirements  imposed  by  these  governments.   Mirant's
compliance  with  these  environmental   requirements  necessitates  significant
capital and operating  expenditures  related to  monitoring,  pollution  control
equipment,  emission  fees  and  permitting  at  various  operating  facilities.
Mirant's  expenditures,  while not  prohibitive in the past, are  anticipated to
increase in the future  along with the increase in stricter  standards,  greater
regulation, more extensive permitting requirements and an increase in the number

                                       25
<PAGE>
and  types  of  assets  Mirant  operates  that  are  subject  to   environmental
regulation.  Mirant cannot provide  assurance that future  compliance with these
environmental requirements will not adversely affect its operations or financial
condition.

     Mirant's  operations in Europe are subject to  comprehensive  environmental
regulation  similar  to that in the United  States,  and these  regulations  are
expected  to  become  more  stringent  in the  future.  Additionally,  like many
countries of the world, the governments of China, the Philippines,  Trinidad and
Tobago  and  several  other   countries   recently   have   proposed   increased
environmental  regulation of many  industrial  activities,  including  increased
regulation of air quality, water quality and solid waste management.

     Over the past  several  years,  the utility  industry,  state,  federal and
foreign  governments and international  organizations  have been concerned about
global climate change.  Because  Mirant's fossil  fuel-fired  plants emit carbon
dioxide,  the costs of any "greenhouse gas" restrictions  could adversely affect
its operations.  The impact of the Kyoto Treaty on Mirant's domestic and foreign
facilities and operations remains uncertain.

     The environmental  laws and regulations in the United States illustrate the
comprehensive   environmental  regulations  which  govern  Mirant's  operations.
Mirant's most significant environmental requirements in the U.S. result from the
Clean Air Act and the 1990  Clean Air Act  Amendments.  Under the Clean Air Act,
Mirant is required to comply with a broad range of  restrictions  concerning air
emissions,  operating  practices and  pollution  control  equipment.  Several of
Mirant's  facilities  are located in  metropolitan  areas such as New York City,
Boston,  Chicago or San  Francisco,  classified  by the EPA as not achieving the
ambient air quality  standards  which trigger the most  stringent air regulation
requirements.

    In the future,  Mirant  anticipates  increased  regulation of its facilities
under the Clean Air Act and applicable state laws and regulations concerning air
quality.  The EPA,  several  states and  several  foreign  countries  are in the
process of enacting more  stringent  air quality  regulatory  requirements.  For
example,  the EPA recently  promulgated a new regulation,  known as the "Section
126 Rule,"  which  allocates  nitrogen  oxide  emissions  allowances  to various
electric  generating  facilities  in  Delaware,  Indiana,  Kentucky,   Maryland,
Michigan, New Jersey, New York, North Carolina,  Ohio,  Pennsylvania,  Virginia,
West  Virginia  and the  District of  Columbia.  The  Section  126 Rule  becomes
effective on May 1, 2003. The EPA also has  established  nitrogen oxide emission
caps for  several  eastern  states  which must be  implemented  by these  states
beginning  May  2004.  Under  either  rule,  if a plant  exceeds  its  allocated
allowances,  the plant must purchase  additional,  unused  allowances from other
regulated plants or install controls to reduce emissions.  The State of New York
and State of  Massachusetts  are also  developing  regulations to further reduce
nitrogen oxide and sulfur dioxide emissions.  Mirant expects to incur additional
compliance costs as a result of these developments.

    On  November  3,  1999,  the United  States  Department  of Justice  filed a
complaint against seven electric  utilities for alleged  violations of Clean Air
Act  requirements  related to  modifications  of existing  sources at coal-fired
generation  stations  located in the  southern  and  mid-western  regions of the
United States and also issued an  administrative  order to the Tennessee  Valley
Authority for similar violations at seven of its coal-fired power plants.  Since
then,  the EPA has added  additional  utilities to the  litigation  and has also
issued administrative  notices of violation alleging similar violations at other
coal-fired power plants.  The electric utility industry strongly  disagrees with
the EPA's  positions in the  lawsuits.  To date,  no lawsuits or  administrative
actions alleging similar violations have been brought by the EPA against Mirant,
its  subsidiaries  or any  of its  power  plants,  but  the  EPA  has  requested
information concerning four of Mirant's Mid-Atlantic business unit plants. Also,
the State of New York has issued a notice of violation to the previous  owner of
Mirant's  Lovett plant.  For more  information  about the matter,  see "-- Legal
Proceedings."   Mirant  cannot   provide   assurance   that  lawsuits  or  other
administrative  actions against Mirant's power plants will not be filed or taken
in the  future.  If an action is filed  against  Mirant or its power  plants and
Mirant  is  judged  to not be in  compliance,  this  could  require  substantial
expenditures  to bring Mirant's power plants into compliance and have a material
adverse effect on its financial condition, cash flows and results of operations.

                                       26
<PAGE>
     Several other  environmental laws in the United States also affect Mirant's
operations.  For example, Mirant is required under the Clean Water Act to comply
with  effluent and intake  requirements,  technological  controls and  operating
practices.  Mirant's  wastewater  discharges are permitted under the Clean Water
Act, and its permits  under the Clean Water Act are subject to review every five
years.  As with air quality,  the  requirements  applicable to water quality are
expected to increase in the future. For example, the EPA has proposed a new rule
which would impose more stringent standards on the cooling water intakes for new
plants and is scheduled to propose a similar  regulation for intakes on existing
plants.  Mirant expects to incur additional  compliance costs as a result of the
increased regulation of water quality.

     Mirant's  facilities are also subject to several waste  management laws and
regulations in the United States.  The Resource  Conservation  and Recycling Act
sets forth very  comprehensive  requirements for handling of solid and hazardous
wastes.  The  generation of  electricity  produces  non-hazardous  and hazardous
materials,  and Mirant  incurs  substantial  costs to store and dispose of waste
materials from its facilities.  Recently,  the EPA indicated that it might begin
to regulate  fossil fuel combustion  materials,  including types of coal ash, as
hazardous  waste under the Resource  Conservation  and Recycling Act. If the EPA
implements its initial proposals on this issue, Mirant may be required to change
its current waste management  practices and expend significant  resources on the
increased waste management requirements caused by the EPA's change in policy.

     From  time to  time,  the  Federal  Comprehensive  Environmental  Response,
Compensation  and Liability  Act,  known as the  Superfund,  applies to Mirant's
facilities or other sites in the United States. The Comprehensive  Environmental
Response,  Compensation  and Liability  Act  establishes a framework for dealing
with the cleanup of  contaminated  sites.  Many states like  Massachusetts,  New
Jersey and Georgia  have enacted  state  superfund  statutes.  Under these laws,
Mirant is required to undertake,  from time to time,  corrective action for soil
and groundwater  conditions  identified at its  facilities.  Mirant is currently
undertaking  corrective action at some of its recently  acquired  facilities for
conditions  that were identified  during  Mirant's due diligence  related to the
acquisition. Mirant has purchased environmental insurance to cover some of these
conditions,  as well as other  unknown  environmental  conditions,  when  Mirant
initially  acquired  some  of its  facilities.  Mirant  does  not  expect  these
corrective actions to require significant expenditures.

     In connection with asset acquisitions and other  transactions,  Mirant also
may obtain or be  required  to  provide  indemnification  against  environmental
liabilities and responsibilities.  Typically, indemnification Mirant receives is
limited in scope and time period. In some  transactions,  Mirant did not receive
an environmental  indemnity. To minimize Mirant's exposure for such liabilities,
Mirant conducts environmental  assessments of the assets it wishes to acquire or
operate.   Thus  far,  Mirant  has  not  incurred  any  material   environmental
liabilities arising from its acquisition or divestiture activities.

     Mirant  believes  it  is  in  compliance  in  all  material  respects  with
applicable environmental laws. However, while Mirant believes its procedures and
facilities comply with applicable environmental laws and regulations,  it cannot
provide assurances that additional costs will not be incurred as a result of new
interpretations  or  applications  of  existing  laws  and  regulations  or  the
enactment of more stringent requirements.

Employees

     At December  31, 2000,  Mirant's  corporate  offices and majority  owned or
controlled  subsidiaries  employed  approximately  7,000  persons.  This  number
includes  approximately  900  in  the  corporate  headquarters  in  Atlanta  and
approximately  6,100 at  operating  facilities.  Approximately  953 of  Mirant's
domestic employees are subject to collective  bargaining  agreements with one of
the following unions: International Brotherhood of Electrical Workers, Utilities
Workers of America or United Steel Workers. About 2,200 of Mirant's employees in

                                       27
<PAGE>
international  business  units  belong  to  unions.  These  unions  include  the
International Brotherhood of Electrical Workers and Grand Bahamas Port Authority
Workers  in  the  Bahamas;   Oilfield  Workers  Trade  Union  and  Senior  Staff
Association  in  Trinidad  and  Tobago;  UNISON,   Amalgamated  Engineering  and
Electrical Union, General Municipal  Boilermakers Union,  Engineers and Managers
Association  and  Transport  and  General  Workers  Union in England  and Wales;
Sindicato de Luz y Fuerza in Argentina; and Sindicato Arica-Parincota, Sindicato
Trabajadores Edelnor Iquique,  Sindicato Trabajadores Segunda Region,  Sindicato
Edelnor S.A. and Sindicato  Ingenieros de Ejecucion in Chile. Mirant believes it
has satisfactory relations with both union and non-union employees.


                                       28
<PAGE>
<TABLE>
<CAPTION>

Item 2.  Properties

                                                                                   Owned and Operated            Under Development
                                                             Mirant's %                                                     Expected
                                                             Leasehold/              Net Equity               Net Equity      Date
                                                              Ownership              Interest                Interest in       of
                                                              Interest     Total         in       Operated   Total MW(1)  Commercial
  Power Generation Business  Location        Primary Fuel        (1)        MW        Total MW       MW                    Operation
------------------------------------------ ----------------- ----------------------- -----------  --------- ------------- ----------
AMERICAS:
North America:
<S>                            <C>             <C>               <C>        <C>        <C>         <C>         <C>            <C>
 Mirant California.........  California    Natural Gas           100%       2,938      2,938       2,938       1,050          2003
 Apex......................  Nevada        Natural Gas           100           --         --          --       1,000          2003
 Mirant New York...........  New York      Natural Gas/          100        1,668      1,668       1,668         785          2003
                                           Hydro/ Coal/Oil
 Mirant New England(2).....                Natural Gas/Oil       100        1,238      1,238       1,230         835          2004
                             Massachusetts
 State Line Energy.........  Indiana       Coal/Natural Gas      100          515        515         515
 Birchwood.................  Virginia      Coal                   50          242        121         242          --            --
 Mirant Wisconsin..........  Wisconsin     Natural Gas           100          302        302         302         894          2003
 Mirant Zeeland............  Michigan      Natural Gas           100           --         --          --         848          2002
 Wyandotte.................  Michigan      Natural Gas           100           --         --          --         560          2003
 Mirant Mid-Atlantic.......  Maryland/     Coal/Oil/Gas          100        5,154      5,154       5,154         740          2004
                             Virginia
 Mirant Wichita Falls......  Texas         Natural Gas           100           77         77          --          --            --
 Mirant Texas..............  Texas         Natural Gas           100          308        308         308         248          2001
 Wrightsville Project......  Arkansas      Natural Gas            51           --         --          --         281          2002
 Perryville Project........  Louisiana     Natural Gas            50                                             363          2002
 Sugar Creek...............  Indiana       Natural Gas           100                                             560          2004
 Rockdale                    Illinois      Natural Gas           100                                             480          2003
 Danville                    Virginia      Natural Gas           100                                             320          2003
                                                                        ------------  ---------  ----------- ----------
   Subtotal................                                                12,442     12,321      12,357       8,964

Caribbean:
 Freeport Power............  Bahamas       Oil                    55          126         70         126           7.48       2001
 PowerGen..................  Trinidad &    Natural Gas            39        1,045        408       1,045          --            --
                              Tobago
  Jamaica Public Service...  Jamaica       Oil/Natural            80                                             408          2001
                                           Gas/Hydro
                                                                        ------------  ---------  ----------- ----------
   Subtotal................                                                 1,171        478       1,171         415.48

South America:
 CEMIG.....................  Brazil        Hydro                   3.6      4,955        178          --          --            --
 EDELNOR(3)                  Chile         Coal/Natural Gas       82.3        538        443         567          --            --
                                                                        ------------  ---------  ----------- ----------
   Subtotal................                                                 5,493        621         567          --

EUROPE:
 Mirant Europe ............  England       Oil                   100            2          2           0
 WPDH(4)...................  England       Natural Gas/           49          314        154           7          --            --
                                           Wind/Oil
 WPD Limited...............  England       Natural Gas            49            2          1           0
 Bewag.....................  Germany       Natural Gas/           26        2,955        768          --          --            --
                                           Oil/Coal
                                                                        ------------  ---------  ----------- ----------
   Subtotal................                                                 3,273        925            7

ASIA-PACIFIC:
 SIPD......................  China         Coal                  9.99       4,439        443          --          59          2003
 Shajiao C.................  China         Coal                   32        1,914        613          --          --            --
 Sual......................  Philippines   Coal                  91.9       1,218      1,119       1,218          --            --
 Pagbilao..................  Philippines   Coal                  87.2         735        641         735          --            --
 Navotas I.................  Philippines   Oil                    90          190        171         190          --            --
 Navotas II................  Philippines   Oil                   100           95         95          95          --            --
 Mindoro...................  Philippines   Diesel                100            3.56       3.56         3.56
 Ilijan....................  Philippines   Natural Gas            20                                             250          2002
 Bulacan...................  Philippines   Diesel                100           10.69      10.69        10.69      --            --
                                                                        ------------  ---------  ----------- ----------
   Subtotal................                                                 8,605.25   3,096.25    2,252.25      309
                                                                        ------------  ---------  ----------- ----------

   Total...................                                                30,984.25  17,441.25   16,354.25    9,688.48
                                                                        ============  ========= =========== ===========

</TABLE>
                                                                    29
<PAGE>


                                                    Ownership     Customers/
         Distribution Business                      Interest       End-users

                                                    (in thousands)
      Freeport Power.................   Bahamas         55%            17
      CEMIG..........................   Brazil         3.6          5,000
      Western Power Distribution.....   England         49          1,400
      South Wales Electricity plc....   Wales           49          1,000
      Bewag..........................   Germany         26          2,200
                                                                ---------
       Total.........................                               9,617
                                                                =========
                           ---------------------------
 (1) Amounts reflect Mirant's percent economic interest in the total MW.

 (2) Total MW reflects a 1.4 percent interest in the 614 MW Wyman plant.

 (3) Total MW excludes 26 percent ownership of 5,740 MW of thermal capacity
      for steam heating.

 (4) WPDH owns 15.38% Teeside, which has 1,925MW. This is reflected in total MW.

Item 3.  Legal Proceedings

(1)  CEMIG.   Reference  is  made  to the "Management's  Discussion and Analysis
     of Financial  Condition  and  Results of Operations -  Litigation and Other
     Contingencies" section herein.

(2)  State Line. Reference is made to the "Management's Discussion  and Analysis
     of Financial  Condition and Results  of  Operations -  Litigation and Other
     Contingencies" section herein.

(3)  Mobile Energy.  Reference  is made  to  the  "Management's  Discussion  and
     Analysis of Financial Condition and  Results of Operations - Litigation and
     Other Contingencies" section herein.

(4)  Reliability - Must - Run Agreements. Reference is made to the "Management's
     Discussion   and  Analysis   of   Financial   Condition   and   Results  of
     Operations - Litigation and Other Contingencies" section herein.

(5)  CAISO  and PX  Price  Caps.   Reference  is  made   to  the   "Management's
     Discussion   and   Analysis  of  Financial    Condition   and   Results  of
     Operations - Litigation and Other Contingencies" section herein.

(6)  Department of  Energy  Order.  Reference  is  made  to  the   "Management's
     Discussion and Analysis of Financial Condition and Results  of Operations -
     Litigation and Other Contingencies" section herein.

(7)  Proposed  CAISO  and PX  Tariff  Amendments.   Reference  is  made  to  the
     "Management's  Discussion   and   Analysis  of   Financial   Condition  and
     Results of Operations - Litigation and Other Contingencies" section herein.

(8)  Defaults by Southern California Edison ("SCE")  and  Pacific Gas & Electric
     ("PG&E").  Reference is made to the "Management's  Discussion and  Analysis
     of  Financial  Condition  and  Results of Operations - Litigation and Other
     Contingencies" section herein.

(9)  DWR Power Purchases.  Reference is made to the "Management's Discussion and
     Analysis of Financial Condition  and Results of Operations - Litigation and
     Other Contingencies" section herein.

                                       30
<PAGE>
(10) Attorney General and California Public Utilities Commission Investigations.
     Reference is made to the "Management's Discussion and Analysis of Financial
     Condition  and  Results of Operations - Litigation and Other Contingencies"
     section herein.

(11) California Class Action Litigation.  Reference is made to the "Management's
     Discussion and Analysis of Financial Condition and Results  of Operations -
     Litigation and Other Contingencies" section herein.

(12) Environmental Information Requests Reference is made  to  the "Management's
     Discussion and Analysis of Financial Condition and Results of  Operations -
     Litigation and Other Contingencies" section herein.

(13) Bewag. Reference is made to the "Management's  Discussion  and  Analysis of
     Financial  Condition  and  Results  of  Operations  -  Litigation and Other
     Contingencies" section herein.

(14) WPD  and  SWE  Pension  Issues.   Reference  is  made  to the "Management's
     Discussion and Analysis of Financial Condition  and Results of Operations -
     Litigation and Other Contingencies" section herein.

(15) International Energy Limited  Arbitration  Award.  Reference is made to the
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Litigation and Other Contingencies" section herein.

Item 4. Submission of Matters to a Vote of Security Holders

     On  February  12,  2001,  Mirant  received  written  consent  from  its 80%
shareholder,  Southern Company,  to amend its certificate of incorporation.  The
amendment,  which became  effective  on February  26,  2001,  was solely for the
purpose of changing the  Company's  name from  Southern  Energy,  Inc. to Mirant
Corporation.

     Item 4A. Executive Officers of Mirant Corporation

     (Identification  of executive officers of Mirant Corporation is inserted in
Part I in accordance with Regulation S-K, Item 401(b),  Instruction 3.) The ages
of the officers set forth below are as of December 31, 2000.

         Name        Age                                       Position
-----------------   ----                                       --------
S. Marce Fuller...   40    President,  Chief  Executive  Officer  and  Director;
                           Elected  President,  Chief  Executive  Officer and  a
                           Director in July 1999. Served  as President and Chief
                           Executive Officer of SCEM from September 1997 to July
                           1999 andExecutive Vice President from October 1998 to
                           July 1999. From May 1996 to September 1997, Ms.Fuller
                           was  Senior  Vice  President  of  the  North  America
                           division,  in charge of North American operations and
                           business development. Prior to  that,  from  February
                           1994  to  May 1996,  she  was the  Vice President for
                           domestic business  development.  Ms. Fuller is also a
                           director of  Curtiss-Wright  Corporation.  Ms. Fuller
                           joined  Southern  Company  in  1985  and  joined  the
                           Company in 1992.


                                       31
<PAGE>

      Name          Age                                            Position
----------------   ----                                            --------
Raymond D. Hill..   53     Executive Vice President and Chief Financial Officer;
                           Elected Chief  Financial  Officer in January 1999 and
                           Executive  Vice  President in October 1998.  Also the
                           Chairman of Mirant  Asia-Pacific,  having  previously
                           served  as its  Managing  Director  from July 1997 to
                           December  1998.  From 1993 to July 1997, he served as
                           Chief  Financial  Officer and Senior Vice  President.
                           Prior to joining the Company in 1993, Mr. Hill served
                           as  a  Managing  Director  at  Lehman  Brothers,   an
                           investment banking firm.

Richard J.
Pershing.........   54     Executive Vice President and Chief Executive Officer,
                           Americas Elected Chief  Executive  Officer,  Americas
                           group,  in August 1999 and Executive  Vice  President
                           in October  1998.  Served  as Senior  Vice  President
                           from  November  1997 to October 1998 Prior to joining
                           the  Company  in  1992,  Mr.  Pershing  held  various
                           executive  and management positions at Georgia Power.
                           He joined Southern Company in 1971.

Frederick D.
Kuester...........  50     Senior Vice President  and Chief  Executive  Officer,
                           Asia-Pacific; Elected Chief Executive  Officer,  Asia
                           -Pacific  group,  in  August  1999  and  Senior  Vice
                           Presidents  in  August 1999.  Also  on  the  board of
                           directors of SIPD.  In addition, since November 1998,
                           he has served as Chief Executive Officer  of SE  Asia
                           -Pacific.   From   January  1997  to  November   1998
                           Mr. Kuester  served  as  director  of  the commercial
                           group at SE  Asia-Pacific. Prior to that, Mr. Kuester
                           served  as vice  president  of  power  generation for
                           Mississippi  Power Company,  a subsidiary of Southern
                           Company.  Mr. Kuester started his  career at Southern
                           Company in 1971.

Barney S. Rush....  48     Senior  Vice  President  and Chief Executive Officer,
                           Europe; Elected Chief Executive Officer, Europe group
                           and Senior Vice President in August 1999. Also serves
                           as chairman of the supervisory board of Bewag.  Until
                           August 1999, he served as vice president  responsible
                           for acquisitions and as managing director of Southern
                           Energy  Development  --  Europe,  since  May 1996 and
                           September  1997,  respectively.  Prior to joining the
                           Company  in May 1996,  Mr.  Rush was  executive  vice
                           president  for  business  development  and finance at
                           Oxbow  Power  Corporation.  He has also held  various
                           positions at Lehman  Brothers,  including senior vice
                           president,  in project  finance  and the  utility and
                           telecommunications group.

Vance N. Booker...  47     Senior Vice President, Responsibilities include human
                           resources, external affairs,  environmental  affairs,
                           construction,   technical   support,   and  corporate
                           services. Elected Senior Vice President,   in  August
                           1999. Previously was Vice  President, Administration.
                           Prior to  joining  the  Company in  July 1996 he held
                           various  positions  at  Southern Company in strategic
                           planning,  human resources,  accounting  and finance.
                           Mr. Booker joined Southern Company in 1975.

Douglas L. Miller.  50     Senior Vice President  and  General Counsel;  Elected
                           Senior Vice President and General  Counsel in October
                           1999.  From 1997 until he joined the Company in 1999,
                           Mr.  Miller  was  managing  partner  of the  Troutman
                           Sanders  LLP  Hong Kong  office  where he oversaw the
                           Project  Development and Finance Practice  Group. Mr.
                           Miller joined Troutman Sanders in 1975.

James A. Ward.....  48     Senior   Vice  President,   Finance  and  Accounting;
                           Elected Senior Vice President, Finance and Accounting
                           and  Controller  in August 1999.  From  June  1994 to
                           August 1999, Mr. Ward served  as the  Company's  Vice
                           President,  Controller  and  Assistant Treasurer.  He
                           joined  Southern  Company  in  1978.

                                       33
<PAGE>


    The executive officers  of Mirant  Corporation  were elected to serve  until
their  successors  are  elected  and  have  qualified  or  until  their removal,
resignation, death or disqualification.

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

   Common Stock

     On October 2, 2000,  Mirant  completed  an initial  public  offering of its
common stock. The following table indicates high and low sales prices for common
stock of Mirant as reported on the New York Stock Exchange, the principal market
in which the  securities  are traded.  Dividends  of $503  million  were paid to
Southern Company during 2000 prior to the initial public  offering.  On February
28, 2001, the closing price of Mirant's common stock was $25.00.

                                            High            Low
                                           ------         -------
               2000
          Third Quarter................   $31.8750       $28.0000
          Fourth Quarter...............    31.7500        20.5625

   Recent Distribution and Redemption of Series B Preferred Stock

     As part of its spin-off from  Southern,  Mirant  agreed to  contribute  its
finance and  leveraged  lease  subsidiaries  (See Note 14 of Notes to  Financial
Statements) to Southern.  In connection  with this  contribution,  on August 30,
2000 Mirant issued to Southern one share of Series B preferred stock, redeemable
at the election of Mirant in exchange for the contribution of these subsidiaries
to Southern.

     In  connection  with Mirant's  separation  from  Southern  Company,  Mirant
transferred two of its subsidiaries, SE Finance and Capital Funding, to Southern
Company on March 5, 2001 by redemption of Southern's share of Series B preferred
stock.

   Dividends

     Mirant  currently  intends  to  retain  any  future  earnings  to fund  the
development  and growth of its business.  Therefore,  Mirant does not anticipate
paying any cash dividends on its common stock in the foreseeable future.

     In 2000,  Mirant paid a cash dividend to Southern  Company in the amount of
$503 million,  funded by short-term  borrowings and commercial paper borrowings.
These dividends were authorized  under an order issued by the SEC, which allowed
Mirant to pay dividends out of unearned surplus.

     Holders  of  the  preferred   securities   are  entitled  to  receive  cash
distributions at an annual rate of 6 1/4% of the $50 liquidation  preference per
preferred security.  Distributions are cumulative and began to accumulate on the
date of original  issuance  of the  preferred  securities,  which was October 2,
2000. Distributions are payable quarterly in arrears on January 1, April 1, July
1 and October 1 of each year  beginning  January 1, 2001,  unless  Mirant defers
interest  payments  on the  debentures.  On  January  2, 2001  Mirant  paid cash
distributions totaling $5,390,625.

Item 6.  Selected Financial Data

     The following  tables  present  Mirant's  selected  consolidated  financial
information.  The  information  set forth  below  should be read  together  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and Mirant's historical  consolidated  financial  statements and the
notes. The  consolidated  income statement data for the years ended December 31,
2000,  1999,  1998,  1997 and 1996 and the  selected  balance  sheet  data as of

                                       33
<PAGE>
December 31, 2000,  1999,  1998, 1997 and 1996 are derived from Mirant's audited
consolidated  financial  statements,  which were audited by Arthur Andersen LLP,
independent public accountants.  The historical financial information may not be
indicative  of  Mirant's  future  performance  and  does  not  reflect  what the
financial position and results of operations would have been had Mirant operated
as a separate, stand-alone entity during the periods presented.

     The following selected  financial  information should also be read in light
of the following:

o        Mirant's operating revenues declined in 1998 due to its contribution on
         January 1, 1998 of its power marketing and risk  management  activities
         to  Mirant  Americas  Energy  Marketing,  Mirant's  marketing  and risk
         management joint venture with Vastar formed in September 1997. When the
         joint venture was formed in September  1997,  Mirant  contributed  only
         its gas marketing and risk  management  assets to the venture. Prior to
         the formation  of  the joint  venture,  Mirant's  marketing   and  risk
         management activities were wholly owned and consolidated. From  January
         1,  1998 until  August 9, 2000,  the day prior to  Mirant's   effective
         acquisition  of  Vastar's  40%  interest  in   Mirant  Americas  Energy
         Marketing,  Mirant accounted for this  joint venture  under the  equity
         method  of  accounting.  For 1997,  operating  revenues would have been
         $1,768 million if Mirant had not  consolidated  its marketing and  risk
         management  operations.  Effective  August 10,  2000,  Mirant  acquired
         Vastar's 40% interest in Mirant Americas Energy  Marketing which is now
         wholly  owned  and  consolidated  in  its  financial  statements  on  a
         prospective basis.

o        The write-down for 1998 includes write-downs of Mirant's investments in
         its Argentine subsidiary, Alicura, and its Chilean subsidiary, EDELNOR,
         to adjust for the  difference  between the carrying value of the assets
         and the fair market value.  The  write-down  for 1999 and 2000 includes
         further  write-downs of its  investments in Alicura,  prior to it being
         sold,  and EDELNOR to maintain  the  carrying  value at the fair market
         value as well as its  interest in a $31 million  write-down  at Western
         Power Distribution relating to impaired metering assets.

o        On April 17, 2000,  Mirant decided to transfer to Southern  Company its
         leasing  business,  SE Finance.  As a result,  Mirant has  included the
         historical  results of  operations  of the  related  subsidiaries  as a
         discontinued operation.

                                       34
<PAGE>
<TABLE>
<CAPTION>

                                                    Selected Financial Data





                                                                     Years Ended December 31,

                                                      2000          1999        1998        1997       1996
                                                   ---------     ---------   ---------   ---------  -------
Income Statement Data:
<S>                                                    <C>           <C>         <C>         <C>       <C>
Operating revenues...............................   $ 13,315      $ 2,265     $ 1,819     $ 3,750   $  1,600
                                                    --------      -------     -------     -------   --------
Operating expenses:
  Cost of fuel, electricity and
   other products................................     11,437          934         891       2,887        948
  Maintenance....................................        136          116          80          74         71
  Depreciation and amortization..................        317          270         221         182         95
  Selling, general and administrative............        520          253         160         188        174
  Write down of assets...........................         18           60         308          --         --
  Other..........................................        223          188         164         147        162
                                                    --------      -------     -------     -------   --------
Operating income.................................        664          444          (5)        272        150
                                                    --------      -------     -------     -------   --------
Other income (expense):
  Interest income................................        187          172         146         138         16
  Interest expense...............................       (615)        (501)       (430)       (345)      (133)
  Gain on sales of assets........................         20          313          41          24         66
  Equity in income of affiliates.................        196          110         135          58         13
  Receivables recovery...........................          -           64          29          --         --
  Other, net.....................................         50           72          29          33         28
                                                    --------      -------     -------     -------    -------
    Total other (expense) income.................       (162)         230         (50)        (92)       (10)
                                                    ---------     -------     -------     -------    -------
Income (loss) from continuing operations
  before income taxes and minority  interest....         502          674         (55)        180        140
Provision (benefit) for income taxes:
  Continuing operations.........................          86          129        (123)         27         54
  Windfall profits tax(1).......................          --           --          --         148         --
Minority interest...............................          84          183          80          29         13
                                                    --------      -------     -------     -------    -------
Income (loss) from continuing operations........    $    332      $   362     $   (12)    $   (24)   $    73
Income from discontinued operations, net of
  income tax benefit of 20 in 2000, $15 in 1999,
$22 in 1998, and $10 in 1997....................          27           10          12           8         --
Income (loss) before extraordinary item                  359          372          --         (16)        73
                                                    --------      -------     -------     -------    -------
Extraordinary gain on early extinguishment
  of debt, net of income tax of $5 in 1996......          --           --          --          --          8
                                                    --------      -------     -------     -------    -------
Net income (loss)...............................    $    359      $   372     $    --     $   (16)   $    81
                                                    ========      =======     =======     =======    =======
Earnings per share information:
Basic and Diluted:
  From continuing operations....................    $   1.15      $  1.33     $ (0.04)    $ (0.09)   $  0.27
  From discontinued operations..................        0.09         0.04        0.04        0.03         --
  From extraordinary gain.......................          --           --          --          --       0.03
                                                    --------      -------     -------     -------    -------
    Net income..................................    $   1.24      $  1.37     $    --     $ (0.06)   $  0.30
                                                    ========      =======     =======     =======    =======
</TABLE>

<TABLE>
<CAPTION>


                                                                         Years Ended December 31,

                                                         2000          1999        1998        1997       1996
                                                      ------------- ----------- ----------- ---------- --------------

    Statement of Cash Flows Data:
     <S>                                                  <C>           <C>         <C>         <C>         <C>
    Cash flow from operating activities............    $   908       $   515     $   402     $   264     $ (226)
    Cash flow from investing activities............     (2,778)       (2,121)     (1,534)     (4,203)      (136)
    Cash flow from financing activities............      2,861         1,374       1,295       4,177       (193)
    Other Operating Data:
    EBITDA(2)......................................   $  1,177       $   824     $   351     $   512     $  258

</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>

                                                   Selected Financial Data

                                                                            As of December 31,
                                                                            ------------------
                                                        2000          1999        1998        1997       1996
                                                      ------------- ----------- ----------- ---------- --------------
                                                      (Dollars in millions)
    Balance Sheet Data:
         <S>                                                <C>          <C>         <C>         <C>        <C>
    Cash and cash equivalents......................   $   1,280      $   323     $   561     $   398    $   161
    Property, plant and equipment, net.............       5,681        6,025       4,691       4,255      2,627
    Investments....................................       1,797        1,490       1,540       1,159        219
    Total assets...................................      24,136       13,863      12,054      10,630      4,564
    Non-recourse debt(3)...........................       6,386        6,202       5,101       4,615      1,753
    Notes payable to Southern Company..............          --           --         926         830         --
    Total long term debt...........................       5,596        4,954       3,919       3,689      1,146
    Total debt.....................................       7,086        7,152       6,027       5,445      1,753
    Subsidiary obligated mandatorily redeemable
    Preferred   Securities(4)......................         950        1,031       1,033         682         --
    Stockholder's equity...........................   $   4,136        3,102       2,642       2,132        988
</TABLE>

(1)  In 1997,  the  United Kingdom imposed a windfall  profits tax on the United
     Kingdom's privatized utilities.
(2)  EBITDA  represents  Mirant's  operating income (loss) plus depreciation and
     amortization and its equity in income of  affiliates.  EBITDA  excludes the
     impact of minority interests.  EBITDA,  as defined, is presented because it
     is  a  widely  accepted  financial  indicator  used  by  some investors and
     analysts  to analyze  and  compare  companies  on  the  basis  of operating
     performance.  EBITDA,  as defined,  is not intended to represent cash flows
     for the period,  nor is it presented as an alternative to operating  income
     or as an indicator  of  operating performance. It should not be  considered
     in isolation or as a substitute   for a measure of  performance prepared in
     accordance  with  GAAP  in  the  United  States  and is not  indicative  of
     operating  income  or  cash  flow from operations as determined under GAAP.
     Mirant's  method  of  computation  may  or  may not  be comparable to other
     similarly titled measures by other companies.
(3)  This  debt  is  non-recourse  to Mirant  but  is recourse to the applicable
     subsidiaries and its assets.
(4)  This total of $950  million is preferred securities and capital  securities
     issued by special  purpose financing  subsidiaries held by Capital Funding,
     the  proceeds  of which were  loaned to Southern Company.  Southern Company
     pays  interest  on  subordinated  notes  issued  in favor of the  financing
     subsidiaries,  which  payments are used to pay dividends on those preferred
     securities.  In  addition,  Southern  Company  has guaranteed  payments due
     under the terms of those  securities. These securities are  non-recourse to
     Mirant.  In  connection  with  Mirant's  separation  from Southern Company,
     Capital Funding will be transferred to Southern Company.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Effects of Certain Organizational Changes

     The following  discussion and analysis of Mirant's financial  condition and
results  of  operations  should be read in light of the  organizational  changes
related  to the  Company's  marketing  and risk  management  operations  and the
resulting  impacts on  operating  revenues and  expenses.  On September 1, 1997,
Mirant formed Mirant Americas Energy Marketing, a joint venture with Vastar, and
both parties contributed substantially all of their North American gas marketing
and risk management assets to the venture. On January 1, 1998, Mirant and Vastar
contributed  their  North  American  electric   marketing  and  risk  management
operations to the Mirant Americas Energy  Marketing joint venture.  From January
1, 1998 through  August 9, 2000,  Mirant  accounted  for its  investment in this
joint venture  under the equity  method of accounting as Vastar had  significant
participation rights in Mirant Americas Energy Marketing.

     As a result,  Mirant's share of Mirant Americas Energy Marketing's earnings
is included in other income for all periods  through  August 9, 2000.  Effective
August 10, 2000, Mirant acquired Vastar's 40% interest in Mirant Americas Energy

                                       36
<PAGE>
Marketing  for  $250  million.  Upon  the  closing  of the  transaction,  Vastar
transferred  its  interest in Mirant  Americas  Energy  Marketing  to Mirant and
Mirant  Americas  Energy   Marketing   became  Mirant's  wholly  owned  indirect
subsidiary and has been  consolidated  in Mirant's  financial  statements  since
August 10, 2000.

     On August 25, 2000,  Mirant completed the sale of its 55% indirect interest
in Alicura  to The AES  Corporation  for total  consideration  of $205  million,
including the assumption of debt and the buy-out of minority partners. Alicura's
principal  asset is a concession  to operate a 1,000 MW  hydroelectric  facility
located in the Province of Neuquen,  Argentina.  As part of the sale, Mirant was
released from $200 million of credit  support  obligations  related to Alicura's
bank financing. Mirant's sale of Alicura did not materially impact its financial
position and did not have a material effect on its results of operations.

     On October 30, 2000,  WPD Limited,  a 49% owned  affiliate,  finalized  its
acquisition of Hyder for a total purchase price for the ordinary shares of Hyder
of approximately  (pound)565 million  (approximately  $847 million).  Associated
with this acquisition,  Mirant and PPL Corporation  ("PPL"), the owners of WPDH,
agreed to modify their  ownership of the voting  rights in WPDH to 50% each,  so
that both parties equally share operational and management control. As a result,
effective  December 1, 2000,  Western Power  Distribution  ("WPD") was no longer
consolidated  for accounting  purposes.  Instead,  Mirant's  investment has been
accounted  for under the equity  method and its net income is  included in other
income  since  December 1, 2000.  On March 16,  2001,  ownership  of South Wales
Electricity  plc was  transferred  from WPD  Limited to WPDH.  At the same time,
other  assets  were  transferred  from WPD  Limited  to WPDH  together  with the
effective transfer of debt.

     On December 19, 2000,  Mirant,  through its  subsidiaries and together with
lessors in a lease transaction, closed the acquisition of Potomac Electric Power
Company's ("PEPCO") generation assets in Maryland and Virginia. The net purchase
price for these assets was approximately  $2.75 billion,  which included working
capital and capital expenditures of approximately $100 million and approximately
$1.5 billion  provided by a leveraged  lease.  As part of the  acquisition,  the
Company also assumed net liabilities,  primarily transition power agreements and
obligations under power purchase agreements,  of approximately $2.4 billion. The
acquired  assets consist of four  generating  stations  totaling 5,154 MW, three
separate coal ash storage  areas,  a 51.5 mile oil pipeline,  and an engineering
and maintenance  service  facility and related assets.  The Company also entered
into a lease of the land on which the Potomac  River  station is located,  power
sales agreements with PEPCO under two separate  transition power agreements with
terms of up to four years, a local area support  agreement with PEPCO  requiring
the Potomac  River  station to operate for  purposes of  supporting a local load
pocket,  a  three-year  operation  and  maintenance  agreement  for  PEPCO's two
generating  stations  located in the District of Columbia and the  assumption of
five of PEPCO's power purchase agreements totaling 735 MW.

     In September 1999, Mirant's UK subsidiary,  WPD Holdings UK ("WPDH"),  sold
its supply  business to London  Electricity  plc for  (pound)160  million  ($264
million) and the assumption by the purchaser of certain liabilities.  The supply
business  retained the name SWEB and Mirant  renamed the remaining  distribution
business Western Power Distribution.  As a result of the sale, Mirant recorded a
gain of $286 million  prior to related  expenses,  minority  interest and income
taxes and a gain of $78 million after these items.

     Mirant's  operating  revenues  and  expenses  are  primarily  driven by the
operations of its controlled subsidiaries, which are consolidated for accounting
purposes.   Significant   consolidated   subsidiaries  include  Mirant  Americas
Generation,   Inc.  ("MAGI"),   Mirant  Americas  Energy  Marketing  and  Mirant
Asia-Pacific's  Philippines  operations.  Investments  in  companies  over which
Mirant  exercises  significant  influence but does not control are accounted for
using the equity method of accounting and, accordingly, the operating results of
these  entities  impact  other  income  in the  form  of  equity  in  income  of
affiliates.  Major affiliates  accounted for using the equity method at December
31,  2000  include  Bewag in  Germany,  WPDH and WPD  Limited in the UK,  Mirant
Asia-Pacific's  investment in the Shajiao C facility and Shandong  International
Power  Development  Company in China,  Power Generation  Company of Trinidad and
Tobago and CEMIG in Brazil.

                                       37
<PAGE>

Separation from Southern Company

     On January 19, 2001,  the Company  announced as part of the its  separation
from  Southern  Company,  that the Company was changing  its name from  Southern
Energy, Inc. to Mirant  Corporation.  The Company began doing business as Mirant
and trading under the Company's new ticker "MIR" on January 22, 2001 and legally
changed its name on February 26, 2001.

     On February 19, 2001,  Southern  Company's Board of Directors  approved the
distribution to its stockholders of its remaining interest in Mirant on April 2,
2001, to Southern  Company's  stockholders  of record as of March 21, 2001. This
distribution  was contingent  upon the timely  receipt of a supplemental  ruling
from the Internal Revenue Service stating that the  distribution  qualifies as a
tax-free  distribution.  The  supplemental  tax ruling was  received by Southern
Company on February 28, 2001, removing the contingency.  Mirant has entered into
various  agreements  with  Southern  Company  related  to  interim  and  ongoing
relationships  between the two  companies.  Southern  Company has been providing
various interim  services to Mirant,  in a manner similar to the manner in which
such services were provided to Mirant prior to the separation.  The transitional
services  generally will be provided for a fee equal to the greater of the cost,
including the actual direct and indirect costs, of providing the services or the
market value for such services.

     These transitional services generally have a term of two years or less from
the date of separation. However, some transitional services, including those for
engineering services and information technology services, may be extended beyond
the initial two-year period. For a description of these agreements, reference is
made to the section entitled "Agreements Between Us and Southern Company" (pages
138 to 145) in the prospectus filed by the Company with the SEC on September 27,
2000.

     In  connection  with Mirant's  separation  from  Southern  Company,  Mirant
transferred two of its subsidiaries, SE Finance and Capital Funding, to Southern
Company  and  redeemed  Southern  Company's  share of Mirant  series B preferred
stock.  on March 5, 2001.  As a result of the  transfer,  Southern  Company  has
assumed responsibility for all obligations of SE Finance and Capital Funding.

Basis of Presentation

     Mirant's consolidated financial statements include allocations to Mirant of
certain   Southern  Company   corporate   assets,   including   pension  assets;
liabilities,  including  profit  sharing,  pension  and  non-qualified  deferred
compensation  obligations;   and  expenses,  including  centralized  engineering
services, legal, accounting and human resources, insurance services, information
technology  services and other  Southern  Company  corporate and  infrastructure
costs. The expense  allocations,  which Mirant believes meet the requirements of
PUHCA, have been determined on bases that Southern Company and Mirant considered
to be reasonable  reflections  of the  utilization  of the services  provided to
Mirant or the benefit received by Mirant. The expense allocation methods include
relative sales, investment,  headcount,  square footage,  transaction processing
costs, adjusted operating expenses and others.

     On March 5, 2001, Mirant transferred its leasing business,  SE Finance,  to
Southern  Company.  Mirant has included the historical  results of operations of
the  related  subsidiaries  as a  discontinued  operation  in  the  consolidated
statements of income. Additionally,  because Mirant recently sold its investment
in Argentina and transferred its Capital Funding  subsidiary to Southern Company
and  intends  to  dispose  of its  investment  in  EDELNOR,  future  results  of
operations  may not be  comparable to the  historical  amounts  presented  after
Mirant sells these investments.

     The  financial  information  presented  may not be  indicative  of Mirant's
future  financial  position,  results of operations or cash flows or of what its
financial  position,  results of  operations  or cash flows  would have been had
Mirant been a separate, stand-alone entity for the periods presented.


                                       38
<PAGE>


Results of Operations

Year Ended December 31, 2000 as Compared to Year Ended December 31, 1999

Operating revenues. Mirant's operating revenues were $13,315 million in 2000, an
increase of $11,050  million,  or 488%,  from 1999.  The following  factors were
primarily responsible for the increases in operating revenues:

o    Revenues from generation and energy marketing products were $12,816 million
     in 2000, an increase of $11,729 million, or 1079%, from 1999. This increase
     resulted primarily from Mirant's acquisition  of Vastar's  40% interest  in
     Mirant Americas Energy Marketing effective on August 10, 2000, which is now
     consolidated in Mirant's financial statements.  The increase in revenue was
     also  attributable  to  a  full  year  of  operations  from  the  plants in
     California and New York, increased market demand in California,  as well as
     the  commencement  of commercial  operations of new plants in North America
     and a full year of operations from the Sual plant in the  Philippines. This
     increase  was reduced  somewhat  for  provisions  taken related to revenues
     from its California operations under reliability-must-run("RMR") contracts.

o    Distribution  and integrated  utility revenues were $477 million in 2000, a
     decrease of $666 million,  or 58%, from 1999. This decrease resulted from a
     reduction in revenues at WPD associated with the September 1999 sale of the
     SWEB supply business.

Operating expenses. Operating expenses were $12,683 million in 2000, an increase
of $10,862  million,  or 597%,  from 1999. The following  factors were primarily
responsible for the increases in operating expenses:

o    Cost of fuel,  electricity  and other products was $11,437 million in 2000,
     an increase of $10,503 million, or 1125%, from 1999. This increase resulted
     primarily from Mirant's acquisition of the remaining 40% of Mirant Americas
     Energy  Marketing,  which is now consolidated in its financial  statements.
     This increase was also  attributable  to a full year of operations from the
     plants in California and New York,  higher natural gas prices and increased
     electricity  market demand in the western U.S., as well as the commencement
     of commercial  operations of new plants in North America,  partially offset
     by the sale of the SWEB supply business.

o    Maintenance  expense was $136 million in 2000,  an increase of $20 million,
     or 17%, from 1999.  This increase was due to a full year of operations from
     its  plants  in  California  and  New  York,   commencement  of  commercial
     operations  of new plants in North  America  and a full year of  operations
     from  Mirant's Sual plant in the  Philippines.  This increase was partially
     reduced due to the deconsolidation of WPD effective December 1, 2000.

o    Depreciation and amortization expense was $317 million in 2000, an increase
     of $47 million, or 17%, from 1999. This increase was due to the acquisition
     of the  remaining 40% of Mirant  Americas  Energy  Marketing,  which is now
     consolidated in Mirant's  financial  statements,  a full year of operations
     from the plants in  California  and New York,  commencement  of  commercial
     operations  of new plants in North  America  and a full year of  operations
     from  Mirant's Sual plant in the  Philippines.  This increase was partially
     offset by WPD's sale of the SWEB  supply  business  and the  write-down  of
     meter  assets  in 1999,  as well as the  deconsolidation  of WPD  effective
     December 1, 2000.

o    Selling,  general and  administrative  expense was $520 million in 2000, an
     increase of $267 million, or 106%,  from 1999.  The increase resulted  from
     the  acquisition of the remaining 40% of Mirant  Americas Energy Marketing,
     which is now consolidated in the financial  statements, additional variable
     marketing costs paid to Mirant Americas Energy Marketing (prior to Mirant's
     acquisition of the remaining 40% of  Mirant Americas Energy Marketing  from
     Vastar), a full year of operations from the plants in California,  New York
     and Sual  in  the Philippines,  as well as a provision taken in relation to

                                       39
<PAGE>
     the California receivables. This increase was offset  partially by the sale
     of the SWEB supply  business and a loan  receivable  provision  recorded in
     1999 that  related  to  Mirant's  operations  in  China,  as  well  as  the
     deconsolidation  of WPD effective  December 1, 2000.

o    Write-down of assets was $18 million in 2000, a decrease of $42 million, or
     70%, from 1999.  This  decrease was primarily due to the  write-down of the
     meter assets at WPD in 1999.

o    Other  operating  expense  was $223  million in 2000,  an  increase  of $35
     million,  or 19%, from 1999. The majority of this increase  resulted from a
     full year of  operations  from the  plants in  California  and New York and
     additional  property  taxes  related  to  the  commencement  of  commercial
     operations of new plants in North America.  This was partially  reduced due
     to the deconsolidation of WPD effective December 1, 2000.

Other  Income  (Expense).  Other  expense was $162 million in 2000,  an increase
of $392  million  from 1999.  This change was primarily due to:

o    Interest expense was $615 million in 2000, an increase of $114 million,  or
     23%, from 1999. This increase was due to interest on additional  borrowings
     to finance  acquisitions,  fund dividends paid to Southern  Company and the
     commencement  of commercial  operations of new plants in North America,  as
     well as a full year of operations from the Sual plant in the Philippines.

o    Net gain on sale of assets  was $20  million in 2000,  a  decrease  of $293
     million,  or 94%, from 1999. This decrease was primarily due to the sale of
     the SWEB supply business in 1999 that resulted in a gain $286 million prior
     to taxes and other expenses.

o    Equity in income of affiliates was $196 million in 2000, an increase of $86
     million,  or 78%, from 1999. This increase was due to income from WPD after
     the deconsolidation effective December 1, 2000, income from Mirant Americas
     Energy  Marketing  prior to the acquisition of the remaining 40% and income
     from WPD Limited after its  acquisition  of Hyder.  In  1999 equity  income
     from Bewag decreased  by $50 million as a result of provisions for employee
     severance and early retirement. This was offset by increases related to the
     resolution  of disputes  from  Mirant's  operations  in China. In addition,
     there  was a  devaluation of the Brazilian Real in 1999 and an increase  in
     the  tariff  granted  by  the  government from the Company's  investment in
     Brazil during 2000.

o    Income from recovery of receivables  for 1999 was $64 million.  This amount
     represents  payments made by Hopewell Holdings Ltd.  pursuant to a warranty
     claim settlement.

o    Other, net was $50 million in 2000, a decrease of $22 million, or 31%, from
     1999. This decrease was primarily due to $29 million of insurance  proceeds
     received  in 1999  related  to the  explosion  and fire at the  State  Line
     facility  in   Indiana.   The  2000  amount  was  also  lower  due  to  the
     deconsolidation  of WPD. This was  partially  offset as a result of revenue
     from the sale of an option to acquire a stake in CEPA Holding Australia Pty
     Ltd,  which expired on December 31, 2000 and the settlement of a commercial
     dispute with an outside advisor from the Company's operations in Asia.

Provision  (Benefit)  for Income  Taxes.  The provision for income taxes was $86
million in 2000, a decrease of $43 million,  or 33%, from 1999. The decrease was
primarily  due to  approximately  $76 million of tax related to the 1999 sale of
the SWEB supply business and a favorable $20 million agreement reached at WPD in
the first quarter of 2000 with the UK's taxing authority,  Inland Revenue.  This
change  was  offset  in 2000 by  additional  tax  related  to  increased  income
generated by the Americas Group, tax expense related to Mirant's transition to a
publicly  traded  company,  as well as  additional  taxes related to a change in
Mirant's  cash  repatriation  strategy for the  Philippine  operations.  The tax
provision was also lower due to the deconsolidation of WPD in December of 2000.

                                       40
<PAGE>
Minority Interest.  Minority interest was $84 million in 2000, a decrease of $99
million, or 54%, from 1999. This decrease was primarily attributable to the sale
of the SWEB supply business in the third quarter of 1999 and the deconsolidation
of WPD effective December 1, 2000. This was offset partially by increased income
from operations in the Philippines and South America.

EarningsMirant's  consolidated  net income from  continuing  operations was $332
million in 2000,  a decrease of $30 million or 8% from 1999.  This  excludes the
income from Mirant's discontinued operations (SE Finance) of $27 million in 2000
and $10 million in 1999.  The  decrease  is  attributable  to Mirant's  business
segments as follows:

     Americas
     Net income from the Americas Group was $177 million in 2000, an increase of
     $84 million,  or 90%,  from 1999.  This  increase was due to a full year of
     operations from the plants in California and New York and increased  market
     demand on Mirant's  generating  units  related to weather and  transmission
     constraints.  In addition, the Company had strong performance from its risk
     management  and  marketing  activities  in power and natural gas as well as
     commercial  operation of new plants in North  America.  This was  partially
     offset  by  additional  provisions  taken  in  relation  to the  California
     receivables  and  an  estimated  loss  related  to an  energy  requirements
     contract.  This  difference  between  2000  and  1999  was  also due to the
     devaluation  of the  Brazilian  Real in 1999 and an  increase in the tariff
     granted by the government from Mirant's  investment in Brazil in 2000. This
     was partially offset by insurance  proceeds related to the 1998 accident at
     the State Line facility which increased 1999 net income by $14 million.

     Europe
     Net income from the Europe Group was $82 million in 2000, a decrease of $88
     million,  or 52%, from 1999.  This decrease is primarily due to the sale of
     the SWEB  supply  business  in 1999,  which  resulted  in a net gain of $78
     million. Adjusting for the sale of the SWEB supply business, net income for
     the year ended December 31, 1999 would have been $92 million. The remainder
     of the  decrease  is the result of  regulatory  decreases  in  distribution
     rates,  lower margins at Bewag, a fall in exchange rates and start-up costs
     incurred by Mirant's  European  marketing and risk  management  activities.
     This  was  offset  partially  by  increased  expenses  in 1999  related  to
     personnel reductions at Bewag.

     Asia-Pacific
     Net  income  from the  Asia-Pacific  Group  was $204  million  in 2000,  an
     increase of $29 million,  or 17%, from 1999.  The increase in net income is
     primarily  attributable to a full year of operations from the Sual plant in
     the  Philippines.  This was partially  offset by additional  accrued income
     taxes  in 2000  resulting  from a  change  in  Mirant's  cash  repatriation
     strategy for the Philippine operations.

     SE Finance (Discontinued Operations)
     Net income was $27 million in 2000,  an increase of $17  million,  or 170%,
     from 1999. This increase is due to additional  income from leases that were
     entered into during the fourth quarter of 1999.

     Corporate
     After-tax  corporate  costs were $131  million in 2000,  an increase of $55
     million,  or 131%,  from 1999. This increase is due to costs in 2000 of $34
     million related to Mirant's transition to a publicly traded company as well
     as additional  compensation  expenses related to the change in market value
     of its stock.  In addition,  Mirant  incurred  increased  interest  expense
     related to additional  corporate debt financings between the fourth quarter
     of 1999 and the third quarter of 2000 to fund acquisitions and dividends to
     Southern Company.



41
<PAGE>

Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998

Operating Revenues.  Mirant's operating revenues were $2,265 million in 1999, an
increase  of $446  million,  or 25%,  from 1998.  This  increase  was  primarily
attributable to a $678 million increase in the Americas region,  the majority of
which resulted from its North American  acquisitions in New England,  California
and New York. In addition, the commencement of commercial operations of Mirant's
Sual plant in the Philippines contributed revenues of $49 million in 1999. Those
increases  were  partially  offset by a reduction  of $297  million,  or 23%, in
revenues at Western Power  Distribution,  primarily as a result of the 1999 sale
of the SWEB supply business.

Operating  Expenses.  Excluding  the  write-down of assets,  Mirant's  operating
expenses for 1999 were $1,761 million, an increase of $245 million, or 16%, from
1998. This increase was primarily attributable to a $574 million increase in the
Americas  region,  the majority of which  resulted from its newly acquired North
American  business  units.  Western  Power  Distribution's   operating  expenses
decreased by $343  million,  or 32%,  primarily  because of the sale of the SWEB
supply business and cost reduction efforts in 1999.

Write-down  of Assets.  The $308 million  pre-tax  write-down  of assets in 1998
resulted from Mirant's  decision to sell its investments in Alicura and EDELNOR.
This charge reduced the carrying  value of these assets to their  estimated fair
market  value.  The $60 million  write-down  of assets in 1999  consisted of two
principal components.  First, as Alicura and EDELNOR continued to produce income
pending their sale, additional write-downs totaling $28 million were recorded to
avoid  increasing the carrying value of these assets above their  estimated fair
values.  Second,  Mirant recorded a $31 million write-down  primarily related to
Western Power  Distribution's  metering assets to reflect their reduced value as
the United Kingdom metering business becomes competitive.  Based on the proposed
changes in  regulation,  Mirant  determined  that the assets  were  impaired  by
comparing  associated  undiscounted cash flows to the carrying value of metering
assets. As a result, Mirant recorded an impairment loss to reflect the amount by
which the carrying value of metering assets exceeds their fair market value. The
fair market value was  determined  by computing  the present  value of estimated
future cash flows to be generated by the assets.

Other Income  (Expense).  Other income was $230 million in 1999,  an increase of
$280 million,  reflecting a large increase in income from an overall  expense in
1998. The following factors were responsible for this increase:

o   Interest expense for 1999 was $501 million,  an increase of $71 million,  or
    17%, from 1998 due to higher borrowing to finance acquisitions.

o   The  increase  in gain on sales of assets  reflects  a gain of $286  million
    relating  to the  1999  sale of the SWEB  supply  business,  before  related
    expenses, minority interest and taxes.

o   Equity in income of affiliates for 1999 was $110 million,  a decrease of $25
    million,  or 19%, from 1998.  This decline is primarily due to a $50 million
    reduction in income from Bewag as a result of provisions  recorded there for
    employee severance and early retirement,  partially offset by increases from
    Mirant's operations in China.

o   Income from recovery of receivables in 1999 was $64 million,  an increase of
    $35  million,  or  121%,  from  1998.  These  amounts  represent  successful
    resolution  of   negotiations   that  allowed  Mirant  to  recover   certain
    receivables previously determined uncollectible.

o   Other,  net for 1999 was $72 million,  an increase of $43 million,  or 148%,
    from 1998. This increase resulted from several factors. Mirant recognized an
    insurance  gain of $23  million  in  1999  resulting  from  the  receipt  of
    insurance  proceeds  in  excess  of book  value of  assets  destroyed  in an
    explosion  at  the  State  Line  plant  in  Indiana.  Additionally,   Mirant
    recognized higher equipment rental income at Western Power  Distribution and
    business interruption  insurance proceeds related to an equipment failure at
    EDELNOR.

                                       42
<PAGE>
Income  Taxes.  The  provision  for income taxes for 1999 was $129  million,  an
increase of $252 million  from the $123  million tax benefit  recorded for 1998.
This  increase  is due in part to higher  income  from  operations  and the SWEB
supply business sale. In addition,  the 1998 benefit  reflects the tax effect of
the write-down of South American investments.

Minority  Interest.  Minority  interest in income for 1999 was $183 million,  an
increase of $103 million from 1998. This increase  primarily relates to the gain
on the sale of the SWEB supply business.

Net Income. Net income  for 1999  was  $372 million, as compared to $0 for 1998.
The  increase  in  net  income is attributable  to Mirant's business segments as
follows:

Americas
    Mirant's  recorded  net income was $93  million in 1999 as compared to a net
    loss of $180 million in 1998. This increase primarily resulted from the 1998
    write-down  of $200  million,  after tax,  related to  Alicura  and  EDELNOR
    compared  with  write-downs  of $18 million,  after tax, in 1999 to maintain
    those  investments for sale at fair value. The remaining  increase  resulted
    from earnings  attributable  to Mirant's North American  acquisitions in New
    England, California and New York, the commencement of operations of Southern
    Producer Services in 1999 and a gain from insurance  proceeds related to the
    1998 fire and explosion at the State Line facility.

    Europe
    Net income from Mirant's European  operations totaled $170 million for 1999,
    an  increase  of $29  million  over the prior  year.  The  increase  in 1999
    earnings reflects a $78 million gain on the sale of the SWEB supply business
    in the third  quarter,  offset by a total of $50 million in charges at Bewag
    associated  with  personnel  who  accepted  voluntary  severance  and  early
    retirement  packages  and the  write-down  of Western  Power  Distribution's
    metering assets partially offset by cost reduction  efforts at Western Power
    Distribution.

    Asia-Pacific
    Mirant's  net  income  in  Asia-Pacific   for  1999  totaled  $175  million,
    representing   an  increase  of  $107  million  over  the  prior  year.  The
    significant increase was primarily related to the commencement of operations
    of the Sual plant in October  1999,  increased  contributions  from Mirant's
    operations in China and successful  resolution of negotiations  that allowed
    Mirant  to  recover  certain   receivables   previously   determined  to  be
    uncollectible.

    Corporate
    After tax corporate  costs produced a net loss of $66 million in 1999 versus
    a $29 million  net loss for 1998.  The  increased  loss  primarily  reflects
    additional  interest  expense from  corporate  debt incurred  during 1999 to
    finance acquisitions.

Liquidity and Capital Resources

     Historically,  Mirant has obtained cash from  operations,  borrowings under
credit  facilities,  issuances of commercial paper and senior notes,  borrowings
and capital  contributions  from Southern Company and proceeds from non-recourse
project  financing.  These funds have been used to finance  operations,  service
debt  obligations,  fund the  acquisition,  development  and/or  construction of
generating facilities and distribution businesses,  finance capital expenditures
and meet other cash and liquidity  needs.  Some of the cash receipts  associated
with Mirant's  businesses have been transferred to Southern Company from time to
time, and Southern  Company has provided  funds to cover Mirant's  disbursements
from time to time.  Mirant will not receive any  additional  funds from Southern
Company or pay cash dividends to Southern Company.

                                       43
<PAGE>


     The projects that Mirant develops  typically  require  substantial  capital
investment.  Some of the  projects  in which  Mirant has an  interest  have been
financed primarily with non-recourse debt that is repaid from the project's cash
flows. This debt is sometimes secured by interests in the physical assets, major
project  contracts  and  agreements,  cash  accounts  and,  in some  cases,  the
ownership interest in that project  subsidiary.  These financing  structures are
designed  to ensure  that  Mirant is not  contractually  obligated  to repay the
project  subsidiary's  debts, that is, they are  "non-recourse" to Mirant and to
its  subsidiaries  not  involved in the project.  However,  Mirant has agreed to
undertake limited financial support for some of its project  subsidiaries in the
form of limited  obligations  and contingent  liabilities  such as guarantees of
specific obligations. To the extent Mirant becomes liable under these guarantees
or other agreements in respect of a particular  project,  Mirant may have to use
distributions it receives from other projects to satisfy these obligations.

     On October 2, 2000, the Company  completed the initial  public  offering of
66.7  million  shares of its common  stock at a price of $22.00 per share.  In a
concurrent  offering,  the  Company  sold 6.9 million 6 1/4%  convertible  trust
preferred  securities  for an initial  price of $50.00 per  preferred  security.
Goldman,  Sachs & Co.  and  Morgan  Stanley  & Co.  Incorporated  were the joint
book-running  managers  and the  representatives  of the  underwriters  for both
offerings.  The net proceeds from the offerings,  after  deducting  underwriting
discounts, commissions payable and other internal costs incurred by the Company,
were $1,714 million. The Company used the net proceeds of the offerings to repay
$900 million of short-term debt from credit lines and $581 million of commercial
paper.  The remaining  proceeds were put into short-term  investments to be used
for general corporate purposes.

   Effects of Mirant's Separation From Southern Company

     In connection with Mirant's  separation from Southern Company,  on March 2,
2001 Mirant transferred to Southern Company its leasing subsidiary,  SE Finance.
SE Finance  had net cash  flows from  operations  of $141  million in 2000,  $32
million in 1999 and $(37)  million in 1998.  While there were no cash flows from
investing  activities  for  2000,  SE  Finance  used cash  flows  for  investing
activities  of $271 million in 1999 and $185 million in 1998.  It also used cash
flows from financing activities of $76 million in 2000, $240 million in 1999 and
$227 million in 1998.

     Under agreements between Southern Company and Mirant, Mirant is required to
indemnify  Southern  Company  for  taxation  costs if  Mirant  were to cause the
distribution  of its stock to fail to be  tax-free.  Mirant  estimates  that the
amount of any indemnification payments would be approximately $2 billion. Mirant
does not currently maintain capital resources to fund potential  indemnification
payments to Southern  Company for this purpose.  Mirant believes the probability
of  an  event  occurring  that  would  require  it to  make  these  payments  is
sufficiently  low and  sufficiently  under  its  control  that  Mirant  does not
allocate  liquidity for this contingency.  If, however,  the contingency  should
occur, Mirant believes it could fund the  indemnification  payments through cash
flows from operations, new borrowings and, if necessary, asset sales. Payment of
this obligation would  materially  affect Mirant's  financial  condition and its
earnings and impair the ability to achieve its growth  strategy.  See additional
discussion  concerning  the  separation  from  Southern  Company in  "Additional
Factors  that  Could  Affect  Future  Performance--Risks   Related  to  Mirant's
Separation from Southern Company".

   Operating Activities

     Cash provided from operating activities totaled  approximately $908 million
for 2000 as  compared to  approximately  $515  million for 1999,  an increase of
approximately 76%. This increase is due to Mirant's acquisition of the remaining
40% of  Mirant  Americas  Energy  Marketing,  which is now  consolidated  in its
financial  statements,  and a  full  year  of  operations  from  the  plants  in
California,  New York and the Sual plant in the  Philippines.  In addition , the
Company had increased market demand and market prices for electricity and gas in
the western U.S., as well as the  commencement  of commercial  operations of new
plants in North America.

                                       44
<PAGE>
     As a result of  Mirant's  separation  from  Southern  Company,  Mirant  has
reviewed the current  strategy of earnings  deferral from Asia. On July 1, 2000,
Mirant adopted a strategy under which only a portion of the future earnings will
be deferred in order to reinvest  funds for further  growth in the  Philippines,
fund construction  efforts, or service debt obligations.  The remaining earnings
will be  repatriated  for  reinvestment  elsewhere  or to  service  parent  debt
obligations.

   Investing Activities

     Cash  used in  investing  activities  totaled  $2,778  million  for 2000 as
compared to $2,121  million for 1999,  an increase  of  approximately  31%.  The
amount in 2000 is primarily  attributable to the acquisitions of the assets from
PEPCO,  and also  includes the  acquisition  Hyder and of the  remaining  40% of
Mirant Americas Energy Marketing from Vastar.  This compares to the acquisitions
of the  California  and New  York  operations  as well  as the  commencement  of
operations of Mirant's Sual plant in the  Philippines  in 1999.  Mirant has used
cash flows provided by financing  activities primarily to finance investments in
Mirant's subsidiaries.

   Financing Activities

     Cash  provided  from  financing  activities  totaled  approximately  $2,861
million  in 2000 as  compared  to  $1,374  million  for  1999,  an  increase  of
approximately 108%. The increase is primarily attributable to the $1,714 million
of net proceeds received for the Company's initial public offering and financing
the  acquisition  of assets  from  PEPCO in 2000.  This  compares  to  financing
activities  during  1999 which  included  $1,730  million of  proceeds  from the
issuance of short-term and long-term debt to fund the acquisitions of California
and New York. These inflows were partially offset by $491 million in payments of
long-term debt, $503 million of dividends and return of capital paid to Southern
Company and $28 million in dividends to minority interests during 2000.

     Mirant expects its cash and financing  needs over the next several years to
be met through a combination  of cash flows from  operations and debt and equity
financings.  Mirant  has  generally  financed  the  operations  of its  regional
businesses and their projects primarily using financing  arrangements  requiring
loans to be repaid  solely  from cash  flows at either the  regional  or project
level.  Credit documents at subsidiaries  financed in this manner often restrict
the ability to pay dividends and management fees periodically to Mirant when the
respective  subsidiary  fails to meet certain  minimum  criteria  such as making
timely  payments  of debt  service,  not meeting  debt  service  coverage  ratio
thresholds,  and  certifying  that there is no default or event of default under
the relevant credit documents. There may also be additional limitations that are
adapted to the particular characteristics of each project affiliate.

     As of December 31, 2000,  sources of liquidity included the April 1999 $800
million  Citibank  credit  facility  (facilities  B and C),  the June  2000 $1.0
billion  Bank of  America  credit  facility  and the  August  2000 $100  million
Wachovia  letter of credit  facility.  Additionally,  Mirant entered into a $650
million loan agreement with CSFB in September 2000 intended to partially finance
its  acquisition  of the PEPCO assets.  Mirant's  existing  facilities  and cash
position,  along with existing credit facilities at its subsidiaries and others,
currently being arranged to finance  construction costs, are expected to provide
sufficient   liquidity  for  new   investments,   working  capital  and  capital
expenditures,  including  letters of credit,  through  2001.  As of December 31,
2000, Mirant had drawn $200 million under the September $650 million CSFB credit
facility  and issued  letters of credit  totaling  $406  million and $86 million
under the April 1999 $800 million  Citibank  credit facility and the August 2000
$100 million  Wachovia letter of credit  facility,  respectively.  Additionally,
Mirant  held $472  million in  unrestricted  cash at  Mirant,  most of which was
earmarked for future payments associated with the assumption of transition power
agreements and power purchase agreements from PEPCO.

     Mirant has obtained  consent from the required  majority of its lenders for
each of its facilities to amend the respective credit agreements such that there
is no event of default when Southern  distributes  Mirant's  shares.  Mirant has
also obtained similar consents from project lenders where applicable.

                                       45
<PAGE>

     Mirant  plans  to seek  proposals  in the  first  half of 2001  for  credit
facilities that will replace some existing Mirant corporate bank facilities that
would come due in 2001, unless Mirant elects to exercise term out options of one
year or more. New credit facilities will be designed to provide working capital,
letters of credit and interim financing for smaller investments.  Mirant expects
to size new credit  facilities  to provide a  significant  amount of  additional
liquidity  for  unforeseen  needs.  A portion  of funds  drawn  under the credit
facilities may be replaced by a capital markets issue later in 2001.

     Any projects Mirant develops in the future and those assets Mirant may seek
to acquire, are likely to require substantial capital investment. Mirant expects
to finance new investment primarily at the project or subsidiary level. Mirant's
ability to arrange financing on a substantially  non-recourse basis is dependent
on numerous factors.  However, Mirant may have to provide more financial support
for the project  entity or at a subsidiary  level to satisfy its future  capital
needs.

     The market  price of Mirant's  common stock at December 31, 2000 was $28.31
per share and the book  value was $12.21  per share  based on the 338.7  million
shares outstanding at December 31, 2000,  representing a market-to-book ratio of
232%.

Commitments and Capital Expenditures

   Energy Marketing and Risk Management

     Mirant has approximately  $877 million in trade credit support  commitments
related to its energy  marketing and risk  management  activities as of December
31, 2000.  Mirant has also guaranteed the performance of its obligations under a
multiyear  agreement  entered into by Mirant with Brazos . Under the  agreement,
effective January 1999, Mirant provides all the electricity required to meet the
needs of the  distribution  cooperatives  served  by  Brazos.  Also,  Mirant  is
entitled  to the  output of  Brazos'  generation  facilities  and its  rights to
electricity  under power purchase  agreements Brazos has entered into with third
parties.  Mirant's guarantee was $75 million for the first year of the agreement
and  declines  by $5  million  per year to $55  million in the fifth year of the
agreement.

     To the extent that Mirant does not maintain an investment grade rating,  it
would be required to provide alternative  collateral to certain  counterparties.
Such  collateral  might  be in  the  form  of  letters  of  credit.  Performance
guarantees assure a subsidiary's  performance of contractual obligations whether
it is commodity delivery or payment.

     Mirant has a $64 million guarantee outstanding at December 31, 2000 related
to Pan Alberta Gas, Ltd.

     Vastar, a subsidiary of BP Amoco,  and Mirant had issued certain  financial
guarantees made in the ordinary course of business, on behalf of Mirant Americas
Energy Marketing's  counterparties,  to financial  institutions and other credit
grantors.  Mirant has agreed to  indemnify  BP Amoco  against  losses under such
guarantees  in  proportion  to Vastar's  former  ownership  percentage of Mirant
Americas Energy  Marketing.  At December 31, 2000,  such guarantees  amounted to
approximately $312 million.

     Mirant  Americas  Energy  Marketing  has a contract  with BP Amoco  through
December 31, 2007 to purchase  the natural gas that would have been  produced by
Vastar (now a unit of BP Amoco) in Canada,  Mexico, and the contiguous states of
the United States.  The negotiated  purchase price of delivered gas is generally
equal to the daily  spot rate  prevailing  at each  delivery  point.  As part of
Mirant's  acquisition  of  Vastar's  40%  interest  in  Mirant  Americas  Energy
Marketing, Mirant agreed to amend the gas purchase and sale agreement whereby BP
Amoco is obligated to deliver fixed  quantities at identified  delivery  points.
The  agreement  will  continue to be in effect  through  December 31, 2007.  The
amendment became effective November 1, 2000.

                                       46
<PAGE>
   Turbine Purchases and Other Construction-Related Commitments

     Mirant,  either  directly  or  indirectly  through  its  subsidiaries,  had
commitments  outstanding  at December  31,  2000,  to  purchase 94 turbines  and
equipment packages,  with an anticipated total capacity of approximately  18,310
MW.  Mirant has options to purchase up to an  additional  26  turbines,  with an
anticipated  total  capacity  of  approximately  7,100 MW.  Minimum  termination
amounts under the  contracts  were $196 million at December 31, 2000. If all the
turbines  are  purchased as planned,  the total  payments  under these  purchase
agreements and the related long-term  service  agreements would amount to $3,240
million at December 31, 2000.

     Mirant has  entered  into firm  commitments  to meet  ongoing  construction
obligations  at its projects,  including  contracts for materials  purchases and
engineering, procurement and construction-related services. These commitments at
December 31, 2000 totaled approximately $474 million.

   Long-term Service Agreements

     Mirant has entered into long-term  service  agreements for the  maintenance
and repair of its combustion turbine or combined cycle generating plants.  These
agreements  may be  terminated  in the event a planned  construction  project is
cancelled. Minimum termination amounts under the agreements were $168 million at
December 31, 2000. At December 31, 2000, the amount  committed for  construction
projects in process is approximately $2,255 million.

   Power Purchases Agreements

     Under the asset purchase and sale  agreement for PEPCO,  Mirant assumed the
obligations and benefits of five power purchase agreements with a total capacity
of 735 MW.

   Operating Leases

     Mirant has  commitments  under  operating  leases  with  various  terms and
expiration   dates.   Expenses   associated  with  these   commitments   totaled
approximately $17 million,  $17 million,  and $25 million during the years ended
December 31, 2000, 1999 and 1998, respectively.

     Mirant  entered  into  leveraged  lease  transactions  that  provided  $1.5
billion, net of associated expenses, of the purchase price at the closing of the
PEPCO  transaction.  The leases  will be treated  as  operating  leases for book
purposes whereby one of Mirant's  subsidiaries will record periodic lease rental
expenses.  Mirant has the  following  annual  amounts  committed  for  long-term
service,  turbine  purchases,  fuel,  power  purchases and operating  leases (in
millions):
<TABLE>
<CAPTION>


                               Long-Term      Turbine
      Fiscal Year Ended:       Service        Purchase        Fuel           Power Purchase   Operating
                               Agreements     Commitments     Commitments    Agreements       Leases
                               ----------     -----------     -----------    --------------   ----------
         <S>                      <C>            <C>                <C>             <C>             <C>
      2001.................... $      23      $   1,048          $  184          $    26         $  219
      2002....................        67          1,320             180               11             191
      2003....................       119            712              55                0             170
      2004....................       174            136              54                0             141
      2005....................       180             24              55                0             136
      Thereafter..............     1,692              0              75                0           2,479
                               ---------      ---------       ---------          -------         -------
      Total minimum payments.. $   2,255      $   3,240           $ 603            $  37         $ 3,336
                               =========      =========       =========          =======         =======
</TABLE>

   Litigation and Other Contingencies

   CEMIG

   In September  1999, the state of Minas Gerais,  Brazil,  filed a lawsuit in a
state court seeking  temporary relief against SEB exercising voting rights under
the shareholders'  agreement between the state of Minas Gerais and SEB regarding

                                       47
<PAGE>
SEB's interest in CEMIG, as well as a permanent rescission of the agreement.  On
March 23,  2000,  a state  court in Minas  Gerais  ruled that the  shareholders'
agreement was invalid.  SEB has appealed that decision and a second  decision by
the same court  invalidating  the  shareholders'  agreement in a case brought by
employees of CEMIG against the state of Minas Gerais.  Mirant believes that this
is a temporary  situation and expects that the  shareholders'  agreement will be
fully restored. Failure to prevail in this matter would limit Mirant's influence
on the daily operations of CEMIG. However SEB would still have 33% of the voting
shares  of CEMIG and hold 4 of 11 seats on  CEMIG's  board of  directors.  SEB's
economic  interest in CEMIG would not be affected.  The  significant  rights SEB
would lose relate to  supermajority  rights and the right to  participate in the
daily  operations  of CEMIG.  SEB  obtained  financing  from Banco  Nacional  de
Desenvolvimento  Economico e Social ("BNDES") for approximately 50% of the total
purchase price of the CEMIG shares which is secured by a pledge of its shares in
CEMIG. The interest payment originally due May 15, 2000, in the amount of $107.8
million, has been deferred until May 15, 2001.

   State Line

      On July 28, 1998, an explosion  occurred at the State Line plant causing a
fire and substantial damage to the plant. The precise cause of the explosion and
fire has not been determined. Thus far, seven personal injury lawsuits have been
filed against Mirant, five of which were filed in Cook County, Illinois.  Mirant
filed a motion to dismiss  these  five  cases in 1998 for lack of "in  personam"
jurisdiction.  The motion  was  denied in August  1999.  In  October  1999,  the
Appellate Court of Illinois granted Mirant's  petition for leave to appeal.  The
outcome of these proceedings  cannot now be determined and an estimated range of
loss cannot be made.

   Mobile Energy

     Mobile  Energy  is the  owner of a  facility  that  generates  electricity,
produces  steam  and in the past  processed  black  liquor as part of a pulp and
paper complex in Mobile,  Alabama. On January 14, 1999, Mobile Energy and Mobile
Energy Services  Holdings,  Inc.,  which  guaranteed debt  obligations of Mobile
Energy,  filed voluntary petitions in the United States Bankruptcy Court for the
Southern District of Alabama,  seeking protection under Chapter 11 of the United
States  Bankruptcy  Code.  Southern  Company has  guaranteed  certain  potential
environmental  and certain other  obligations  of Mobile Energy that represent a
maximum  contingent  liability  of $19 million as of December  31, 2000. A major
portion of the maximum contingent  liability  escalates at the rate equal to the
rate of increase in the producer  price index.  As part of its  separation  from
Southern  Company,  Mirant  has agreed to  indemnify  Southern  Company  for any
obligations incurred under such guarantees.

     An amended  plan of  reorganization  was filed by Mobile  Energy and Mobile
Energy Services Holdings,  Inc. on February 21, 2001. This amended plan proposes
to cancel the existing  taxable and  tax-exempt  bond debt of Mobile  Energy and
transfer  ownership of Mobile Energy and Mobile Energy Services  Holdings to the
holders of that debt.  Approval of that  proposed plan of  reorganization  would
result in a  termination  of Southern  Company's  direct and indirect  ownership
interests in both entities,  but would not affect Southern Company's  continuing
guarantee obligations that are described above.

   Reliability-Must-Run Agreements

      Mirant subsidiaries acquired generation assets from Pacific Gas & Electric
Co. ("PG&E") in April 1999, subject to  reliability-must-run  agreements.  These
agreements allow the CAISO, under certain conditions,  to require certain Mirant
subsidiaries  to run the  acquired  generation  assets in order to  support  the
reliability of the California electric transmission system. Mirant assumed these
agreements  from PG&E prior to the  outcome of a FERC  proceeding  initiated  in
October 1997 that will determine the percentage of a $158.8 million annual fixed
revenue   requirement   to  be  paid  to   Mirant   by  the   CAISO   under  the
reliability-must-run agreements. This revenue requirement was negotiated as part
of a prior settlement of a FERC rate proceeding. Mirant contends that the amount
paid by the CAISO should  reflect an  allocation  based on the CAISO's  right to
call on the units (as defined by the  reliability-must-run  agreements)  and the
CAISO's actual calls. This approach would result in annual payments by the CAISO

                                       48
<PAGE>
of approximately $120 million, or 75% of the settled fixed revenue  requirement.
The  decision  in this case will  affect the amount the CAISO will pay to Mirant
for the period from June 1,1999 through  December 31, 2001. On June 7, 2000, the
administrative  law  judge  presiding  over the  proceeding  issued  an  initial
decision in which  responsibility for payment of approximately 3% of the revenue
requirement  was allocated to the CAISO.  On July 7, 2000,  Mirant  appealed the
administrative  law  judge's  decision  to the FERC.  The outcome of this appeal
cannot be determined.  A final FERC order in this  proceeding may be appealed to
the U.S. Court of Appeals.

     If Mirant is unsuccessful in its appeal of the  administrative  law judge's
decision,  it  will  be  required  to  refund  certain  amounts  of the  revenue
requirement  paid by the CAISO for the period  from June 1, 1999 until the final
disposition  of the appeal.  The amount of this  refund as of December  31, 2000
would have been  approximately $138 million,  however,  there would have been no
effect on net income for 2000. This amount does not include interest that may be
payable in the event of a refund.  If Mirant is unsuccessful  in its appeal,  it
plans  to  pursue  other  options   available  under  the   reliability-must-run
agreements  to mitigate the impact of the  administrative  law judge's  decision
upon its future operations.  The outcome of this appeal is uncertain, and Mirant
cannot provide assurance that it will be successful.

   CAISO and PX Price Caps

      Beginning in May 2000,  wholesale energy prices in the California  markets
increased to levels well above 1999 levels.  In response,  on June 28, 2000, the
CAISO  Board of  Governors  reduced  the price  cap  applicable  to the  CAISO's
wholesale energy and ancillary  services markets from $750/Mwh to $500/Mwh.  The
CAISO  subsequently  reduced the price cap to $250/Mwh on August 1, 2000. During
this  period,   however,   the  California  Power  Exchange  Corporation  ("PX")
maintained  a separate  price cap set at a much higher level  applicable  to the
"day-ahead" and "day-of" markets administered by the PX. On August 23, 2000, the
FERC denied a complaint filed August 2, 2000 by San Diego Gas & Electric Company
("SDG&E")  that  sought to extend the CAISO's  $250 price cap to all  California
energy and ancillary service markets,  not just the markets  administered by the
CAISO.  However,  in its order  denying  the  relief  sought by SDG&E,  the FERC
instructed  its staff to  initiate  an  investigation  of the  California  power
markets  and to  report  its  findings  to the  FERC and  held  further  hearing
procedures in abeyance pending the outcome of this investigation.

     On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff  investigation,  together  with an "Order  Proposing  Remedies  for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the  California  power  market  structure  and market rules were
seriously flawed,  and that these flaws,  together with short supply relative to
demand,  resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called  "soft"  price cap at  $150/MWh to be applied to both the PX and CAISO
markets,  which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain  reporting  obligations  requiring  sellers to provide cost
data and/or identify applicable  opportunity costs and specifying that such bids
may  not  set  the  overall  market  clearing  price,  (b)  elimination  of  the
requirement  that the  California  utilities  sell into and buy from the PX, (c)
establishment of independent  non-stakeholder governing boards for the CAISO and
the PX, and (d)  establishment  of penalty  charges  for  scheduling  deviations
outside of a  prescribed  range.  In the  November 1 Order the FERC  established
October 2, 2000,  the date 60 days after the filing of the SDG&E  complaint,  as
the  "refund  effective  date."  Under the  November 1 Order  rates  charged for
service after that date through  December 31, 2002 will remain subject to refund
if  determined  by the  FERC  not to be just  and  reasonable.  While  the  FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly  suggested that refunds would not be permissible for charges in the
period  prior to  October  2,  2000,  it noted  that it was  willing  to explore
proposals for equitable relief with respect to charges made in that period.

     On December 15, 2000,  the FERC issued a subsequent  order that affirmed in
large  measure the November 1 Order (the  "December  15 Order").  The order also
required  generators to provide  weekly  reports of sales above the "soft" price
cap of $150/Mwh. Various parties filed requests for administrative rehearing and

                                       49
<PAGE>
for  judicial  review of aspects of the FERC's  December  15 Order.  On March 8,
2001, the PX filed for bankruptcy.  Mirant is in the process of evaluating what,
if any, impact the PX's bankruptcy will have on the receivables owed to it.

     On Friday,  March 9, 2001, the FERC issued an order which held that certain
transactions  into the CAISO and PX  markets  have not been shown to be just and
reasonable. The order determined that potential refunds would be appropriate for
certain transactions in these markets during a CAISO-declared Stage 3 Emergency,
absent additional price or cost justification by jurisdictional  sellers.  These
sellers,  including  Mirant  California,  LLC,  Mirant  Delta,  LLC,  and Mirant
Potrero,  LLC, have until March 23, 2001 to determine whether to provide refunds
of costs above a "proxy market price"  established  by the FERC for the month of
January,  or to provide  justification of costs or prices to the FERC. The order
further  explained  that  FERC  will  undertake  an  analysis  to  determine  an
appropriate proxy market price at the end of each month through April 2001, with
the price to be announced no later than fifteen days of the end of each month.

     The FERC's  proxy market price for January was  $273/MWh,  calculated  as a
cost-based formula for a hypothetical  simple-cycle combustion turbine unit. The
FERC identified the total potential refund exposure for Mirant California,  LLC,
Mirant Delta, LLC, and Mirant Potrero, LLC, as $2,186,059.

     On March 16, the FERC established its proxy price for February at $430/MWh.
The total refund exposure for Mirant  California,  LLC,  Mirant Delta,  LLC, and
Mirant Potrero, LLC for February is $826,111.

   Department of Energy Order

     On December 14, 2000,  the Secretary of the  Department  of Energy  ("DOE")
ordered that certain suppliers of electricity  provide  electricity to the CAISO
for delivery to California utility companies when the CAISO certified that there
was inadequate electrical supply. Subsequent orders extended this requirement to
February 7, 2001. The DOE orders expired at that time and have not been renewed.
Mirant  subsidiaries were called upon by the CAISO to provide power to the CAISO
under the DOE orders.

   Proposed CAISO and PX Tariff Amendments

     On January 4, 2001,  the CAISO  filed for  approval  of a tariff  amendment
whereby its credit rating requirements for certain electricity  purchasers would
be reduced.  The action was taken in response  to reports  that  Moody's and S&P
were on the verge of reducing the credit ratings of Southern  California  Edison
("SCE")  and PG&E to  ratings  that  would not  allow  SCE and PG&E to  purchase
electricity from the CAISO unless they posted collateral for their purchases. In
its filing,  the CAISO  announced its intention to implement the reduced  credit
requirements  immediately  in order to ensure the  reliability of the California
power grid. On January 5, 2001,  the PX filed a similar  request with respect to
the PX's tariffs as the CAISO had  requested on January 4. On February 14, 2001,
the FERC ruled that the tariff amendment  requested by the PX should be rejected
because it had ceased to operate its day-ahead and day-of markets.  With respect
to the CAISO's request, the FERC allowed the CAISO to amend its tariff to remove
the  credit-worthiness  requirements  only with respect to the  scheduling  by a
utility  purchaser  from  the  CAISO  of  power  from  generation  owned by that
purchaser. The FERC rejected the proposed amendment with respect to purchases by
the CAISO from third-party suppliers. The application of this ruling by the FERC
to the CAISO's  purchases  under its emergency  dispatch  authority is currently
being disputed.

   Defaults by SCE and PG&E

     On January 16 and 17, 2001,  SCE's and PG&E's  credit and debt ratings were
lowered by Moody's and S&P to "junk" or "near junk" status.  On January 16, 2001
SCE indicated that it would suspend indefinitely certain obligations including a
$215  million  payment  due  to  the PX  and a  $151  million  payment  due to a

                                       50
<PAGE>

qualifying facility. On January 30, 2001, the PX suspended operation of its "day
ahead" and "day of"  markets.  On  February  1,  2001,  PG&E  indicated  that it
intended to default on payments of over $1 billion due to the PX and  qualifying
facilities.

   DWR Power Purchases

     On January  17,  2001,  the  Governor  of  California  issued an  emergency
proclamation  giving  the  California  Department  of  Water  Resources  ("DWR")
authority to enter into  arrangements to purchase power in order to mitigate the
effects of electrical  shortages in the state.  The DWR began  purchasing  power
under that  authority  the next day.  On  February  1,  2001,  the  Governor  of
California  signed Assembly Bill No. 1X authorizing the DWR to purchase power in
the wholesale  markets to supply  retail  consumers in California on a long-term
basis. The Bill became effective immediately upon its execution by the Governor.
The Bill did not,  however,  address  the  payment  of  amounts  owed for  power
previously  supplied to the CAISO or PX for purchase by SCE and PG&E.  The CAISO
and PX have not paid the full amounts owed to Mirant Americas  Energy  Marketing
for power  delivered to the CAISO and PX in prior months and are expected to pay
less than the full amount owed on further  obligations  coming due in the future
for power  provided  to the PX or the CAISO for sales that were not  arranged by
the DWR.

     Mirant through its  subsidiaries  has  approximately  3000 MW of generating
capacity in California. This includes facilities which operate during periods of
intermediate  load and peak  demand  levels.  Mirant's  California  subsidiaries
generated  an  amount  equivalent  to about 4% of the  total  California  energy
consumption in 2000. The Company's combined receivables from both the PX and the
CAISO as of December  31, 2000 and as of late  February  2001  (unaudited)  were
approximately $375 million and $385 million  (unaudited),  respectively,  net of
settlements  due to the PX. There are other sources of  collateral  and revenues
which  could  potentially  provide  additional  offset to these net  receivables
listed  above.  On a  going-forward  basis,  Mirant  does not  expect a material
portion of its income to be derived from  receivables  due from the PX and CAISO
attributable to purchases on behalf of non-credit-worthy entities in California.
While the  ultimate  collectibility  of the net  receivables  cannot be  readily
determined,  Mirant has taken a provision which it believes  adequately  covered
its exposure as of December 31, 2000 related to the increased credit and payment
risks associated with the California power situation.  Additionally, the Company
continues to monitor the  situation in the western  U.S.  and  anticipates  that
significant additional reserves will be taken in the first quarter of 2001.

   Attorney General,  California  Public  Utilities  Commission  and Legislative
    Investigations

     The  California  Public  Utilities  Commission  ("CPUC") and the California
Attorney General's office have each launched  investigations into the California
energy markets that have resulted in the issuance of subpoenas to several Mirant
entities. The CPUC issued one subpoena to Mirant entities in mid-August 2000 and
one in September  2000.  In  addition,  the CPUC has had  personnel  onsite on a
periodic basis at Mirant's California generating facilities since December 2000.
The California  Attorney  General issued its subpoena to Mirant in February 2001
under the following  caption:  "In the Matter of the  Investigation  of Possibly
Unlawful,  Unfair, or Anti-Competitive  Behavior Affecting Electricity Prices in
California." Each of these subpoenas,  as well as the plant visits, could impose
significant  compliance  costs on Mirant or its  subsidiaries.  Despite  various
measures taken to protect the confidentiality of sensitive  information provided
to these  agencies,  there  remains  a risk of  governmental  disclosure  of the
confidential, proprietary, and trade secret information obtained by the CPUC and
the Attorney General through this process.

     On March 14, 2001,  the  California  Senate  announced  the  formation of a
committee to  investigate  alleged  manipulation  in the state  electricity  and
natural  gas  markets.  To  date,  Mirant  has not  received  subpoenas  in this
investigation.

     While Mirant will vigorously defend any claims of potential civil liability
or criminal wrongdoing  asserted against it or its subsidiaries,  the results of
such investigations cannot now be determined.

                                       51
<PAGE>
   California Class Action Litigation

     Five lawsuits have been filed in the superior courts of California alleging
that certain owners of electric  generation  facilities in California and energy
marketers,  including  Mirant  Corporation,  Mirant Americas Energy  Marketing ,
Mirant Delta, Mirant Potrero, and Southern Company,  engaged in various unlawful
and anticompetitive  acts that served to manipulate  wholesale power markets and
inflate wholesale electricity prices in California. Four of the suits seek class
action status. One lawsuit alleges that, as a result of the defendants' conduct,
customers paid approximately $4 billion more for electricity than they otherwise
would have and seeks an award of treble damages, as well as other injunctive and
equitable  relief.  The other suits  likewise seek treble  damages and equitable
relief. While two of the suits name Southern Company as a defendant,  it appears
that  the  allegations,   as  they  may  relate  to  Southern  Company  and  its
subsidiaries,  are directed to activities of subsidiaries of Mirant Corporation.
One such suit names Mirant Corporation  itself as a defendant.  Southern Company
has notified Mirant of its claim for  indemnification  for costs associated with
these actions under the terms of the Master  Separation  Agreement  that governs
the  separation of Mirant from Southern  Company,  and Mirant has undertaken the
defense of all of the claims.  The final  outcome of the lawsuits  cannot now be
determined.

   Environmental Information Requests

     Along with several other  electric  generators  which own facilities in New
York, in October 1999 Mirant New York received an  information  request from the
state of New York  concerning the air quality  control  implications  of various
repairs and  maintenance  activities of Mirant New York at its Lovett  facility.
Mirant  New  York  responded  fully  to this  request  and  provided  all of the
information  requested  by the state.  The state of New York  issued  notices of
violation to some of the utilities being investigated. The state issued a notice
of  violation  to the  previous  owner  of Plant  Lovett,  Orange  and  Rockland
Utilities,  alleging  violations  associated  with the operation of Plant Lovett
prior to the  acquisition  of the plant by Mirant New York. To date,  Mirant New
York has not received a notice of violation.  Mirant New York disagrees with the
allegations  of  violations  in the notice of  violation  issued to the previous
owner.  The notice of violation  does not specify  corrective  actions which the
state of New York may  require.  Under  the  sales  agreement  with  Orange  and
Rockland   Utilities  for  Plant  Lovett,   Orange  and  Rockland  Utilities  is
responsible  for fines and penalties  arising from  historical  operations,  but
Mirant New York may be  responsible  for the cost of purchasing  and  installing
emission control equipment,  the cost of which may be material.  Mirant New York
is engaged in discussions with the state to explore a resolution of this matter.

     In January 2001,  EPA,  Region 3 issued a request for information to Mirant
Mid-Atlantic  concerning  the air  permitting  implications  of past  repair and
maintenance  activities  at its Potomac River plant in Virginia and Chalk Point,
Dickerson  and  Morgantown  plants in Maryland.  Mirant  Mid-Atlantic  is in the
process of responding fully to this request.

   Bewag

     On August 10, 2000, E.on Energie announced that it had reached an agreement
with Hamburgische Electricitaets-Werke AG (HEW) to sell E.on Energie's 49% share
of Bewag  effective  January 1, 2001. On August 15, 2000,  the Berlin high court
issued a preliminary  injunction,  at Mirant's  request,  to prevent the sale of
E.on Energie's shares in Bewag to HEW. This injunction was upheld on December 4,
2000, but has been appealed by E.on Energie. The appeal proceedings are still in
the early stages. The matter is also in the process of binding arbitration. E.on
Energie has submitted a counterclaim  to the  arbitrators  seeking,  among other
things, recovery of damages it claims it suffered as a result of the injunction.
Upon E.on Energie's  request,  Mirant  instituted legal proceedings in the state
court of Berlin seeking  confirmation of the injunction of the Berlin court. The
outcome  of  the  pending   proceedings  is  uncertain.   Mirant,   through  its
subsidiaries,  has made an offer to  purchase  E.on  Energie's  49%  interest in
Bewag.  Mirant has also stated its  willingness  to negotiate a settlement  with
E.on Energie and HEW that would result joint control of Bewag by HEW and Mirant.

                                       52
<PAGE>
   WPD and SWE Pension Issues

      WPD and South  Wales  Electricity  plc face  potential  regulatory  issues
related to their use of a pension surplus which was primarily utilized to offset
the cost of providing  early  pensions to terminated  employees.  An independent
pension  arbitrator has issued a ruling directing that another industry employer
should  refund such  amounts with  interest to the  Electricity  Supply  Pension
Scheme ("ESPS").  This ruling is currently being appealed to the House of Lords.
The ESPS provides  pension and other related  defined  benefits,  based on final
pensionable  pay, to  substantially  all employees  throughout  the  electricity
supply  industry  in the United  Kingdom.  The  majority of both WPD's and South
Wales  Electricity  plc's  employees  are ESPS members.  Mirant  cannot  provide
assurance  that this appeal will succeed or that neither WPD nor South Wales plc
will be required to refund to the ESPS any amounts previously used to fund early
retirement  costs,  which  management  estimates to be  approximately  (pound)27
million  (approximately $40 million).  Under SFAS 87 "Employers'  Accounting for
Pensions,"  the Company  does not  anticipate  any  immediate  impact to its net
income.

   International Energy Limited Arbitration Award:

      In December 2000, an arbitration award was handed down against Mirant Asia
Pacific  ("MAP")  relating  to  fees  in the  amount  of  $26  million  owed  to
International  Energy Limited  ("IEL") for the Tanjung Jati project.  The matter
relates  to an  agreement  with  IEL  entered  into  by MAP  prior  to  Mirant's
acquisition  of MAP from Hopewell  Holdings Ltd.  ("HHL").  In 1997 MAP sold the
Tanjung Jati project to HHL. Under the Sales Agreement HHL provided an indemnity
obligation from HHL for certain  matters,  including such matters as this claim.
To date HHL has acknowledged  the indemnity and defended the suit.  Mirant fully
expects  HHL to  perform  its  obligation  to  indemnify  MAP for any  liability
incurred in connection with enforcement of the award.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

     Mirant is exposed to market risks,  including changes in interest rates and
currency  exchange  rates.  Through  various  hedging  mechanisms,  the  Company
attempts to mitigate some of the impact of changes in energy prices, fuel costs,
interest rates and exchange  rates on its results of  operations.  To manage the
volatility  inherent in these market  risks,  the Company nets the  exposures to
take advantage of natural  offsets.  In addition,  Mirant may enter into hedging
transactions to mitigate the remaining  exposures as part of its risk management
program.

   Energy Commodity Price Risk

     Mirant's  energy  marketing and risk management  subsidiaries  enter into a
variety of contractual  commitments,  such as swaps, swap options, cap and floor
agreements,  futures contracts, forward purchase and sale agreements, and option
contracts.  These contracts  generally  require future settlement and are either
executed  on an  exchange  or traded as  Over-the-Counter  ("OTC")  instruments.
Contractual  commitments have widely varying terms and have durations that range
from a few days to a number of years, depending on the instrument.

     The way in which Mirant accounts for and presents  contractual  commitments
in its  financial  statements  depends  on both  the  type  and  purpose  of the
contractual commitment held or issued. As discussed in the summary of accounting
policies,  the Company  records  all  contractual  commitments  used for trading
purposes,  including  those  used to hedge  trading  positions,  at fair  value.
Consequently,  changes in the  amounts  recorded in the  Company's  consolidated
balance  sheets  resulting  from movements in fair value are included in trading
revenues   in  the  period  in  which  they  occur.   Mirant  also   engages  in
commodity-related  marketing  and price risk  management  activities in order to
hedge market risk and exposure to  electricity  and to natural  gas,  coal,  and
other fuels  utilized by its  generation  assets.  These  financial  instruments
include primarily forwards,  futures, and swaps. The gains and losses related to
these  derivatives  are  recognized  in the same  period  as the  settlement  of

                                       53
<PAGE>
underlying physical transaction. These realized gains and losses are included in
operating  revenues  and  operating  expenses in the  accompanying  consolidated
statement of income.  Contractual  commitments expose the Company to both market
risk and credit risk.

   Interest Rate Risk

     The Company uses interest rate swaps to hedge underlying debt  obligations.
These  swaps hedge  specific  debt  issuances  and  currently  qualify for hedge
accounting.  Consequently, the interest rate differential associated with a swap
is  reflected  as an  adjustment  to  interest  expense  over  the  life  of the
instruments. In August and September of 2000, MAGI entered into forward starting
interest  rate swaps  intended  to hedge  anticipated  bond  issuances  in 2001.
Further,  some of Mirant's  other  subsidiaries  have entered into interest rate
swaps in  foreign  currencies.  These  swaps are  designated  as hedges of those
subsidiaries' related debt issuances in the same currency. If Mirant sustained a
100 basis  point  change in  interest  rates for all  variable  rate debt in all
currencies,  the change  would affect net income by  approximately  $10 million,
based on variable rate debt and  derivatives,  cash balances and other  interest
rate sensitive instruments outstanding at December 31, 2000.

   Foreign Currency Exchange Rate Risk

     Mirant uses  long-term  cross-currency  agreements  to hedge a  significant
portion of its net  investments  in both Western Power  Distribution  and Bewag.
These cross-currency  agreements hedge Mirant's cash exposure to fluctuations in
the British Pound Sterling and Deutschemark exchange rates with the U.S. Dollar.
The Company also has investments in various  emerging market countries where the
net  investments  are not hedged,  including  Chile,  Trinidad  and Tobago,  the
Bahamas,  the Philippines and China. The Company relies on either contractual or
regulatory links to the U.S. Dollar to mitigate  currency risks  attributable to
these  investments.  As a result of these links to the U.S. Dollar,  the Company
does not believe it has a material  cash  exposure to changes in exchange  rates
between the U.S. Dollar and the currencies of these  countries.  The Company has
also entered  short-term  forward  agreements to hedge  inter-company  loans and
equity provided to purchase a portion of Hyder. Mirant intends to roll these out
into long-term  cross-currency  agreements similar to those used for investments
in Western Power Distribution and Bewag.

     In  addition,  Mirant  has  currency  exposure  which it is unable to hedge
related to its  investment in CEMIG.  Revenues at CEMIG and dividends from CEMIG
are denominated in Brazilian Reals and a significant portion of debt incurred to
finance CEMIG is required to be repaid in other currencies.  CEMIG's  agreements
with the  Brazilian  government  provide  for rate  increases  in the event of a
devaluation of the Real and indexes power  purchases to the U.S.  dollar.  These
agreements  provide the Company some  protection  against a  devaluation  of the
Real;  however,  it does not  completely  cover its exposure.  For example,  the
devaluation of the Real in January 1999 resulted in a write down of $83 million,
net of income tax effects, in the currency translation account category included
in Mirant's equity accounts.

     Mirant  utilizes  currency  swaps  and  forward  agreements  to hedge  U.S.
dollar-denominated  debt  issued by its  Southern  Investments  UK and Hyder plc
affiliates.  These  swaps  offset the dollar  cash  flows,  thereby  effectively
converting debt to the respective  subsidiary's  functional currency.  Gains and
losses  related to qualified  hedges of foreign  currency firm  commitments  are
deferred and included in the basis of the underlying transactions. To the extent
that a qualifying  hedge is terminated or ceases to be effective as a hedge, any
deferred gains and losses to that point continue to be deferred and are included
in the basis of the underlying transaction.

     Mirant has hedge transactions that may  not  continue to qualify  for hedge
accounting  under the  Financial Accounting Standards  Board  ("FASB")  proposed
Statement of  Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") and SFAS No.138,
"Accounting for Certain  Derivative  Instruments and Certain Hedging  Activities
an Amendment of FASB Statement No. 133" ("SFAS No. 138").

                                       54
<PAGE>

     Mirant  measures  currency  earnings  risk  related  to  its  international
holdings  based  on  changes  in  foreign  currency  rates  using a  sensitivity
analysis. The sensitivity analysis measures the potential loss in earnings based
on a  hypothetical  10% change in currency  exchange  rates.  The  Company  used
exchange  rates and  currency  positions  as of December 31, 2000 to perform the
sensitivity analysis.  Such analysis indicates that a hypothetical 10% change in
foreign currency exchange rates would have decreased net income by approximately
$6  million  had  the  U.S.  Dollar  exchange  rate  increased  relative  to the
currencies with which Mirant had exposure.

     For all derivative financial instruments,  the Company is exposed to losses
in the event of nonperformance  by counterparties to these derivative  financial
instruments.  The Company has established  controls to determine and monitor the
creditworthiness  of  counterparties  to mitigate its  exposure to  counterparty
credit risk.

   Interest and Currency Swaps

     Mirant's policy is to manage interest  expense using a combination of fixed
and variable rate debt. To manage this mix in a  cost-efficient  manner,  Mirant
enters into  interest  rate swaps in which it agrees to  exchange,  at specified
intervals, the difference between fixed and variable interest amounts calculated
by  reference  to an  agreed-upon  notional  principal  amount.  These swaps are
designated to hedge  underlying debt  obligations.  For qualifying  hedges,  the
interest rate  differential  is reflected as an  adjustment to interest  expense
over the life of the swaps.  Gains and losses  resulting from the termination of
qualified  hedges prior to their stated  maturities are recognized  ratably over
the remaining life of the instrument being hedged.

     Currency  swaps are used by Mirant to hedge its net  investment  in certain
foreign  subsidiaries.  Gains or losses on these  currency  swaps  designated as
hedges of net investments are offset against the translation  effects  reflected
in other  comprehensive  income, net of tax. Currency forwards are used to hedge
contracts denominated in a foreign currency.

     The interest  rates noted in the  following  table  represent  the range of
fixed  interest  rates that Mirant pays on the related  interest rate swaps.  On
virtually all of these interest rate swaps,  Mirant receives  floating  interest
rate payments at LIBOR.  The currency  derivatives  mitigate  Mirant's  exposure
arising from certain foreign currency transactions.
<TABLE>
<CAPTION>

                         Year of Maturity    Interest        Number of     Notional    Unrecognized
Type                      or Termination       Rates      Counterparties    Amount      Gain (Loss)
----                      --------------       -----      --------------    ------      -----------
                                                                              (in millions)
<S>                            <C>                <C>           <C>            <C>        <C>
Interest rate swaps          2002-2012      6.55%-7.12%         9            $2,150     $ (110)
                             2002-2007      4.98%-5.79%         2             DM691       $ (5)
Cross currency swaps              2002               -          2         (pound)44          1
Cross currency swaption           2003               -          2             DM338         24
Currency forwards            2001-2003               -          1             CAD19          -
                                  2001               -          4        (pound)116         (5)
                                                                                     ---------
                                                                                        $  (95)
   (pound) - Denotes British Pounds Sterling.
         DM - Denotes Deutschemark.
         CAD - Denotes Canadian Dollars.
</TABLE>

     The  unrecognized  gain/loss for interest rate swaps is determined based on
the  estimated  amount that Mirant would  receive or pay to  terminate  the swap
agreement  at  the  reporting   date  based  on  third-party   quotations.   The
unrecognized  gain/loss for cross-currency  financial  instruments is determined
based on current foreign  exchange rates. As indicated in the previous table, if

                                       55
<PAGE>
the  existing  derivative  financial  instruments  at December 31, 2000 had been
discontinued  or Mirant  counterparties  defaulted on those dates,  Mirant would
have recognized  losses of approximately $95 million.  However,  at December 31,
2000,  Mirant believes that its exposure to credit risk due to nonperformance by
the  counterparties to its financial  derivatives is not material,  based on the
investment grade rating of the counterparties.

   Market Risk

     Market  Risk is the  potential  loss that  Mirant  may incur as a result of
changes in the fair value of a particular instrument or commodity. All financial
and  commodities-related  instruments,  including  derivatives,  are  subject to
market  risk.  Mirant's  exposure  to market risk is  determined  by a number of
factors,  including the size,  duration,  composition,  and  diversification  of
positions held and the absolute and relative  levels of interest  rates, as well
as market  volatility and liquidity.  For instruments such as options,  the time
period during which the option may be exercised and the relationship between the
current market price of the underlying  instrument and the option's  contractual
strike or  exercise  price  also  affects  the level of  market  risk.  The most
significant  factor influencing the overall level of market risk to which Mirant
is exposed is its use of various  risk  management  techniques.  Mirant  manages
market  risk by actively  monitoring  compliance  with  stated  risk  management
policies as well as monitoring  the  effectiveness  of its hedging  policies and
strategies  through  its risk  oversight  committees.  Mirant's  risk  oversight
committees  review and monitor  compliance  with risk  management  policies that
limit the amount of total net  exposure  and  rolling  net  exposure  during the
stated periods.  These policies,  including related risk limits, are approved by
the Group Boards of Directors and are regularly assessed by management to ensure
their appropriateness given Mirant's objectives. Mirant's corporate risk control
officer  is a member of the  Group  risk  oversight  committees  to ensure  that
information is communicated to Mirant's senior management and audit committee as
needed.

     Mirant uses a systematic  approach to the evaluation and management of risk
associated with its marketing and risk  management-related  commodity contracts,
including  value-at-risk ("VAR"). VAR is defined as the maximum loss that is not
expected to be exceeded with a given degree of confidence and within a specified
holding period.

     Mirant uses a 95%  confidence  interval  and holding  periods  that vary by
commodity  and tenor to evaluate its risks with  respect to VAR.  Based on a 95%
confidence  interval and employing a one-day  holding  period for all positions,
Mirant's portfolio of positions had a VAR of $25.6 million at December 31, 2000.
During 2000, the actual daily change in fair value never exceeded this daily VAR
calculation.  Mirant also utilizes  additional  risk control  mechanisms such as
commodity position limits and stress testing.

     The fair values of Mirant's assets from risk management activities recorded
in the  consolidated  balance  sheets  at  December  31,  2000,  were  comprised
primarily of approximately  52% electricity and 45% natural gas. The fair values
of the liabilities from risk management  activities recorded in the consolidated
balance sheets at December 30, 2000, were comprised  primarily of  approximately
52% electricity and 45% natural gas.

   Credit Risk

     In conducting its energy marketing and risk management  activities,  Mirant
regularly  transacts  business with a broad range of entities and a wide variety
of end-users,  trading  companies,  and financial  institutions.  Credit risk is
measured by the loss Mirant would record if its counterparties failed to perform
pursuant  to the  terms  of  their  contractual  obligations  and the  value  of
collateral  held,  if any,  were not adequate to cover such  losses.  Mirant has
established   controls  to  determine  and  monitor  the   creditworthiness   of
counterparties,  as well as the quality of pledged  collateral,  and uses master
netting   agreements   whenever   possible  to  mitigate  Mirant's  exposure  to
counterparty credit risk. Master netting agreements enable Mirant to net certain
assets and  liabilities by  counterparty.  Mirant also nets across product lines
and against cash  collateral,  provided such  provisions are  established in the
master netting and cash collateral agreements.  Additionally, Mirant may require
counterparties to pledge additional collateral when deemed necessary.

                                       56
<PAGE>

     Concentrations  of  credit  risk  from  financial  instruments,   including
contractual  commitments,  exist  when  groups of  counterparties  have  similar
business  characteristics  or are  engaged in like  activities  that would cause
their ability to meet their contractual commitments to be adversely affected, in
a similar manner, by changes in the economy or other market  conditions.  Mirant
monitors credit risk on both an individual basis and a group counterparty basis.

     No single  counterparty  represents 10% or more of Mirant's credit exposure
at December 31, 2000.  Mirant's overall exposure to credit risk may be impacted,
either  positively or negatively,  because its  counterparties  may be similarly
affected by changes in economic, regulatory, or other conditions.

Accounting Pronouncements

     In June 2000,  the FASB issued SFAS No. 138, an  amendment of SFAS No. 133.
SFAS No. 133, as amended,  establishes  accounting  and reporting  standards for
derivative instruments,  and for hedging activities. The Statement requires that
certain derivative instruments be recorded in the balance sheet as either assets
or  liabilities  measured at fair value,  and that  changes in the fair value be
recognized  currently in earnings unless specific hedge accounting  criteria are
met.  Mirant adopted the  provisions of SFAS No. 133, as amended,  on January 1,
2001 and such adoption is expected to result in a cumulative after-tax reduction
in other comprehensive income of approximately $300 million in the first quarter
of fiscal year 2001.  Mirant  anticipates  that SFAS No. 133 will  increase  the
volatility in other comprehensive income because the derivative  instruments are
valued  based on market  indices.  The  adoption  will also  impact  assets  and
liabilities recorded on the balance sheet.

     The application of SFAS No. 133 is still evolving and further guidance from
the FASB is expected. In particular, there are two implementation questions that
remain unresolved by the FASB that specifically relate to Mirant's industry. The
first issue relates to the unplanned  netting of electricity  transactions  with
the same counterparty (referred to as a "bookout") which is used in the electric
utility  industry as a scheduling  convenience when two utilities happen to have
offsetting  transactions.  The  FASB has yet to  conclude  on  whether  bookouts
represent gross settlement or net settlement.

     If bookouts are determined to be net settlement features,  then the related
contracts cannot qualify for the normal purchases and sales exception;  however,
if a  bookout  is  viewed  by the FASB to be  viewed  as gross  settlement,  the
contract would qualify for this normal purchases and sales exception.

     The second issue relates to capacity contracts.  A unique characteristic of
the  electric  utility  industry is that  electricity  cannot be stored and as a
result, contracts to buy and sell electricity generally allow the purchaser some
flexibility in determining when to take electricity,  as well as the quantity to
take,  in order to match  power  delivery  to  fluctuating  demand.  Such  power
contracts  typically include a charge (the capacity or demand charge) to recover
the  significant  cost of related plant and financing and also a separate charge
to recover the variable cost of producing  power (the energy  charge).  The FASB
has yet to conclude on whether such contracts  should  uniquely  qualify for the
normal  purchases and normal sales exception even though they appear to give the
buyer some optionality.  SFAS No. 133 does not allow option contracts to qualify
for the normal purchases and sales exception.

     Mirant's  SFAS No. 133 current  accounting  policies  assume that  bookouts
qualify for the normal  purchases and sales  exception.  Additionally,  Mirant's
accounting policies assume that contracts containing capacity and energy charges
qualify for the normal  purchases and sales  exception.  When  established,  the
final  conclusions from the FASB concerning these two issues may have additional
impacts on Mirant's financial statements.

     During 2000, the Company adopted  Emerging Issues Task Force ("EITF") Issue
No. 00-17,  "Measuring  the Fair Value of  Energy-Related  Contracts in Applying
Issue No. 98-10" without material impact on its earnings or financial  position.
This EITF provides additional  clarification to companies in the energy industry
in accounting for energy trading and risk management contracts.

                                       57
<PAGE>
Special note regarding forward-looking statements:

     The  information  presented  in this  Form  10-K  includes  forward-looking
statements,  in addition to historical  information.  These  statements  involve
known and unknown risks and relate to future events,  Mirant's future  financial
performance  or  projected  business  results.  In some  cases,  forward-looking
statements by terminology may be identified by statements such as "may," "will,"
"should,"   "expects,"   "plans,"   "anticipates,"    "believes,"   "estimates,"
"predicts,"  "targets," "potential" or "continue" or the negative of these terms
or other comparable terminology.

     Forward-looking  statements are only predictions.  Actual events or results
may differ materially from any forward-looking  statement as a result of various
factors,  which include:  (i) legislative and regulatory  initiatives  regarding
deregulation, regulation or restructuring of the electric utility industry; (ii)
the extent and timing of the entry of additional  competition  in the markets of
Mirant's  subsidiaries  and  affiliates;  (iii)  Mirant's  pursuit of  potential
business  strategies,  including  acquisitions  or  dispositions  of  assets  or
internal  restructuring;  (iv) state,  federal and other rate regulations in the
United  States and in  foreign  countries  in which  Mirant's  subsidiaries  and
affiliates  operate;  (v) changes in or application of  environmental  and other
laws and  regulations  to which Mirant and its  subsidiaries  and affiliates are
subject;  (vi) political,  legal and economic conditions and developments in the
United  States and in  foreign  countries  in which  Mirant's  subsidiaries  and
affiliates  operate;  (vii)  financial  market  conditions  and the  results  of
Mirant's  financing  efforts;  changes in commodity  prices and interest  rates;
weather and other natural  phenomena;  (viii)  performance of Mirant's  projects
undertaken   and  the   success  of  efforts  to  invest  in  and   develop  new
opportunities;  (ix) unanticipated developments in the California power markets,
including,  but  not  limited  to,  unanticipated   governmental   intervention,
deterioration  in  the  financial   condition  of  counterparties,   default  on
receivables  due,  adverse  results in current or future  litigation and adverse
changes  in  the  tariffs  of  the  California  Power  Exchange  Corporation  or
California  Independent  System  Operator  Corporation,  and (x) other  factors,
discussed  elsewhere  herein and in other reports  (including  Mirant's Form S-1
filed September 27, 2000) filed from time to time by Mirant with the SEC.

     Although   Mirant   believes  that  the   expectations   reflected  in  the
forward-looking  statements  are  reasonable,  Mirant  cannot  guarantee  future
results,  events, levels of activity,  performance or achievements.  Mirant does
not undertake a duty to update any of the forward-looking statements.

Additional Factors that Could Affect Future Performance

    In  addition  to  the  discussion  of  certain  risks  in  the  Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
notes to Mirant's consolidated  financial  statements,  other factors that could
affect the  Company's  future  performance  (business,  financial  condition  or
results of operations) are set forth below.

Risks Related to Mirant's Business

   Changes in commodity  prices may  increase  the cost of  producing  power and
   decrease  the  amount  Mirant  receives  from  selling  power,  resulting  in
   financial performance below its expectations.

    Mirant's  generation and  distribution  businesses are subject to changes in
power prices and fuel costs which may impact its financial results and financial
position by increasing the cost of producing  power and decreasing the amount it
receives from the sale of power. In addition, actual power prices and fuel costs
may  differ  from those  assumed  in  Mirant's  financial  models.  As a result,
Mirant's financial results may not meet its expectations.

   Mirant's  profitability  may decline if it is not able to fully hedge against
   changes  in  commodity  prices or if its  hedging  procedures  do not work as
   planned.

    To  lower   Mirant's   financial   exposure   related  to  commodity   price
fluctuations,  Mirant's energy marketing and risk management  business routinely

                                       58
<PAGE>

enters  into  contracts  to  hedge  purchase  and  sale   commitments,   weather
conditions, fuel requirements and inventories of natural gas, coal, electricity,
crude oil and other  commodities.  As part of this  strategy,  Mirant  routinely
utilizes  fixed-price  forward physical  purchase and sales contracts,  futures,
financial swaps and option contracts traded in the  over-the-counter  markets or
exchanges.  However,  Mirant does not expect to cover the entire  exposure  from
market price  volatility  of its assets and the coverage will vary over time. In
addition,  as a result of marketplace  illiquidity  and other factors,  Mirant's
marketing and risk management operations may, at times, be unable to fully hedge
their portfolios for market risks. Failure to hedge against changes in commodity
prices may cause Mirant's profitability to decline.

    Mirant  may,  at  times,  have  an  open  position  in  the  market,  within
established  guidelines,  resulting from the management of its portfolio. To the
extent open positions exist,  fluctuating  commodity prices can impact financial
results and financial position, either favorably or unfavorably.

    Commodity price variability  results from many factors,  including  weather,
illiquid markets, transmission or transportation inefficiencies, availability of
competitively priced alternative energy sources,  demand for energy commodities,
natural gas, crude oil and coal production,  natural disasters,  wars, embargoes
and other  catastrophic  events,  and  federal,  state and  foreign  energy  and
environmental regulation and legislation.

    Furthermore,  the risk  management  procedures  Mirant  has in place may not
always be followed  or may not always work as planned.  As a result of these and
other  factors,  Mirant cannot  predict with  precision the impact that its risk
management decisions may have on its businesses,  operating results or financial
position. Although Mirant devotes a considerable amount of management efforts to
these issues, their outcome is uncertain.

   Mirant's  projects  located  outside of the United  States expose it to risks
   related to laws of other countries, taxes, economic conditions,  fluctuations
   in currency  rates,  labor supply and  relations,  political  conditions  and
   policies of foreign  governments.  These  risks may delay or reduce  Mirant's
   realization of value from its international projects.

    Mirant has substantial operations outside the United States. In 2000, Mirant
derived  approximately  79% of its  net  income  from  foreign  operations.  The
acquisition, financing, development and operation of projects outside the United
States entail significant  political and financial risks, which vary by country,
including:

    o changes in laws or regulations,
    o changes in foreign  tax laws and  regulations,  including  unexpected  tax
    liabilities, o changes in United States laws, including tax laws, related to
    foreign  operations,   o  compliance  with  United  States  foreign  corrupt
    practices laws, o changes in government policies or personnel,  o changes in
    general  economic  conditions   affecting  each  country,  o  difficulty  in
    converting  earnings to U.S.  dollars or moving  funds out of the country in
    which the funds
        were earned,
    o fluctuations in currency exchange rates,
    o changes in labor  relations in  operations  outside the United  States,  o
    political instability and civil unrest, and o expropriation and confiscation
    of assets and facilities.

    Despite  contractual  protections Mirant has against many of these risks for
its  operations  in the  Philippines,  China and some other  countries  in which
Mirant  operates or may invest in the  future,  Mirant's  actual  results may be
affected by the  occurrence  of any of these  events.  The  occurrence of any of
these  events  could  substantially  delay or reduce  the  value of the  project
concerned.

    Risk from  fluctuations  in currency  exchange rates can arise when Mirant's
foreign subsidiaries borrow funds in one type of currency but receive revenue in

                                       59
<PAGE>

another.  In such cases, an adverse change in exchange rates can reduce Mirant's
ability to meet debt service  obligations.  Foreign currency risk can also arise
when the  revenues  received by Mirant's  foreign  subsidiaries  are not in U.S.
dollars.  In such cases,  a  strengthening  of the U.S.  dollar could reduce the
amount of cash and income it receives from these foreign subsidiaries.

    While Mirant  believes it has hedges and  contracts in place to mitigate its
most significant  foreign currency  exchange risks, it has some exposure that is
not hedged. For example, while Mirant uses long-term  cross-currency  agreements
to hedge a  significant  portion of its net  investments  in both Western  Power
Distribution and Bewag AG, it has a portion that is not hedged.  Mirant also has
currency  risks with its  investment  in CEMIG in Brazil.  Mirant  believes that
these  risks are  material  but it has decided not to hedge them due to the high
cost and the uncertain effectiveness of implementing such a hedge.

    Mirant's  international  operations  are  subject to  regulation  by various
foreign governments and regulatory authorities. The laws and regulations of some
countries may limit Mirant's ability to hold a majority  interest in some of the
projects  that it may develop or acquire,  thus  limiting its ability to control
the development,  construction and operation of those projects. In addition, the
legal  environment in foreign countries in which Mirant currently owns assets or
projects or may develop  projects in the future could make it more difficult for
it to enforce its rights under  agreements  relating to such projects.  Mirant's
international projects may also be subject to risks of being delayed,  suspended
or terminated by the applicable  foreign  governments or may be subject to risks
of contract invalidation by commercial or governmental entities. For example, in
the Philippines pending electricity reform laws and implementing regulations are
intended  to break-up  and  privatize  most of the  Philippines  National  Power
Corporation,  Mirant's  main  customer.  Mirant  does  not  believe  that  these
regulations  will  have a  material  adverse  effect  on its  operations  in the
Philippines but it cannot provide assurance that this will be the case.

   Some  of  Mirant's  facilities  depend  on  only  one or a few  customers  or
   suppliers.  These  parties,  as well as other  parties  with whom  Mirant has
   contracts,  may fail to  perform  their  obligations,  which may  result in a
   default on project debt and may require Mirant to institute legal proceedings
   to enforce its agreements.

    Several of Mirant's power production facilities rely on a single customer or
a few customers to purchase all of the facility's output or on a single supplier
or a few suppliers to provide fuel,  water and other  services  required for the
operation of the facility.  Mirant's sale and  procurement  agreements for these
facilities  may also  provide  support for any project  debt used to finance the
related facilities.  The financial  performance of these facilities is dependent
on the continued  performance  by customers  and suppliers of their  obligations
under their long-term  agreements  and, in particular,  on the credit quality of
the facilities'  customers.  A facility's  financial results could be materially
adversely  affected  if any one  customer  or  supplier  fails  to  fulfill  its
contractual  obligations  and  Mirant  is  unable  to find  other  customers  or
suppliers to produce the same level of profitability. As a result of the failure
of a major customer or supplier to meet its contractual obligations,  Mirant may
be unable to repay obligations under its project or corporate debt.

    In addition,  Mirant's marketing and risk management  operations are exposed
to the risk  that  counterparties  which  owe it money or  energy as a result of
market transactions will not perform their obligations. Mirant is currently owed
significant  past due revenues  from the PX and CAISO as a result of the failure
of Pacific Gas and  Electric  and Southern  California  Edison to perform  their
obligations  to the PX and CAISO.  Mirant has had to take legal  action  against
some  counterparties  in the past because of their  failure to perform,  and one
counterparty filed for bankruptcy protection as a result.

   Mirant  may be unable to obtain the  financing  it needs to pursue its growth
   strategy,  and any future  financing  received may be less favorable than its
   current  arrangements.  Any  difficulty  experienced  in obtaining  favorable
   financing  arrangements  may adversely  affect Mirant's ability to expand its
   operations and, as a result, may adversely affect the value of its stock.

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<PAGE>

    Each  of  Mirant's   projects  under  development  and  those  projects  and
businesses  Mirant may seek to acquire or  construct  will  require  substantial
capital  investment.  Mirant's continued access to capital with acceptable terms
is  necessary  for the  success of its growth  strategy.  Mirant's  attempts  to
consummate future financings may not be successful or on favorable terms.

    Mirant has generally been able to arrange for a majority of the financing of
each project or business on a basis that is  substantially  non-recourse  to it.
Mirant may attempt to continue this practice  where and when it determines it to
be in the Company's  best  interest,  but Mirant cannot  provide  assurance that
market  conditions and other factors will permit future project and  acquisition
financings on terms similar to those its subsidiaries have previously  received.
Mirant's ability to arrange for financing on a substantially  non-recourse basis
and the costs of such  capital  are  dependent  on numerous  factors,  including
general economic and capital market conditions,  credit availability from banks,
investor confidence, the continued success of current projects and the continued
existence of tax and securities  laws which are conducive to raising  capital in
this  manner.  If Mirant is not able to obtain  financing  for its projects on a
substantially  non-recourse  basis,  it may have to finance them using  recourse
capital which could take one of the following forms:

    o issue additional debt at the corporate  level, o issue  additional  equity
    securities,  o make larger equity investments in its projects,  or o provide
    more financial support for its projects.

    Mirant may decide  not to build new  plants or  acquire  facilities.  Any of
these  alternatives  could have a material  adverse  effect on  Mirant's  growth
prospects and the market price of its common stock. Additionally,  future equity
financings could be dilutive to existing holders of its common stock, and future
debt financings could involve restrictive covenants.

   Mirant's  activities  are  restricted  by  substantial   indebtedness.   This
   indebtedness  may be  accelerated  and Mirant may be forced to default on its
   debt  obligations  if it is unable to  service  it.  Acceleration  of some of
   Mirant's debt may cause other lenders to accelerate other debt obligations.

    Mirant has incurred  substantial  indebtedness  on a  consolidated  basis to
finance its  business.  As of December 31,  2000,  Mirant's  total  consolidated
indebtedness was $20.0 billion, its total consolidated assets were $24.1 billion
and its stockholders' equity was $4.1 billion. Mirant's ability to meet its debt
service  obligations  and to repay  its  outstanding  indebtedness  will  depend
primarily upon cash flow produced by its business.

    Mirant's level of indebtedness has important consequences, including:

    o   limiting its ability to borrow  additional  amounts for working capital,
        capital expenditures, debt service requirements, execution of its growth
        strategy or other purposes,
    o   limiting  its ability to use  operating  cash flow in other areas of its
        business  because it must dedicate a substantial  portion of these funds
        to service its debt,
    o   increasing its vulnerability to general adverse  economic  and  industry
        conditions, and
    o   limiting  its ability to  capitalize  on business  opportunities  and to
        react  to  competitive  pressures  and  adverse  changes  in  government
        regulation.

    In addition,  some of Mirant's existing debt agreements contain  restrictive
covenants which, among other things, can limit or prohibit the ability of Mirant
or its subsidiaries to:

    o  incur indebtedness,
    o  make  prepayments of indebtedness in whole or in part,
    o  pay dividends,
    o  make investments,
    o engage in transactions with affiliates,

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<PAGE>
    o create liens,
    o sell assets, and
    o acquire facilities or other businesses.

    If Mirant is unable to comply with the terms of its debt agreements,  it may
be required to  refinance  all or a portion of its debt or to obtain  additional
financing.  Mirant may be unable to  refinance  or obtain  additional  financing
because of its high levels of debt and the debt  incurrence  restrictions  under
its debt agreements.  Mirant may be forced to default on its debt obligations if
cash  flow  is  insufficient   and   refinancing  or  additional   financing  is
unavailable.  If  Mirant  defaults  under  the  terms of its  indebtedness,  the
relevant  debt holders may  accelerate  the maturity of its  obligations,  which
could cause cross-defaults or cross-acceleration under its other obligations.

   Mirant's costs of compliance with  environmental laws are significant and the
   cost of compliance with new  environmental  laws could  adversely  affect its
   profitability.

    Mirant's  operations  are subject to  extensive  federal,  state,  local and
foreign statutes, rules and regulations relating to environmental protection. To
comply with these legal  requirements,  Mirant  must spend  significant  sums on
environmental monitoring,  pollution control equipment and emission fees. Mirant
may be exposed to compliance risks from new projects,  as well as from plants it
has acquired.

    Mirant's  failure  to  comply  with  environmental  laws may  result  in the
assessment of penalties and fines against it by regulatory authorities. With the
trend toward stricter standards,  greater regulation,  more extensive permitting
requirements  and an  increase  in the  number and types of assets  operated  by
Mirant  subject  to  environmental  regulation,  it  expects  its  environmental
expenditures  to be substantial  in the future.  As is true in many countries of
the world, the governments of the United States, China, the Philippines, various
European  nations and  Trinidad  and Tobago  recently  have  proposed  increased
environmental  regulation of many  industrial  activities,  including  increased
regulation  of air  quality,  water  quality  and solid  waste  management.  For
example, the U.S. Environmental  Protection Agency has recently promulgated more
stringent  air quality  standards  for  particulate  matter  emitted  from power
plants. The scope and extent of new environmental  regulations,  including their
effect on Mirant's operations, is unclear.

    Unless Mirant's contracts with customers expressly permit it to pass through
increased costs attributable to new statutes, rules and regulations,  it may not
be  able  to  recover   capital  costs  of  complying  with  new   environmental
regulations,  which may  adversely  affect its  profitability.  Most of Mirant's
contracts with  customers do not permit it to recover  capital costs incurred to
comply with new environmental  regulations.  However, Mirant's contracts for its
State Line facility and the Power Generation Company of Trinidad and Tobago have
provisions that allow it to recover a portion of its capital costs. In addition,
the contracts for Mirant's  Philippine  operations have provisions that allow it
to negotiate with the Philippine government for the recovery of costs associated
with changes in environmental  laws,  although there is no guarantee that it can
recover any of those costs. Finally, there are provisions in the tariffs imposed
by the  California  Independent  System  Operator that  potentially  would allow
Mirant to recover costs of capital additions,  including environmental upgrades,
for its California operations.

   Mirant's  business  in the United  States is  subject  to complex  government
   regulations and changes in these regulations or in their  implementation  may
   affect the rates it is able to charge,  the costs of operating its facilities
   or its ability to operate its facilities,  any of which may negatively impact
   its results of operations.

    The  majority of Mirant's  generation  operations  in the United  States are
exempt wholesale generators that sell electricity exclusively into the wholesale
market.   Generally,   Mirant's  exempt  wholesale  generators  are  subject  to
regulation  by  the  FERC  regarding  rate  matters  and  state  public  utility

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<PAGE>

commissions regarding non-rate matters. The majority of Mirant's generation from
exempt wholesale generators is sold at market prices under market rate authority
exercised by the FERC,  although  the FERC has the  authority to impose "cost of
service"  rate  regulation  or other  market  power  mitigation  measures  if it
determines that market pricing is not in the public  interest.  Any reduction by
the  FERC of the  rates  Mirant  receives  for  its  generation  activities  may
adversely affect its results of operations.

    To conduct Mirant's business, it must obtain licenses, permits and approvals
for its plants.  Mirant cannot provide  assurance that it will be able to obtain
and comply with all necessary licenses, permits and approvals for its plants. If
Mirant cannot comply with all applicable regulations,  its business,  results of
operations and financial condition could be adversely affected.

   The energy industry is rapidly  changing to increased  competition and Mirant
   might not be successful in responding to these changes.

    Mirant  may not be able to respond  in a timely or  effective  manner to the
many changes  intended to increase  competition  in the energy  industry in both
domestic and international  markets.  These changes may include  deregulation of
the electric  utility  industry in some markets,  privatization  of the electric
utility industry in other markets and increasing  competition in all markets. To
the  extent  competitive   pressures  increase  and  the  pricing  and  sale  of
electricity assumes more characteristics of a commodity business,  the economics
of Mirant's business may come under increasing pressure.  Industry  deregulation
and  privatization  may not only  continue  to fuel  the  current  trend  toward
consolidation in the utility industry but may also encourage the  disaggregation
of vertically  integrated utilities into separate  generation,  transmission and
distribution businesses.  As a result,  additional significant competitors could
become  active  in  Mirant's  industry  and it may not be able to  maintain  its
revenues and earnings in this  competitive  marketplace or to acquire or develop
new assets to pursue its growth strategy.

    Many states are implementing or considering  regulatory initiatives designed
to increase  competition in the domestic power generation  industry and increase
access for independent  power  producers and  electricity  consumers to electric
utilities'  transmission and  distribution  systems.  Industry  restructuring in
regions where Mirant has substantial operations could affect its operations in a
manner which is difficult to predict,  since the effects will depend on the form
and timing of the restructuring. Access to transmission and distribution systems
is  essential to permit  entry into  markets by Mirant and its  competitors.  In
addition,  effective entry involves substantial investment in fixed assets, such
as building power plants.  If a region's power  transmission  infrastructure  is
inadequate,  Mirant's  recovery of costs and  profits  may be  limited,  and the
imposition of restrictive price regulation may reduce the incentive to invest in
expansion of  transmission  infrastructures.  In addition,  regulations to which
Mirant is subject may change in other ways that it cannot predict. The structure
of these energy  regulations has been in the past, and may be in the future, the
subject of various challenges and restructuring proposals by utilities and other
industry participants.  Regulatory initiatives in foreign countries where Mirant
has or will have operations involve the same types of risks.

    The United  States  Congress is  considering  legislation  that would repeal
PURPA  entirely,  or at least  eliminate  the future  obligation of utilities to
purchase power from qualifying facilities,  and also of PUHCA. In the event of a
PUHCA repeal,  competition from independent  power generators and from utilities
with generation,  transmission and distribution would likely increase. Repeal of
PURPA  or  PUHCA  may or  may  not  be  part  of  comprehensive  legislation  to
restructure  the  electric  utility  industry,   allow  retail  competition  and
deregulate most electric rates. Mirant cannot predict the effect of this type of
legislation,  although  it  anticipates  that any  legislation  would  result in
increased  competition.  If Mirant  were  unable to compete  in an  increasingly
competitive environment, its business and results of operation may suffer.

    The FERC has issued  power and gas  transmission  initiatives  that  require
electric  and gas  transmission  services be offered on a common  carrier  basis
unbundled  from commodity  sales.  Although  these  initiatives  are designed to
encourage  wholesale  market  transactions for electricity and gas, there is the
potential  that  fair and  equal  access to  transmissions  systems  will not be
available and Mirant cannot  predict the timing of industry  changes as a result
of these  initiatives  or the  adequacy of  transmission  additions  in specific
markets. In Canada,  national and provincial governments have instituted natural

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<PAGE>

gas  regulations  also  designed to encourage  the  development  of  competitive
markets.  However, Mirant cannot predict the timing and scope of the development
of a competitive  market in Canada or the effect of these or future  regulations
on these markets.

    Mirant cannot predict whether the federal government,  state legislatures or
foreign  governments will adopt legislation  relating to the deregulation of the
energy  industry.  Mirant cannot provide  assurance that the introduction of new
laws or other future  regulatory  developments  will not have a material adverse
effect on its business, results of operations or financial condition.

   Changes in technology may  significantly  impact Mirant's  business by making
its power plants less competitive.

    A basic  premise of Mirant's  business is that  generating  power at central
power  plants  achieves  economies of scale and  produces  electricity  at a low
price. There are other technologies that can produce  electricity,  most notably
fuel cells,  microturbines,  windmills and photovoltaic (solar) cells. Costs for
current alternate  electricity  generation  methods are currently more expensive
than the cost for central station  generated  methods of producing  electricity.
Research and  development  activities  are ongoing to seek  improvements  in the
alternate  technologies.  It is possible  that  advances will reduce the cost of
alternate  methods of electric  production  to a level that is equal to or below
that of most central station electric  production.  If this were to happen,  the
value of Mirant's power plants may be significantly impaired.

   Mirant's  facilities  may not  operate  as  planned,  which  may lead to poor
   financial performance and the acceleration of its project debt.

    Mirant's  operation  of power  plants  involves  many risks,  including  the
breakdown or failure of  generation  equipment or other  equipment or processes,
labor  disputes,  fuel  interruption  and operating  performance  below expected
levels.  In addition,  weather related incidents and other natural disasters can
disrupt both generation and transmission delivery systems. Operation of Mirant's
power  plants  below  expected  capacity  levels may result in lost  revenues or
increased  expenses,  including  higher  maintenance  costs  and  penalties.  In
addition,   Mirant  may  not  be  able  to  repay  the   project   debt  for  an
under-performing  facility,  which could trigger default provisions in a project
subsidiary's  or project  affiliate's  financing  agreements and might allow the
affected lenders to accelerate that debt.

   Mirant's   operations   depend   substantially  on  the  performance  of  its
   subsidiaries  and affiliates,  some of which Mirant does not control and some
   of  which  are  subject  to  restrictions   and  taxation  on  dividends  and
   distributions.

    Almost all of Mirant's operations are conducted through its subsidiaries and
affiliates.  As a result, Mirant depends almost entirely upon their earnings and
cash flow.

    Eight of Mirant's  major  affiliates,  listed below,  are not subject to its
control  of  management  and  policies  to the same  extent as its  consolidated
subsidiaries:

       o   Birchwood Power Partners,  L.P., which owns the Birchwood power plant
           in Fredericksburg, Virginia,
       o   Bewag, the Berlin electric utility,
       o   WPD which distributes  power in southwest  England,
       o   South Wales  Electricity  plc which distributes power in South Wales,
       o   Guangdong  Guonghope Power Co., Ltd.,  which  controls the Shajiao C
           plant in China,
       o   CEMIG,
       o   The Power Generation  Company of Trinidad and Tobago,  and
       o   Shandong  International Power Development Company.

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<PAGE>

    However,  Mirant does exercise significant  influence over the operations of
these affiliates,  and it accounts for these investments using the equity method
of accounting. These affiliates contributed approximately 41% of Mirant's income
from continuing operations in 2000.

    The debt agreements of some of Mirant's subsidiaries and affiliates restrict
their ability to pay dividends,  make  distributions or otherwise transfer funds
to  Mirant  prior to the  payment  of  other  obligations,  including  operating
expenses,  debt  service  and  reserves.  Further,  if Mirant  elects to receive
distributions  of earnings  from its  foreign  operations,  it may incur  United
States  taxes,  net of any  available  foreign  tax  credits,  on such  amounts.
Dividend  payments  from  Mirant's  international  projects  to it are,  in some
countries, also subject to withholding taxes.

   Mirant's  business  development  activities  may  not be  successful  and its
   projects under  construction may not commence  operation as scheduled despite
   the expenditure of significant amounts of capital.

    Mirant's  business  involves  numerous  risks  relating to the  acquisition,
development  and  construction  of  large  power  plants.  Mirant's  success  in
developing a particular  project may be  contingent  upon,  among other  things,
negotiation of  satisfactory  engineering,  construction,  fuel supply and power
sales   contracts,   receipt  of  required   governmental   permits  and  timely
implementation  and  satisfactory  completion  of  construction.  Mirant  may be
unsuccessful  in  accomplishing  any of these matters or in doing so on a timely
basis.  Although  Mirant may  attempt to  minimize  the  financial  risks in the
development  of a  project  by  securing  a  favorable  power  sales  agreement,
obtaining all required governmental permits and approvals and arranging adequate
financing prior to the commencement of construction,  the development of a power
project may require it to expend  significant sums for preliminary  engineering,
permitting  and legal  and other  expenses  before  it can  determine  whether a
project is feasible, economically attractive or capable of being financed.

    Currently,  Mirant has power plants under development or construction and it
intends to pursue the expansion of existing  plants and the development of other
new plants.  Mirant's  completion  of these  facilities  without  delays or cost
overruns is subject to substantial  risks,  including  changes in market prices;
shortages  and  inconsistent  qualities of equipment,  material and labor;  work
stoppages;  permitting and other regulatory matters; adverse weather conditions;
unforeseen  engineering  problems;   environmental  and  geological  conditions;
unanticipated cost increases;  and its attention to other projects, any of which
could  give  rise to  delays,  cost  overruns  or the  termination  of the plant
expansion, construction or development.

    If Mirant was unable to complete  the  development  of a facility,  it would
generally not be able to recover its investment in the project.  The process for
obtaining  initial  environmental,  siting and other  governmental  permits  and
approvals is  complicated,  expensive  and  lengthy,  often taking more than one
year, and is subject to  significant  uncertainties.  In addition,  construction
delays and contractor  performance shortfalls can result in the loss of revenues
and may, in turn,  adversely affect Mirant's results of operations.  The failure
to complete construction  according to specifications can result in liabilities,
reduced plant efficiency, higher operating costs and reduced earnings.

   Mirant has taken income tax reporting positions that have not been audited by
   the Internal Revenue Service and could be disallowed.  Any disallowance would
   adversely affect the Company.

    In connection with the acquisition of its international  operations,  Mirant
has taken federal  income tax reporting  positions that have not been audited by
the  Internal  Revenue  Service  ("IRS") for any tax years  after  1995.  Mirant
believes that it has substantial  authority for the positions it has taken,  and
it has disclosed on Southern Company's  consolidated  income tax returns that it
has taken these reporting  positions.  However,  Mirant cannot provide assurance
that these or other reporting  positions will be sustained.  The disallowance of
one or more of these reporting positions could have a material adverse effect on
Mirant's cash flows and net income  (approximately $350 million if all reporting
positions are disallowed), which could impair, at least temporarily, its ability

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<PAGE>

to finance new investments.  However, Mirant does not expect any disallowance of
tax  reporting  positions  that it has taken to  prevent it from  achieving  its
growth strategy.

Risks Related to Mirant's Separation from Southern Company

   Mirant's historical financial results as a subsidiary of Southern Company may
   not be representative of its results as a separate company.

     The historical  financial  information  included in this Form 10-K does not
necessarily reflect what Mirant's financial position,  results of operations and
cash flows would have been had it been a separate, stand-alone entity during the
periods  presented.  Mirant's costs and expenses  reflect  charges from Southern
Company for centralized corporate services and infrastructure  costs,  including
engineering,  legal, accounting,  information technology, investor relations and
stockholder services,  insurance and risk management, tax, environmental,  human
resources  and payroll,  and external  affairs,  including  marketing and public
relations.

    These  allocations have been determined based on regulatory  limitations and
other  bases that  Mirant  and  Southern  Company  considered  to be  reasonable
reflections of the  utilization of services  provided to Mirant for the benefits
received  by it.  This  historical  financial  information  is  not  necessarily
indicative of what Mirant's results of operations,  financial  position and cash
flows will be in the future.  Mirant may experience  significant  changes in its
cost  structure,  funding  and  operations  as a result of its  separation  from
Southern Company, including increased costs associated with reduced economies of
scale, increased marketing expenses related to building a company brand identity
separate  from  Southern  Company and increased  costs  associated  with being a
publicly traded, stand-alone company.

   Mirant's deconsolidation from the Southern Company consolidated tax group may
   result in adverse tax consequences to it.

    Subsequent to the distribution of Mirant stock by Southern  Company,  Mirant
will  cease to be a member  of the  Southern  Company  consolidated  tax  group.
Mirant's separation from the Southern Company consolidated tax group will change
its overall  future income tax posture.  Based on its current  structure and net
income,  Mirant could be limited in its future  ability to  effectively  use tax
attributes such as foreign tax credits associated with overseas operations.  The
inability to use these  attributes  could  result in material  tax  liabilities.
Mirant intends to undertake  appropriate measures after deconsolidation in order
to mitigate  any adverse  tax effect of no longer  being a part of the  Southern
Company  consolidated  tax group.  Mirant cannot  provide  assurance  that these
efforts will be  successful.  Should  these  efforts be  unsuccessful,  Mirant's
deconsolidation  from the Southern  Company tax group may have a material impact
on its tax liabilities and financial position. Currently, Mirant cannot quantify
these  potential  impacts.   However,  Mirant  does  not  expect  any  such  tax
liabilities to materially affect its ability to pursue its growth strategy.

   Indemnification Agreement between Mirant and Southern Company could result in
substantial liability.

     Under agreements between Southern Company and Mirant, Mirant is required to
indemnify  Southern  Company  for  taxation  costs if  Mirant  were to cause the
distribution  of its stock to fail to be  tax-free.  Mirant  estimates  that the
amount of any indemnification payments would be approximately $2 billion. Mirant
does not currently maintain capital resources to fund potential  indemnification
payments to Southern  Company for this purpose.  Mirant believes the probability
of  an  event  occurring  that  would  require  it to  make  these  payments  is
sufficiently  low and  sufficiently  under  its  control  that  Mirant  does not
allocate  liquidity for this contingency.  If, however,  the contingency  should
occur, Mirant believes it could fund the  indemnification  payments through cash
flows from operations, new borrowings and, if necessary, asset sales. Payment of
this obligation would  materially  affect Mirant's  financial  condition and its
earnings and impair the ability to achieve its growth strategy.

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<PAGE>

Risks Related to the Securities Markets and Ownership of Mirant Common Stock

   Substantial   sales  of  common  stock  may  occur  in  connection  with  the
   distribution, which could cause Mirant's stock price to decline.

     Southern  Company  plans to  distribute  all of the  272,000,000  shares of
Mirant's common stock it owns to Southern Company stockholders on April 2, 2001.
Substantially  all of these shares will be eligible for immediate  resale in the
public market. Mirant is unable to predict whether significant amounts of common
stock will be sold in the open  market in  anticipation  of, or  following,  the
distribution,  or by Southern Company if the distribution does not occur. Mirant
is also unable to predict  whether a sufficient  number of buyers will be in the
market at that time.  Any sales of  substantial  amounts of common  stock in the
public  market,  or the  perception  that these sales might occur,  whether as a
result of this  distribution  or  otherwise,  could  lower the  market  price of
Mirant's  common  stock.  In addition,  Mirant has entered  into a  registration
rights  agreement which provides that if Southern  Company does not complete the
distribution of Mirant common stock to the holders of its common stock, Southern
Company and its  transferees  will have the right to require  Mirant to register
these shares of Mirant common stock under the United States  securities laws for
sale into the public market.

Item 8.  Financial Statements and Supplementary Data

     The information  required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     The information  required by Item 10 of Form 10-K relating to directors who
are  nominees  for  election  as  directors  at  Mirant's   Annual   Meeting  of
Shareholders  to be  held  on May  17,  2001  is set  forth  in  Mirant's  Proxy
Statement, and is incorporated herein by reference.

Item 11.  Executive Compensation

     The information  regarding executive  compensation is set forth in Mirant's
Proxy Statement and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The information  regarding executive  compensation is set forth in Mirant's
Proxy Statement and is incorporated by herein reference.

Item 13.  Certain Relationships and Related Transactions

     The information  regarding executive  compensation is set forth in Mirant's
Proxy Statement and is incorporated herein by reference.


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                                    PART IV

Item 14.  Exhibits, Financial Statement schedules and Reports on Form 8-K

(a) (1) and (2) Statements and Financial  Statement  schedules.   See  "Index to
Financial  Statements" set forth on page F-1.
<TABLE>
<CAPTION>

(a) (3)  Exhibit Index

<S>                                  <C>
Exhibit No.        Exhibit Name
-----------        ----------------------------------------------------------------------------------------------
3.1*.............  Restated Certificate of Incorporation (Designated on Form S-1 in Registration No.
                   333-35390 as Exhibit 3.1)
3.2*............   Bylaws of the Company (Designated on Form S-1in Registration No. 333-35390 as Exhibit
                   3.2)
4.1*............   Specimen Stock Certificate (Designated on Form S-1 in Registration No. 333-35390 as
                   Exhibit 4.1)
4.2*............   Certificate of Trust (Designated on Form S-1 in Registration No. 333-41680 as Exhibit 4.2)
4.3*............   Trust Agreement (Designated on Form S-1 in Registration No. 333-41680 as Exhibit 4.3)
4.4*............   Certificate of Designation of Series A Preferred Stock (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 4.11)
4.5*............   Certificate of Designation of Series B Preferred Stock (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 4.12)
4.6*............   Rights Agreement between Southern Energy, Inc. and ChaseMellon Shareholder Services,
                   L.L.C. (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 4.13)
10.1*...........   Form of Master Separation and Distribution Agreement (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.1)
10.2*...........   Form of Transitional Services Agreement (Designated on Form S-1in Registration No.
                   333-35390 as Exhibit 10.2)
10.3*...........   Form of Indemnification and Insurance Matters Agreement (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.3)
10.4*...........   Form of Technology and Intellectual Property Ownership and Licenses Agreement
                   (Designated on Form S-1 in Registration No. 333-35390)
10.5*...........   Form of Confidential Disclosure Agreement (Designated on Form S-1 in Registration No.
                   333-35390 as Exhibit 10.5)
10.6*...........   Form of Employee Matters Agreement (Designated on Form S-1 in Registration No. 333-35390
                   as Exhibit 10.6)
10.7 ...........   Form of Amendment Number One to the Employee Matters Agreement
10.8*...........   Form of Tax Indemnification Agreement (Designated on Form S-1 in Registration No.
                   333-35390 as Exhibit 10.7)
10.9*...........   Form of Registration Rights Agreement (Designated on Form S-1 in Registration No.
                   333-35390 as Exhibit 10.8)
10.10*..........   Form of Southern Energy Employee Stock Purchase Plan (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.9)
10.11*..........   Deferred Compensation Agreement with S. Marce Fuller (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.11)
10.12*..........   Deferred Compensation Agreement with Raymond D. Hill (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.12)
10.13*..........   Deferred Compensation Agreement with Richard J. Pershing (Designated on Form S-1 in
                   Registration No. 333-35390 as Exhibit 10.13)
10.14*..........   Amended and Restated Employment Retention Agreement with Frederick ED. Kuester
                   (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 10.14)

                                       68
<PAGE>

10.15*..........   Employment Retention Agreement with Barney S. Rush (Designated on Forms S-1 in
                   Registration No. 333-35390 as Exhibit 10.15)
10.16*..........   Formation Agreement by and between SEI Holdings, Inc. and Vastar Resources, Inc. dated
                   August 8, 1997 (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 10.17)
10.17*..........   Energy Conversion Agreement for a Coal Fired Thermal Power Station at Sual Pangasinan,
                   Philippines between National Power Corporation and CEPA Pangasinan Electric Limited
                   dated May 20, 1994 (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 10.18)
10.18*..........   Build,  Operate  and  Transfer  Project  Agreement  for a Gas Turbine Power Station in Navotas,
                   Manila  between  National Power  Corporation and Hopewell  Project  Management  Company
                   Limited dated 16th November,  1988 (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 10.19)
10.19*..........   Navotas II, Build, Operate and Transfer Project Agreement for a Gas Turbine Power Station in Navotas,
                   Manila between National Power Corporation and Hopewell Energy International Limited, dated 29 June, 1992
                   (Designated on Form S-1 in Registration No. 333-35390 as Exhibit 10.20)
10.20*..........   Energy  Conversion  Agreement  for a Coal Fired Thermal Power Station at Barangay Ibabang Pulo,
                   Pagbilao, Quezon, Philippines  between National Power  Corporation and Hopewell Energy International Limited,
                   dated  9th  November,   1991(Designated  on Form S-1 in  Registration  No.  333-35390  as Exhibit 10.21)
10.21*..........   Amendment Agreement,  dated the 30th day of March 1993, to an Energy Conversion Agreement between
                   Hopewell Energy  International  Limited,  National Power Corporation and Hopewell Power (Philippines)Corp.
                   dated  9th  November  1991  (Designated  on  Form  S-1  in  Registration No. 333-35390 as Exhibit 10.22)
10.22*..........   Asset  Purchase  and Sale  Agreement  for  Generating  Plants and  Related  Assets by and between Potomac
                   Electric Power Company and Southern  Energy,  Inc.,  dated June 7, 2000, and exhibit  thereto
                   (Designated on Form S-1 in  Registration  No.  333-35390 as Exhibit 10.23)
10.23*..........   Southern Energy Resources Employee Savings Plan, dated December 19, 2000 (Designated on
                   Form S-8 in Registration No. 333-56574 as Exhibit 4.4)
10.24*..........   Southern Energy Resources Bargaining Unit Employee Savings Plan, dated December 19, 2000
                   (Designated on Form S-8 in Registration No. 333-56574 as Exhibit 4.5)
10.25...........   Change in Control Agreements with S. Marce Fuller.
10.26...........   Change in Control Agreements with Raymond D. Hill.
10.27...........   Change in Control Agreements with Richard J Pershing.
10.28...........   Change in Control Agreements with Douglas L. Miller.
10.29*..........   Form of Southern Energy Omnibus Incentive Compensation Plan (Designated in Form S-1
                   Registration No. 333-35390 as Exhibit 10.10)
10.30...........   Form of Employee Retention Agreement for Executives
10.31...........   Form of Amended and Restated Southern Energy Resources, Inc. Supplemental Executive
                   Retirement Plan
10.32...........   Form of Southern Company Executive Change in Control Severance Plan
21.1............   Subsidiaries of Registrant
23.1............   Consent of Arthur Andersen LLP
23.2............   Consent of KPMG Deutsche Treuhand-Gesellschaft
24.1............   Power of Attorney
99..............   Financial Statements of Berliner Kraft-und Licht (Bewag)-Aktiengesellschaft as required
                   by Regulation S-X 210.3-09

* Asterisk indicates exhibits incorporated by reference.
</TABLE>


                                       69
<PAGE>


(b)      Reports on Form 8-K

During the quarter ended  December 31, 2000,  the Company filed a Current Report
on Form 8-K dated October 3, 2000.  Items 5 and 7 were reported and no financial
statements were filed.

During the quarter ended  December 31, 2000,  the Company filed a Current Report
on  Form  8-K  dated  November  14,  2000.  Items 2 and 7 were  reported  and no
financial statements were filed.

During the quarter  ended  December 31, 2000,  the Company filed an Amendment to
Current  Report on Form 8-K dated  December 5, 2000.  Current Report on Form 8-K
was  originally  filed  November  14,  2000.  Items  2 and 7 were  reported  and
financial statements were filed.

                                       70
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                               MIRANT CORPORATION

                                                                         Page
                                                                         ----
Report of Independent Public Accountants.............................     F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999.........     F-3
Consolidated Statements of Income for the Years Ended                     F-5
  December 31, 2000, 1999, and 1998..................................
Consolidated Statements of Stockholder's Equity for the                   F-6
  Years Ended December 31, 2000, 1999, and 1998......................
Consolidated Statements of Cash Flows for the Years Ended                 F-7
  December 31, 2000, 1999, and 1998..................................
Notes to Consolidated Financial Statements...........................     F-8




                                      F-1
<PAGE>


                    Report of Independent Public Accountants

To Mirant Corporation:

     We have audited  the  accompanying  consolidated  balance  sheets of MIRANT
CORPORATION (a Delaware corporation) AND SUBSIDIARIES (formerly Southern Energy,
Inc.) as of December 31, 2000 and 1999, and the related consolidated  statements
of income,  stockholders'  equity, and cash flows for each of the three years in
the  period  ended  December  31,  2000.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion, the financial  statements referred to above present fairly,
in all material  respects,  the  financial  position of Mirant  Corporation  and
subsidiaries  as of  December  31,  2000  and  1999,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting  principles  generally accepted
in the United States.

/s/ Arthur Andersen LLP

Atlanta, Georgia
February 28, 2001

                                      F-2
<PAGE>
<TABLE>
<CAPTION>


                          Mirant Corporation and Subsidiaries
                              Consolidated Balance Sheets
                              December 31, 2000 and 1999
                                     (In Millions)


<S>                                                                   <C>       <C>
ASSETS                                                                2000      1999
                                                                   --------  --------
Current Assets:
Cash and cash equivalents......................................... $  1,280  $    323
Receivables:
  Customer accounts, less provision for uncollectibles of
   $72 and $23 for 2000 and 1999, respectively....................    3,399       236
  Other, less provision for uncollectibles of $22 and $21
    for 2000 and 1999, respectively...............................      629       341
  Notes receivable ...............................................      365       139
Assets from risk management activities (Note 9)...................    2,678         1
Deferred income taxes (Note 8) ...................................      275         -
Other.............................................................      526       245
                                                                   --------  --------
    Total current assets..........................................    9,152     1,285
                                                                   --------  --------
Property, Plant and Equipment (Notes 2 and 4):....................    3,648     4,147
Less accumulated provision for depreciation.......................     (228)     (421)
                                                                   --------  --------
                                                                      3,420     3,726
Leasehold interests, net of accumulated amortization of $216
  and $137 for 2000 and 1999, respectively (Note 1)...............    1,843     1,934
Construction work in progress.....................................      418       365
                                                                   --------  --------
    Total property, plant, and equipment, net.....................    5,681     6,025
                                                                   --------  --------
Noncurrent Assets:
Investments (Notes 1, 3, 12 and 13)...............................    1,797     1,490
Notes and other receivables, less provision for
  uncollectibles of $49 and $61 for 2000 and 1999, respectively...      213       297
Notes receivables from related party (Note 7).....................      979       979
Assets from risk management activities (Note 9)...................    1,230         -
Goodwill, net of accumulated amortization of $221 and $164 for
  2000 and 1999, respectively (Notes 1 and 12)....................    3,292     2,106
Other intangible assets, net of accumulated amortization of
  $34 and $13 for 2000 and 1999, respectively (Notes 1 and 12)....      738       447
Concession agreement, net of accumulated amortization of $90 for
  1999 (Notes 1 and 2)............................................        -       268
Investment in leveraged leases (Note 14)..........................      596       556
Deferred income taxes (Note 8) ...................................      334         0
Miscellaneous deferred charges....................................      124       410
                                                                   --------  --------
    Total noncurrent assets.......................................    9,303     6,553
                                                                   --------  --------
    Total assets.................................................. $ 24,136  $ 13,863
                                                                   ========  ========
</TABLE>








  The accompanying notes are an integral part of these consolidated statements.
                                      F-3
<PAGE>
<TABLE>
<CAPTION>


                          Mirant Corporation and Subsidiaries
                              Consolidated Balance Sheets
                              December 31, 2000 and 1999
                                     (In Millions)


<S>                                                                  <C>        <C>
Liabilities and Stockholders' Equity                                 2000       1999
                                                                  --------   --------
Current Liabilities:
Short-term debt (Note 7)......................................... $  1,289   $  1,961
Current portion of long-term debt (Note 7).......................      201        237
Accounts payable.................................................    4,240        625
Taxes accrued....................................................      216        218
Liabilities from risk management activities (Note 9).............    2,899          5
Obligations under energy delivery commitments (Note 9)...........      790         15
Other............................................................      140        167
                                                                  --------   --------
    Total current liabilities....................................    9,775      3,228
                                                                  --------   --------

Noncurrent Liabilities:
Subsidiary obligated mandatorily redeemable preferred
  Securities (Notes 7 and 9).....................................      950      1,031
Notes payable (Notes 7 and 9)....................................    5,206      4,557
Other long-term debt (Notes 7 and 9).............................      390        397
Liabilities from risk management activities -(Note 9)............      906          -
Deferred income taxes (Note 8)...................................       53        680
Obligations under energy delivery commitments (Note 9)...........    1,514         15
Miscellaneous deferred credits...................................      307        128
                                                                  --------   --------
    Total noncurrent liabilities.................................    9,326      6,808
                                                                  --------   --------
Preferred stock held by Southern Company (Note 10)...............      242          -
Minority Interest in Subsidiary Companies........................      312        725
Company obligated mandatorily redeemable securities of a
  subsidiary holding solely parent company debentures (Note 7)...      345          -

Commitments and Contingent Matters (Notes 7, 9, 10 and 11)

Stockholders' Equity:
Common stock, $.01 par value; 2,000,000,000 shares authorized;
338,701,000 and 272,000,000 shares issued and outstanding
  (Note 15)......................................................        3          3
Additional paid-in capital.......................................    4,084      2,984
Accumulated other comprehensive loss.............................     (117)       (92)
Retained earnings................................................      166        207
                                                                  --------   --------
    Total stockholders' equity...................................    4,136      3,102
                                                                  --------   --------
    Total liabilities and stockholders' equity................... $ 24,136   $ 13,863
                                                                  =========  ========
</TABLE>








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

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                       Mirant Corporation and Subsidiaries
                        Consolidated Statements of Income
              For the Years Ended December 31, 2000, 1999 and 1998
                      (In Millions, Except Per Share Data)

<S>                                                                <C>         <C>       <C>
                                                                   2000        1999      1998
                                                                 --------   --------  --------
Operating Revenues.............................................. $ 13,315   $ 2,265   $ 1,819
                                                                 --------   -------   -------
Operating Expenses:
Cost of fuel, electricity and other products....................   11,437       934       891
Maintenance.....................................................      136       116        80
Depreciation and amortization...................................      317       270       221
Selling, general, and administrative............................      520       253       160
Write-down of assets (Note 2)...................................       18        60       308
Other...........................................................      223       188       164
                                                                 --------   -------    ------
  Total operating expenses......................................   12,651     1,821     1,824
                                                                 --------   -------    ------
Operating Income (Loss).........................................      664       444        (5)
                                                                 --------   -------   -------
Other Income (Expense):
Interest income.................................................      187       172       146
Interest expense................................................     (615)     (501)     (430)
Gain on sales of assets, net (Note 12)..........................       20       313        41
Equity in income of affiliates (Notes 1, 3, and 13).............      196       110       135
Receivables recovery (Note 1)...................................        -        64        29
Other, net......................................................       50        72        29
                                                                  -------   -------   -------
  Total other (expense) income..................................     (162)      230       (50)
                                                                 --------   -------   -------
Income (Loss) From Continuing Operations Before Income
  Taxes and Minority Interest...................................     502        674       (55)
Provision (Benefit) for Income Taxes............................      86        129      (123)
Minority Interest...............................................      84        183        80
                                                                 -------    -------   -------
Income (Loss) From Continuing Operations........................     332        362       (12)
                                                                 -------    -------   -------
Income From Discontinued Operations, Net of Tax Benefit
  of $20, $15 and $22 in 2000, 1999, and 1998, respectively.....      27         10        12
                                                                 -------    -------   -------
Net Income...................................................... $   359    $   372   $     -
                                                                 =======    =======   =======
Earnings Per Share:
Basic (and Diluted for 2000)
  From continuing operations.................................... $   1.15   $   1.33  $  (0.04)
  From discontinued operations..................................     0.09       0.04      0.04
                                                                 ---------- --------  --------
  Net income.................................................... $   1.24   $   1.37  $      -
                                                                 ========    ========  =======
</TABLE>











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

                                      F-5
<PAGE>
<TABLE>
<CAPTION>



                                 Mirant Corporation and Subsidiaries
                           Consolidated Statements of Stockholders' Equity
                         For the Years Ended December 31, 2000, 1999 and 1998
                                            (In Millions)

                                                                            Accumulated
                                                  Additional                   Other
                                        Common     Paid-In      Retained   Comprehensive    Comprehensive
                                         Stock     Capital      Earnings   Income (Loss)       Income
                                        ------    ----------    --------   -------------    -------------
<S>                                        <C>        <C>          <C>            <C>              <C>
Balance, December 31, 1997............. $   3     $  2,122       $    -         $    7
  Net income...........................     -            -            -              -           $    -
  Cumulative translation adjustment,
   net of tax..........................     -            -            -              8                8
                                                                                                 ------
  Comprehensive income.................                                                          $    8
                                                                                                 ======
  Capital contributions................     -          502            -              -
                                        -----     --------       ------         ------
Balance, December 31, 1998.............     3        2,624            -             15
  Net income...........................     -            -          372              -           $  372
  Cumulative translation adjustment,
   net of tax..........................     -            -            -           (107)            (107)
                                                                                                 ------
  Comprehensive income.................                                                          $  265
                                                                                                 ======
  Dividends............................     -            -         (165)             -
  Capital contributions................     -          360            -              -
                                        -----     --------       ------         ------
Balance, December 31, 1999.............     3        2,984          207            (92)
  Net income...........................     -                       359                          $  359
  Cumulative translation adjustment,

   net of tax..........................     -            -            -            (25)             (25)
                                                                                                 ------
  Comprehensive income.................                                                          $  334
                                                                                                 ======
  Dividends and return of capital......     -         (345)        (400)             -
  Capital contributions................     -           65            -              -
  Common stock offering................     -        1,380            -              -
                                        -----     --------       ------         ------
Balance, December 31, 2000............. $   3     $  4,084       $  166         $ (117)
                                        =====     ========       ======         ======

</TABLE>









  The accompanying notes are an integral part of these consolidated statements.
                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                     Mirant Corporation and Subsidiaries
                    Consolidated Statements of Cash Flows
            For the Years Ended December 31, 2000, 1999 and 1998
                                (In Millions)

<S>                                                     <C>        <C>       <C>
                                                        2000       1999      1998
                                                     --------   --------   -------
Cash Flows From Operating Activities:
Net income.........................................  $    359   $    372   $     -
                                                     --------   --------   -------
Adjustments to reconcile net income to net
  cash provided by operating activities:
  Equity in income of affiliates...................      (174)       (95)     (121)
  Depreciation and amortization....................       333        286       229
  Write-down of assets.............................        18         60       308
  Deferred income taxes............................       114        166       (40)
  Gain on sales of assets..........................       (20)      (313)      (41)
  Minority interest................................        84        183        80
  Other, net.......................................        34        (93)      (27)
  Changes in certain assets and liabilities,
   excluding effects from acquisitions:
    Receivables, net...............................    (2,515)      (133)      133
    Risk management activities, net................       (46)         -         -
    Obligations under Energy Delivery Commitments         (33)         -         -
    Other current assets...........................       (21)       (15)      (47)
    Accounts payable...............................     2,079        (81)     (141)
    Taxes accrued..................................        69         22       (12)
    Other current liabilities......................       627        156        81
                                                     --------   --------  --------
      Total adjustments............................       549        143       402
                                                     --------   --------  --------
      Net cash provided by operating activities....       908        515       402
                                                     --------   --------  --------
Cash Flows From Investing Activities:
Capital expenditures...............................      (616)      (747)     (647)
Cash paid for acquisitions.........................    (3,147)    (1,771)     (998)
Issuance of notes receivable.......................      (864)      (199)     (191)
Repayments on notes receivable.....................       232        341       398
Funds loaned to Southern Company...................         -          -      (361)
Purchase of preferred shares.......................         -       (121)        -
Property insurance proceeds........................        22         34         -
Proceeds received from the sale of
investments (Note 12)..............................     1,542        284       198
Dividends received from equity investments.........        53         58        67
                                                     --------   --------  --------
      Net cash used in investing activities........    (2,778)    (2,121)   (1,534)
                                                     --------   --------  --------
Cash Flows From Financing Activities:
Capital contributions from Southern Company........        65        360       502
Capital contributions from minority interests......        14         18         -
Return of capital to Southern Company..............      (113)         -         -
Payment of dividends to Southern Company...........      (390)      (165)        -
Payment of dividends to minority interests.........       (28)       (66)      (22)
Proceeds from issuance of common stock.............     1,380          -         -
Proceeds from issuance of short-term debt, net.....     1,761        358       122
Proceeds from issuance of long-term debt...........       329      1,372       730
Proceeds from issuance of preferred securities.....       334          -       338
Repayment of long-term debt........................      (491)      (503)     (375)
                                                     --------   -------- ---------
      Net cash provided by financing activities....     2,861      1,374     1,295
                                                     --------   --------  --------
Effect of Exchange Rate Changes on Cash and Cash
  Equivalents......................................       (34)        (6)        -
                                                     --------   --------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents........................................       957       (238)      163
Cash and Cash Equivalents, beginning of year.......       323        561       398
                                                     --------   --------  --------
Cash and Cash Equivalents, end of year.............  $  1,280   $    323  $    561
                                                     ========   ========  ========
Supplemental Cash Flow Disclosures:
Cash paid for interest, net of amounts capitalized.  $    676   $    419  $    349
                                                     ========   ========  ========
Refunds received for income taxes..................  $    (96)  $   (114) $    (33)
                                                     ========   ========  ========
Business Acquisitions:
Fair value of assets acquired......................  $  7,858   $  1,803  $  1,072
Less cash paid.....................................     3,147      1,771       998
                                                     --------   --------  --------
  Liabilities assumed..............................  $  4,711   $     32  $     74
                                                     ========   ========  ========
</TABLE>

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

                                      F-7
<PAGE>
                       Mirant Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999 and 1998

1.     Accounting and Reporting Policies

General

     Mirant  Corporation  (formerly  Southern  Energy,  Inc.)  is an  80%  owned
subsidiary of Southern Company ("Southern" or the "Parent") and was incorporated
in Delaware in 1993.  Mirant  Corporation  and its  subsidiaries  (collectively,
"Mirant") acquire, develop, build, own and operate power production and delivery
facilities and provide a broad range of energy-related services to utilities and
industrial  companies around the world.  Mirant's business includes  independent
power  projects,  integrated  utilities,  a  distribution  company,  and  energy
marketing and trading operations.  Mirant has operations and development offices
in  North  America  and  the  Caribbean,   Asia,   Europe,  and  South  America.
Additionally,  Mirant  operates a business  development  and management  entity.
Operating entities, of which Mirant has less than 100% ownership at December 31,
2000, are as follows:
<TABLE>
<CAPTION>

                                                                                Economic           Voting
                                                                                Ownership         Interest
                                                                              Percentage at    Percentage at
                                                  Country of       Year of    December 31,      December 31,
                                                  Operations     Investment       2000              2000
                                                  ----------     ----------   -------------    -------------
  Entities Consolidated:
   <S>                                                <C>             <C>          <C>                 <C>
   Southern Energy Quezon, Inc. ("Pagbilao")....  Philippines        1997         87.2%                87.2%
   Southern Energy Pangasinan, Inc. ("Sual")....  Philippines        1997         91.9                 91.9
   Southern Energy Navotas, Inc. ("Navotas I")..  Philippines        1997         90.0                 90.0
   Empresa Electrica del Norte Grande
     ("EDELNOR")  S.A. (Note 2).................  Chile              1993         82.3                 82.3
   Freeport Power Company.......................  Bahamas            1993         55.4                 55.4

  Entities not consolidated, accounted for
    under equity method:
   South Western Electricity plc, dba Western
     Power Distribution  ("WPD") (Note 12)......  United Kingdom     1995         49.0                 50.0
   WPD Limited  ("WPDL")  (Note 12).............  United Kingdom     2000         49.0                 50.0
   Birchwood Power Partners L.P.("Birchwood")...  United States      1994         50.0                 50.0
   Bewag AG ("Bewag")...........................  Germany            1997         26.0                 28.7
   Guangdong Guanghope Power Company
     Limited ("Shajiao C")......................  China              1997         32.0                 40.0
   Companhia Energetica de Minas Gerais
     ("CEMIG")..................................  Brazil             1998          3.6                  8.2
   The Power Generation Company of
     Trinidad and Tobago ("PowerGen")...........  Trinidad           1994         39.0                 39.0
   Shandong International Power
     Development Company Limited ("SIPD").......  China              1999          9.9         10.0 to 38.0
</TABLE>

     Mirant  currently  has a 49% economic  interest in WPD Holdings UK, the  UK
parent of WPD, yet shares  operational  and  management  control with 50% of the
voting  rights.  Mirant's  economic  interest  in  Shajiao C  is  stated after a
preferential distribution to Guangdong Generation Corporation, the joint venture
partner in China. Mirant's voting  interest  in SIPD can  increase  to 38%  when
certain  shareholders  become  ineligible  to vote  on matters  when  there is a
conflict of interest, according to rules governing  the listing of securities on
the Stock Exchange of Hong Kong Ltd.

                                      F-8
<PAGE>

  Basis of  Presentation

     The  consolidated  financial  statements  of  Mirant are  presented in U.S.
dollars  in  conformity  with  accounting principles generally accepted  in  the
United States  ("U.S.  GAAP").  The accompanying  financial statements  have not
been  prepared in  accordance with  Statement of Financial Accounting  Standards
("SFAS")  No. 71,  "Accounting  for the Effects of Certain  Types of Regulation.
"This  pronouncement,  under which  most rate-regulated U.S. electric  utilities
report financial statements,  applies to entities that are subject to cost-based
rate regulation.   By  contrast,   Mirant's  operating investments generally are
not  subject  to  cost-based  rate  regulation,  and therefore,  the  provisions
of SFAS No. 71 do not apply.  Financial  statements presented in accordance with
SFAS No. 71 contain  deferred items which have not yet been  included  in  rates
charged to customers in  compliance  with the respective regulatory  authorities
but which  would have been  included in the income  statement of enterprises  in
general under U.S.  GAAP. The accompanying financial statements of Mirant do not
contain such deferrals.

     The  financial  statements  include  the  accounts of Mirant and its wholly
owned and its controlled majority owned subsidiaries and have been prepared from
records maintained by Mirant and its subsidiaries in their respective  countries
of operation.  Certain prior year amounts have been reclassified to conform with
the current year financial statement presentation.

     All significant intercompany accounts and transactions have been eliminated
in consolidation. Investments in companies in which Mirant exercises significant
influence  over  operating  and  financial  policies are accounted for using the
equity method.  In addition,  majority or jointly owned affiliates where control
does not exist are accounted for using the equity method of accounting.

  Use of Estimates

     The  preparation of  financial  statements  in  conformity  with  U.S. GAAP
requires management to make estimates and  assumptions that affect  the reported
amounts of assets  and  liabilities  and  disclosures of  contingent assets  and
liabilities  at the date of  the  financial  statements and  reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

  Revenue Recognition

     Revenues derived  from power generation are recognized upon output, product
delivery, or satisfaction  of specific targets,  all as specified by contractual
terms.  Substantially  all of  Mirant's  energy  marketing  and risk  management
operations  are  accounted  for  under the  mark-to-market method of accounting.
Under  the  mark-to-market  method  of  accounting,  financial  instruments  and
contractual commitments are recorded at fair value upon contract execution.  The
net changes  in  their  market  values  are recognized  as energy  marketing and
risk management revenues in the period of change. The unrealized gains or losses
are recorded  as assets  and liabilities from risk  management activities in the
consolidated  balance  sheets.   The  gains  and  losses  related  to  financial
instruments and  contractual commitments for  hedging  activities are recognized
in the  same  period  as  the  settlement  of  underlying  physical transaction.
These  realized  gains  and  losses  are  included  in  operating  revenues  and
operating expenses in the accompanying consolidated statements of income.

  Concentration of Revenues

     During 2000 and 1998, revenue  earned from a single customer did not exceed
10% of Mirant's total  revenues. Revenues  earned under Mirant's long-term power
sales  agreements  with  the  Philippines'  National  Power  Corporation ("NPC")
approximated 14% of Mirant's total revenues during 1999.

  Cash and Cash Equivalents

     Mirant considers all short-term  investments  with an original  maturity of
three months or less to be cash equivalents.
                                      F-9
<PAGE>
  Inventory

     Inventory  consists  primarily  of  natural  gas,  fuel  oil and coal.  The
inventory  maintained  by  Mirant's  energy   marketing  and   risk   management
operations  is reflected at fair value in the accompanying  consolidated balance
sheets. The  inventory  maintained  by  Mirant's  subsidiaries  for their use is
reflected  at  the  lower  of cost or  market  in other current  assets  on  the
accompanying consolidated balance sheets.

  Long-Lived  Assets  and  Intangibles

     Mirant records goodwill  for  the difference between the excess of the fair
value  of  investments  over  the  purchase  price.  Goodwill  is amortized on a
straight-line  basis over a period between 30  and 40 years.  Mirant  recognizes
specifically  identifiable  intangibles  when specific rights  and contracts are
acquired.  These intangibles  are amortized  on a  straight-line  basis over the
lesser of their contractual or estimated useful lives,  between 20 and 40 years.
Mirant evaluates  long-lived  assets,  such as property,  plant  and  equipment,
goodwill,  and  specifically   identifiable intangibles,  when events or changes
in  circumstances  indicate  that the  carrying  value of such assets may not be
recoverable. The determination of whether an impairment has occurred is based on
an estimate  of undiscounted cash flows attributable to the assets,  as compared
to the carrying value of the assets. If an impairment has occurred,  the  amount
of the impairment recognized  is determined by estimating  the fair value of the
assets and recording a provision  for loss if the carrying value is greater than
fair value.  For  assets  identified  as held for sale,  the  carrying  value is
compared to the  estimated  fair  value  less  cost to  sell to  determine if an
impairment  provision  is required.  Until the assets  are  disposed  of,  their
estimated fair value is reevaluated when circumstances or events change.

  Restricted Deposits

     Mirant  has  restricted  deposits for self-insurance reserves, contractual,
legal, or other corporate purposes.  Restricted  deposits are  included in other
current assets in the  accompanying consolidated balance  sheets and amounted to
$1 million and $50 million at December 31, 2000 and 1999, respectively.

  Property, Plant, and Equipment

     Property,  plant,  and  equipment  are  recorded  at cost to Mirant,  which
includes materials, labor, appropriate administrative and general costs, and the
estimated cost of debt funds used  during construction. The cost of maintenance,
repairs, and  replacement of minor items of property  is charged  to maintenance
expense as incurred.

     Depreciation  of the recorded  cost of  depreciable  property,  plant,  and
equipment is provided by using composite straight-line rates (Note 4). Leasehold
improvements are amortized over the shorter of the respective lease terms or the
useful lives of the improvements.  Mirant's  capitalization  policy expenses the
cost of certain immaterial assets when purchased.

     Upon the  retirement  or sale of  assets,  the cost of such  assets and the
related  accumulated  depreciation  are removed from the balance  sheets and the
gain or loss, if any, is credited or charged to income.

  Leasehold Interests

     Certain  of Mirant  Asia-Pacific   Limited's  ("Mirant Asia-Pacific") power
generation  facilities  are  developed  under  "build,  operate,  and   transfer
agreements"  ("BOT") with the respective local country  government.  Under these
agreements,  Mirant  Asia-Pacific builds  power generation  facilities, operates
them for a period  of  several  years (a  "cooperation  period"),  and transfers
ownership to the local country government at the end of  the cooperation period.
Additionally, the land subject to the BOT agreements is not controlled by Mirant
Asia-Pacific. During construction,  the cost of these  facilities is recorded as
construction  work in progress.  Upon completion of a facility,  its entire cost
is reclassified to  leasehold  interests where the balance is amortized over the
length of the respective cooperation period.
                                      F-10
<PAGE>

  Concession Agreement

     The amount recorded at  December 31,  1999 as a concession agreement in the
accompanying   balance   sheets   corresponds  with  the  total  value,  net  of
amortization, assigned by the Argentine government  to  the assets  delivered to
Mirant's  Argentine   subsidiary,  Hidroelectrica   Alicura   S.A.  ("Alicura"),
for  operating  purposes  pursuant  to  the concession  contract for the Alicura
hydroelectric  complex. This intangible  asset  was  being amortized  using  the
straight-line  method  over 30  years (the concession period) from  August 1993,
which was the takeover date of the hydroelectric complex.

     During December 1998, Mirant, having received the appropriate approval from
executive  management and the board of directors,  committed  itself to a formal
plan to dispose of its investment in Alicura.  The disposal was completed during
2000 (Note 2).

  Leveraged Leases

     Mirant's net investment in leveraged leases consists of rentals receivable,
net of principal  and interest on the related  nonrecourse debt,  the  estimated
residual value of the leased  facilities, and unearned income. The earned income
is included in the consolidated statements of income as income from discontinued
operations.  Initial  direct  costs  incurred in consummating a leveraged  lease
transaction  are  accounted for as part of the  investment  in the lease and are
amortized over the term of the lease (Note 14).

  Income Taxes

     SFAS  No. 109, "Accounting  for  Income  Taxes,"  requires  the  asset  and
liability  approach for  financial accounting and reporting for deferred  income
taxes. Mirant uses the liability method of accounting for deferred income  taxes
and provides deferred income  taxes  for all  significant  income  tax temporary
differences (Note 8).

  Receivables Recovery

     During 1999, Mirant recorded  amounts totaling approximately $64 million in
successful  resolution of  negotiations  by Mirant  which  allowed it to collect
receivables  that  were  assumed  in conjunction  with the  Mirant  Asia-Pacific
Limited  business  acquisition.  At the  time  of the purchase,  Mirant did  not
place value on the receivables due to the uncertain credit standing of the party
with whom the receivables were secured.  Mirant has  rights to an additional $40
million,  plus related interest,  as of  December 31, 2000, which  it  has fully
reserved due to the risk of non collection.

  Foreign Currency  Translation

     Assets and liabilities of international operations where the local currency
is the functional  currency  have  been translated at  year-end  exchange  rates
and  revenues  and expenses have been  translated  using  average exchange rates
prevailing during the year. Adjustments  resulting  from  translation  have been
recorded  in  other   comprehensive   income.    The  financial  statements   of
international  operations  where  the  U.S.  Dollar  is the functional  currency
reflect  certain  transactions  denominated  in a local currency that have  been
remeasured  in  U.S.  Dollars.  The remeasuring  of local  currencies  into U.S.
Dollars  creates  gains  and losses from foreign  currency transactions that are
included  in net income in the amount of $2  million,  $2 million and $4 million
for 2000, 1999 and 1998, respectively. The effect of the translation  adjustment
on other comprehensive income is disclosed  in  the statements of  stockholders'
equity.

  Comprehensive Income

     Mirant's  comprehensive  income,  consisting  of  net  income  and  foreign
currency translation adjustments, net of taxes is presented in  the consolidated
statements of stockholders'  equity. The objective of the statement is to report
a measure of all changes in common  stock  equity of an  enterprise  that result
from   transactions  and   other  economic  events  of  the  period  other  than
transactions with owners.
                                      F-11
<PAGE>

  Financial Instruments and Contractual Commitments

     Mirant  engages  in risk management in connection with its energy marketing
and  trading  activities.  All  trading  transactions  and related  expenses are
recorded  on  a  trade-date  basis.    Financial  instruments  and   contractual
commitments utilized in connection with energy marketing and trading  activities
are  accounted  for  using  the mark-to-market method of accounting.

     Under the mark-to-market  method of accounting,  financial  instruments and
contractual  commitments,  including derivatives used for trading purposes,  are
recorded  at fair  value.  The  determination  of fair value  considers  various
factors,  including  closing exchange or  over-the-counter  ("OTC") market price
quotations, time value and volatility factors underlying options and contractual
commitments,  price activity for equivalent or synthetic  instruments in markets
located in different time zones, and counterparty credit quality.

     The fair values of swap  agreements,  swap  options, caps and  floors,  and
forward  contracts in a net  receivable  position,  as well as options held, are
reported  as  "assets  from  risk  management  activities"  on the  accompanying
consolidated balance sheets.  Similarly,  financial  instruments and contractual
commitments in a net payable position,  as well as options written, are reported
as   "liabilities   from  risk  management   activities"  on  the   accompanying
consolidated  balance sheets.  The assets and  liabilities  from risk management
activities associated with financial instruments and contractual commitments are
reported net by  counterparty,  provided a legally  enforceable  master  netting
agreement  exists,  and are netted across  products and against cash  collateral
when such provisions are stated in the master netting agreement.

  New Accounting Standards

     In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, an amendment of SFAS No. 133,  "Accounting  for Derivative  Instruments
and Hedging Activities". SFAS No. 133, as amended,  establishes  accounting  and
reporting standards for derivative  instruments and for hedging activities.  The
Statement  requires  that  certain  derivative  instruments  be  recorded in the
balance sheet as either assets or liabilities  measured at fair value,  and that
changes in the fair value be recognized  currently in earnings,  unless specific
hedge  accounting  criteria are met.  Mirant  adopted the provisions of SFAS No.
133, as amended, on January 1, 2001 and such adoption is expected to result in a
cumulative  after-tax reduction in other  comprehensive  income of approximately
$300 million in the first quarter of fiscal year 2001.  Mirant  anticipates that
SFAS No. 133 will increase the volatility in other comprehensive  income because
the derivative instruments are valued based on market indices. The adoption will
also impact assets and liabilities recorded on the balance sheet.

     The application of SFAS No. 133 is still evolving and further guidance from
the FASB is expected. In particular, there are two implementation questions that
remain unresolved by the FASB that specifically relate to Mirant's industry. The
first issue relates to the unplanned  netting of electricity  transactions  with
the same counterparty (referred to as a "bookout") which is used in the electric
utility  industry as a scheduling  convenience when two utilities happen to have
offsetting  transactions.  The  FASB has yet to  conclude  on  whether  bookouts
represent gross  settlement or net settlement.  If bookouts are determined to be
net  settlement  features,  then the related  contracts  cannot  qualify for the
normal  purchases and sales  exception;  however,  if bookouts are viewed by the
FASB as gross  settlements,  the related contracts would qualify for this normal
purchases and sales exception.

     The second issue relates to capacity contracts.  A unique characteristic of
the electric  utility  industry is that  electricity  cannot be stored and, as a
result, contracts to buy and sell electricity generally allow the purchaser some
flexibility in determining when to take electricity,  as well as the quantity to
take, in order

                                      F-12
<PAGE>

to match power delivery to fluctuating  demand.  Such power contracts  typically
include a charge (the capacity or demand charge) to recover the significant cost
of  related  plant and  financing  and also a  separate  charge to  recover  the
variable  cost of  producing  power  (the  energy  charge).  The FASB has yet to
conclude  on whether  such  contracts  should  uniquely  qualify  for the normal
purchases and normal sales exception. Even though FASB appears to give the buyer
some optionality SFAS No. 133 does not allow option contracts to qualify for the
normal purchases and sales exception.

     Mirant's  SFAS No. 133 current  accounting  policies  assume that  bookouts
qualify for the normal  purchases and sales  exception.  Additionally,  Mirant's
accounting policies assume that contracts containing capacity and energy charges
qualify for the normal  purchases and sales  exception.  When  established,  the
final  conclusions from the FASB concerning these two issues may have additional
impacts on Mirant's financial statements.

     During 2000, the  Company adopted EITF Issue No. 00-17, "Measuring the Fair
Value of Energy-Related Contracts in Applying Issue No. 98-10," without material
impact on its  earnings or financial  position.  This EITF  provides  additional
clarification  to  companies  in the energy  industry in  accounting  for energy
trading and risk management contracts.

2.   Write-Down of Assets

     In December 1998, Mirant  designed and implemented a plan to dispose of its
Argentine and Chilean investments.  As a result, Mirant recorded a write-down of
approximately  $308  million  in 1998 to  reflect  the  difference  between  the
carrying value of these assets and the estimated  fair value of the  businesses.
Mirant recorded  additional  write-downs  of $16 million and $28 million in 2000
and  1999,  respectively,  to  eliminate  the  impact of net  earnings  from the
investments  in order to prevent  increasing  the carrying value of these assets
above their estimated fair market value.  Depreciation  expense was suspended at
the time of the  initial  write-down.  Mirant  estimated  the fair  value of the
businesses  held for sale based on bids received  from  prospective  buyers,  if
available,  or the discounted  expected future cash flows to be generated by the
assets.  During 2000,  Mirant completed the sale of its 55% indirect interest in
Alicura (Note 12). The adjusted  carrying  value of the Chilean  assets held for
disposal at December  31,  2000 was  approximately  $88  million.  These  assets
impacted the consolidated statements of income as follows (in millions):

                            Operating  Operating  Consolidated
                            Revenues    Income     Net Income
                            ---------  ---------  ------------
                 Year:
                 2000...... $  148     $    4      $   (13)
                 1999......    171         23            2
                 1998......    180         37            5

     During 1999, Mirant recorded a write-down  in  accordance with SFAS No. 121
of approximately $31 million related  to WPD's metering assets. These assets are
held and used by WPD.

3.   Joint Venture Information

     On September 1, 1997, Mirant and Vastar Resources,  Inc. ("Vastar") entered
into a 99-year  partnership  agreement designed to further develop both parties'
energy  marketing and risk  management  operations  and formed  Mirant  Americas
Energy Marketing ("MAEM").  The general and limited partnership interest was 60%
owned, indirectly, by Mirant and 40% owned, indirectly, by Vastar.

                                      F-13
<PAGE>

     Mirant and Vastar accounted  for  their  respective initial  investments in
MAEM  as  a joint  venture.  The partnership  agreement provided both Mirant and
Vastar with significant participatory rights with respect to the  operations  of
MAEM. Accordingly, Mirant accounted  for its interest in the joint venture under
the equity method of accounting.  On  September  11,  2000,  Mirant  closed  its
acquisition  of Vastar's 40% interest in MAEM,  effective  August 10, 2000,  for
$250 million,  which is now consolidated in Mirant's financial  statements (Note
12).

4.   Property, Plant and Equipment

     Property, plant,  and equipment  consisted of the following at December 31,
2000 and 1999 (in millions) (See Note 12 for Acquisitions):

                                                      2000    1999
                                                    -------  ------
                  Production....................... $ 3,318  $1,615
                  Transmission and distribution....     137   2,417
                  Other............................     193     115
                                                    -------  ------
                                                    $ 3,648  $4,147
                                                    =======  ======

     Mirant records  depreciation  expense  on a straight-line basis,  using the
following estimated useful lives (in years):

                  Production.......................  15 to 42
                  Transmission and distribution....  35 to 40
                  Other............................   3 to 30

5.    Related-Party Transactions

      Mirant  has  agreements  with  Southern  Company  Services, Inc. ("SCS", a
wholly owned subsidiary of Southern) and each of the system operating  companies
owned by Southern  under which those companies provide the following services to
Mirant  at  cost:  general  engineering,   design  engineering,  accounting  and
statistical  budgeting,  business  promotion and public  relations,  systems and
procedures, training, and administrative and financial services.  In addition to
these services, certain facilities of the system companies are made available to
Mirant and its customers. Mirant reimburses SCS and the various system operating
companies at cost for these services.  Such costs amounted to approximately  $21
million, $20 million and $17 million during 2000, 1999 and 1998, respectively.

     Included  in these costs are both  directly  incurred  costs and  allocated
costs. The allocated costs related to SCS's corporate general and administrative
overhead amounted to approximately $7 million,  $5 million and $4 million during
2000, 1999 and 1998, respectively.

     SCS allocates costs to Southern Company  subsidiaries  based on single-year
statistical data on a one-year lag. Using these statistics,  SCS allocated these
costs to Mirant based on several  methods of  allocation.  The majority of these
costs were allocated based on the following methodologies, which Mirant believes
are reasonable:

     o   Financial  Basis:  Mirant was charged a percentage of SCS costs subject
         to  allocation  based  on net  fixed  assets,  operating  expenses  and
         operating  revenue.  The amounts  allocated to Mirant were based on its
         net  fixed  assets,  operating  expenses  and  operating  revenue  as a
         percentage  of Southern  Company's  total net fixed  assets,  operating
         expenses and operating revenue.

                                      F-14
<PAGE>


     o   Employee Basis: Mirant was charged a percentage of SCS costs subject to
         allocation  based on  employee  headcount.  The  amounts of the charges
         allocated  to Mirant  were  based on the number of its  employees  as a
         percentage of the number of employees of all of SCS's client  companies
         receiving allocations. Employee groups not benefiting from the services
         are not included in the allocation.

     o   Market-Based Equity Basis: Mirant was charged a percentage of SCS costs
         subject to allocation based on market equity.  The amounts allocated to
         Mirant  were based on the ratio of its total book  equity,  adjusted to
         fair market value, to the sum of the total  market-based  equity of all
         SCS client companies receiving allocations.

     Southern  and its  affiliates  will  continue  to provide  various  interim
services to Mirant as detailed above. The transitional  services  generally will
be  provided  for a fee equal to the greater of the cost,  including  the actual
direct and indirect  costs,  of  providing  the services or the market value for
such services.

     These transitional services generally have a term of two years or less from
the  date  of  Mirant's  separation  from  Southern  (Note  10).  However,  some
transitional services, including those for engineering services, and information
technology services, may be extended beyond the initial two-year period.

     Mirant incurred interest  expense on a note payable to Southern  Company of
$37 million and $53 million during 1999 and 1998, respectively.  No interest was
incurred during 2000, as no amounts were outstanding on the note (Note 7).

     Prior to taking full ownership of MAEM (Notes 3 and 12), Mirant had various
agreements  with MAEM in which MAEM had agreed to develop and manage the bidding
strategy,  manage fuel requirements,  sell the energy and provide accounting and
settlement  services for several  generating plants of Mirant.  These agreements
applied to Mirant's California,  New York and New England operating entities and
generally covered a term of 1 to 2.5 years. The first of these agreements was in
place in  December  1998 and the most  recent in July 1999 as amended in January
2000. Total fees paid to MAEM under the marketing agreements totaled $17 million
in 1999,  and payments made for fuel to MAEM totaled $258 million.  During 2000,
prior to taking  full  ownership  of MAEM,  total fees paid under the  marketing
arrangements  totaled $52 million,  and  payments  made for fuel to MAEM totaled
$261 million.

     Mirant's  revenues and expenses  related to its agreements with MAEM during
1999 were $445  million  and $275  million,  respectively. During 2000, prior to
taking full ownership of MAEM, Mirant's revenues and  epxenses  related  to  its
agreements  with  MAEM  were $767 and $313 million,  respectively.  Intercompany
profits and losses recognized by MAEM on a mark-to-market accounting  basis have
been appropriately  eliminated in consolidation.  Activity with MAEM during 1998
was not material to Mirant.

6.   Employee Benefit Plans

     Mirant offers pension  benefits to its employees  through  various  pension
plans.  During 2000, Mirant modified its voting rights in WPD,  resulting in WPD
being accounted for under the equity method. In previous  periods,  WPD had been
consolidated.

     Mirant  participates  in the  Southern  Company  Pension  Plan,  a  defined
benefit,  trusteed,  noncontributory  plan  covering  substantially  all regular
employees.  The measurement  date for the Domestic Benefit Plans is September 30
for each year presented.

                                      F-15
<PAGE>


     Freeport  Power  Company  participates  in  a  defined  benefit,  trusteed,
contributory  pension plan that covers  substantially all union employees.  Plan
benefits are based on the  employees'  years of service and  employment  grades.
Plan  assets  are  primarily  invested  in  equity  and  debt  securities.   The
measurement date for Freeport Power is December 31 for each year presented.

     All  nonunion  employees  of Freeport  Power  Company  are covered  under a
defined benefit,  noncontributory  pension plan. Benefits earned under this plan
reflect  the  employee's  years  of  service,  age at  retirement,  and  average
compensation  for  the  highest  five  years  out of the ten  years  immediately
preceding  retirement.  Plan  assets are  primarily  invested in equity and debt
securities.

     Mirant  also  has   noncontributory,   defined   benefit   plans   covering
substantially  all union employees at recently acquired  facilities.  These plan
benefits  are based on final  average  pay,  age at  retirement,  and service at
Mirant and the former  employer.  These Plans are funded  according  to Internal
Revenue  Code  requirements  and are  accounted  for  pursuant  to SFAS No.  87,
"Accounting for Pensions."

     The rates  assumed in the  actuarial  calculations  for the  pension  plans
(excluding WPD) of Mirant,  summarized below, as of their respective measurement
dates were as follows:

                                               2000      1999
                                              -----     -----
          Discount rate.....................   7.5%      7.5%
          Rate of compensation increase.....   5.0       5.0
          Expected return on plan assets....   8.5       8.5

     The following tables show the collective actuarial  results for the defined
benefit pension plans (excluding WPD) of Mirant (in millions):

                                                                  Pension Plan
                                                                 2000      1999
                                                                ------    ------
           Change in Benefit Obligation:
           Benefit obligation, beginning of year.............   $  57     $  32
             Service cost....................................       5         3
             Interest cost...................................       4         3
             Benefits paid...................................      (1)        0
             Actuarial loss..................................       4         2
             Amendments......................................       1         0
             Acquisitions....................................      61        17
                                                                -----     -----
                   Benefit obligation, end of year...........   $ 131     $  57
                                                                =====     =====
           Changes in Plan Assets:
           Fair value of plan assets, beginning of year......   $  44     $  30
             Return on plan assets...........................       6         4
             Employer contributions..........................       2         1
             Benefits paid...................................      (1)        0
             Receivables due to transfers....................       5         9
                                                                -----     -----
                   Fair value of plan assets, end of year....   $  56     $  44
                                                                =====     =====
            Funded Status:
            Funded status at end of year.....................   $ (75)    $ (13)
             Unrecognized prior service cost.................       2         2
             Unrecognized net gain...........................     (17)      (14)
                                                                -----     -----
                 Net amount recognized on the consolidated
                  balance sheets.............................   $ (90)    $ (25)
                                                                =====    ======

     WPD participates in the Electricity  Supply Pension Scheme ("ESPS"),  which
provides pension and other related defined  benefits based on final  pensionable
pay to substantially all employees throughout the electricity supply industry in
the United Kingdom.  The  measurement  date for WPD is December 31 for each year
presented.
                                      F-16
<PAGE>

     As a result of WPD's  sale to London  Electricity  of its  supply  business
during 1999, a  curtailment  and  settlement  of a portion of WPD's pension plan
occurred for the pension assets and obligations  that  transferred to the buyer.
In accordance  with SFAS No. 88,  "Employers'  Accounting  for  Settlements  and
Curtailments of Defined Benefit Pension Plans and for  Termination  Benefits," a
curtailment  gain  of $5  million  and a  settlement  loss  of  $14 million were
recorded during 1999 in conjunction with this event.

     The rates assumed in the actuarial calculations for the WPD pension plan as
of December 31, 1999 were as follows:

              Discount rate................            6.50%
              Rate of compensation increase            4.00
              Expected return on plan assets           8.75

    The following tables show the actuarial  results for the WPD defined benefit
pension plan as of December 31, 1999 (in millions):

             Change in Benefit Obligation:
             Benefit obligation, beginning of year...........     $ 1,063
               Service cost..................................          13
               Interest cost.................................          59
               Benefits paid.................................         (70)
               Actuarial gain................................         (91)
               Amendments....................................          41
               Curtailment...................................          (7)
               Settlement....................................         (41)
               Foreign currency exchange rate change.........         (30)
                                                                  -------
                  Benefit obligation, end of year............     $   937
                                                                  =======
             Changes in Plan Assets:
             Fair value of plan assets, beginning of year....     $ 1,308
               Return on plan assets.........................         233
               Employer contributions........................           0
               Participants' contributions...................           4
               Benefits paid.................................         (70)
               Settlement....................................         (59)
               Foreign currency exchange rate change.........         (37)
                                                                  -------
                  Fair value of plan assets, end of year.....     $ 1,379
                                                                  =======
             Funded Status:
             Funded status at the end of year................     $   442
             Unrecognized prior service cost.................          42
             Unrecognized net gain...........................        (251)
                                                                  -------
                  Net amount recognized on the consolidated
                   balance sheets............................     $   233
                                                                  =======


     The components of Mirant's pension plans' net pension  expense  (income) (a
portion of which is  capitalized)  during the years ended  December 31 are shown
below (in millions). 1999 and 1998 results include WPD.

                                              2000     1999    1998
                                            -------  ------- ------
             Service cost...............    $    4   $   16  $   13
             Interest cost..............         4       62      71
             Expected return on plan            (3)    (104)   (107)
             assets.....................
             Employee contributions.....         0       (4)     (6)
             Curtailment................         1       (5)      0
             Settlement.................         0       14       0
             Net amortization...........         0        2       0
                                            ------   ------  ------
             Net pension expense (income)   $    6   $  (19) $  (29)
                                            ======   ======  ======
                                      F-17
<PAGE>


Other Postretirement Benefits

     Mirant also provides certain  medical care and life insurance  benefits for
its retired  employees,  substantially all of whom may become eligible for these
benefits when they retire.

     Under SFAS No. 106,  "Employers'  Accounting  for  Postretirement  Benefits
Other Than  Pensions,"  medical  care  and  life insurance  benefits for retired
employees  are accounted for  on  an  accrual basis using a specified  actuarial
method based on benefits and years of service.

     An additional assumption used in measuring the  accumulated  postretirement
benefit  obligation was a weighted average medical care cost trend rate of 7.74%
and 6.08% for 2000,  decreasing gradually to 5.5% and 5.5% through the year 2005
and remaining at that level  thereafter for pre-age 65 participants and post-age
65  participants,  respectively.  An annual  increase or decrease in the assumed
medical  care cost trend rate of 1% would  correspondingly  increase or decrease
the accumulated benefit obligation at December 31, 2000 by $2 million. All other
components  would not be affected  materially by a 1% change in the medical care
cost trend rate.

     The weighted average rates assumed in the  actuarial  calculations  for the
other  postretirement  benefits  of  Mirant,   summarized  below,  as  of  their
respective measurement dates were as follows:

                                                   2000    1999
                                                   ----    ----
            Discount rate.....................     7.5%    7.5%
            Rate of compensation increase.....     5.0     5.0
            Expected return on plan assets....     8.5     8.5


                                                       2000     1999
                                                       ----     ----
            Change in Benefit Obligation:
            Benefit obligation, beginning of year...   $ 19     $  8
            year....................................
              Service cost..........................      1        1
              Interest cost.........................      2        1
              Actuarial gain........................      1       (1)
              Amendments............................      0        0
              Acquisitions..........................     37       10
                                                       ----     ----
            Benefit obligation, end of year.........   $ 60     $ 19
                                                       ====     ====
            Funded Status:
            Funded status at end of year............   $(60)    $(19)
              Unrecognized net loss.................      2        1
              Accruals for acquisitions.............      0        0
                                                       ----     ----
            Net amount recognized...................   $(58)    $(18)
                                                      =====     ====

     The postretirement benefits  were  unfunded  at December 31, 2000 and 1999.
The  actuarially  based  costs of Mirant's  postretirement benefits during 2000,
1999 and 1998 were not material.

Stock-Based Compensation

  Value Creation Plan

     In 1997, Mirant  initiated a long-term  incentive  plan, the value creation
plan,  which grants  appreciation  rights to eligible  employees to receive unit
appreciation  over a  preestablished  value on a  stated  number  of  units  per
employee.  Base values and subsequent  annual  valuations are calculated using a
discounted cash flow methodology, the key assumptions of which include cash flow
forecasts for each of Mirant's investments for the future five to seven years, a
terminal  value  assumption  equal to 103%,  and a discount  rate of 13% for all
periods  presented.  Employees  are  granted two types of  appreciation  rights:
standard   appreciation   rights  which  pay  each  eligible  employee  for  any
appreciation over a fixed base value and indexed appreciation rights  which  pay

                                      F-18
<PAGE>

each eligible employee for any appreciation  over a base value  which  increases
each  year by a predetermined  interest rate.  Standard appreciation rights vest
25%  per  year for four years,  and indexed appreciation rights vest 100%  after
four years. Mirant  records  compensation  expense  ratably  during  the vesting
period for any  appreciation  of the units over a fixed base value in accordance
with APB Opinion 25. This expense  amounted to $23.3 million and $1.7 million in
2000 and 1999, respectively, and was not material in 1998.

     Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", Mirant
has elected to account for its stock-based compensation  plan  under APB Opinion
25,  "Accounting  for Stock Issued to Employees"  and adopt the  disclosure-only
provisions of SFAS No. 123.  Accounting  for  cash-settled awards under SFAS No.
123 is consistent  with the accounting for such awards under APB Opinion No. 25.

<TABLE>
<CAPTION>
Transactions are summarized as follows:

                                                            Weighted                Weighted
                                                             Average                 Average
                                                Standard    Exercise     Indexed    Exercise
                                                 Rights       Price      Rights       Price
                                             -----------   ---------  ----------  -----------
        <S>                                        <C>        <C>          <C>          <C>
    Outstanding at December 31, 1997.......  $   559,579   $ 10.00     2,729,011    $  10.00
    Granted................................    1,093,849      9.73        54,582       11.30
    Exercised..............................            0      0.00             0        0.00
    Forfeited..............................            0      0.00             0        0.00
                                             -----------   -------     ---------    --------
    Outstanding at December 31, 1998.......    1,653,428      9.82     2,783,593       11.30
    Granted................................    1,456,665     11.61       325,138       12.77
    Exercised..............................      (14,411)     9.90             0        0.00
    Forfeited..............................      (24,995)     9.83       (91,216)      12.77
                                             -----------   -------     ---------    --------
    Outstanding at December 31, 1999.......    3,070,687     10.67     3,017,515       12.77
    Granted................................    2,237,806     13.72             0        0.00
    Exercised..............................       (5,668)     9.73             0        0.00
    Forfeited..............................      (45,900)    13.46             0        0.00
    Converted to stock options/SARs........    5,256,925     11.94     3,017,515       12.77
                                             -----------   -------     ---------    --------
    Outstanding at December 31, 2000.......            0   $  0.00             0    $   0.00
                                             ===========   =======     =========    ========
    Units exercisable at December 31, 1998.      139,883   $ 10.00             0    $   0.00
                                             ===========   =======     =========    ========
    Units exercisable at December 31, 1999.      538,816   $  9.87                  $   0.00
                                             ===========   =======     =========    ========
    Units exercisable at December 31, 2000             0   $  0.00             0    $   0.00
                                             ===========   =======     =========    ========
</TABLE>

Mirant Corporation Options

     Stock option  grants in Mirant  common  stock have been made from  Mirant's
Omnibus  Incentive  Compensation  Plan. Mirant options have a 10-year term. This
term may be shortened through termination of employment. Options vest equally on
each of the first,  second and third  anniversaries  of the grant  date.  Mirant
options are nontransferable,  except through death. The exercise price of Mirant
options is equal to stock price on the date of grant.

Transactions are summarized as follows:
                                                           Weighted
                                                            Average
                                                  Mirant   Exercise
                                                 Options     Price
                                                ---------  ---------
     Outstanding at December 31, 1999.........          0  $  0.00
       Granted................................  8,631,094    17.89
       Exercised..............................       (633)   15.42
       Forfeited..............................    (71,106)   20.72
                                                ---------  -------
     Outstanding at December 31, 2000.........  8,559,355  $ 17.87
                                                =========  =======
     Options exercisable at December 31, 2000.  1,159,650  $ 13.32
                                                =========  =======

                                      F-19
<PAGE>


     Exercise  prices  for  Mirant  stock options outstanding as of December 31,
2000  ranged  from  $3.35  to  $22.00.  The  following  table  provides  certain
information  with  respect  to  Mirant stock options outstanding at December 31,
2000:

                                                             Weighted
                                                Weighted      Average
                                                 Average     Remaining
                                     Options    Exercise    Contractual
      Range of Exercise Prices     Outstanding    Price        Life
      ---------------------------  ------------ ---------   -----------
      $ 3.35 -- $ 4.40........       364,442     $  3.40          6.6
      $11.01 -- $13.20........       798,906       12.93          6.5
      $13.21 -- $15.40........       407,479       13.29          5.5
      $15.41 -- $17.60........     2,029,549       15.92          8.2
      $17.61 -- $19.80........     1,605,407       18.59          9.2
      $19.81 -- $22.00........     3,353,572       22.00          9.7
                                   ---------
      Total...................     8,559,355       17.87          8.6
                                   =========

     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 2000:

                                                 Weighted
                                                  Average
                                     Options     Exercise
      Range of Exercise Prices     Exercisable     Price
      --------------------------- ------------   --------
      $ 3.35 -- $ 4.40........        77,446     $  3.50
      $11.01 -- $13.20........       399,443       12.93
      $13.21 -- $15.40........       305,596       13.29
      $15.41 -- $17.60........       375,097       15.78
      $17.61 -- $19.80........         2,068       19.04
                                   ---------     -------
      Total...................     1,159,650       13.32
                                   =========

     The weighted average fair value at date of grant for options granted during
2000 was $7.94 and was estimated using the Black-Scholes  option valuation model
with the following weighted-average assumptions:

      Expected life in years...       5
      Interest rate............    6.66%
      Volatility...............   40.00%
      Dividend yield...........       0

Southern Company Options

     Stock option grants in Southern  common stock have been made from  Southern
Company's  Performance  Stock Plan  periodically and vest equally on each of the
first,  second and third anniversaries of the grant date. Grants fully vest upon
termination because of death, total disability or retirement.  Exercise price is
the average of the high and low fair market value of Southern  Company's  common
stock on the date granted.


                                      F-20
<PAGE>


Transactions are summarized as follows:

                                                                 Weighted
                                                                  Average
                                                       Southern  Exercise
                                                        Options    Price
                                                      ---------  --------
      Outstanding at December 31, 1997............      517,371  $ 21.81
        Granted...................................      283,864    27.03
        Exercised.................................       (4,071)   21.87
        Forfeited.................................       (1,693)   23.00
                                                      ---------    -----
      Outstanding at December 31, 1998............      795,471    23.67
        Granted...................................      516,967    26.56
        Exercised.................................       (6,001)   22.46
        Forfeited.................................      (21,845)   25.31
                                                      ---------    -----
      Outstanding at December 31, 1999............    1,284,592    24.81
        Granted...................................    1,247,663    23.25
        Exercised.................................      (61,126)   21.68
        Forfeited.................................      (64,630)   23.66
        Transfers of employees between
         Southern and Mirant, net.................      (22,291) $ 24.09
                                                       --------  =======
      Outstanding at December 31, 2000............    2,384,208  $ 24.09
                                                      =========  =======
      Options exercisable at December 31, 1998....      277,788  $ 21.91
                                                      =========  =======
      Options exercisable at December 31, 1999....      502,276  $ 22.83
                                                      =========  =======
      Options exercisable at December 31, 2000....      812,982  $ 24.11
                                                      =========  =======

     Exercise prices for Southern  stock options  outstanding as of December 31,
2000  ranged  from  $21.01 to  $28.00.  The  following  table  provides  certain
information  with respect to Southern stock options  outstanding at December 31,
2000:

                                                            Weighted
                                                Weighted     Average
                                                Average     Remaining
                                     Options    Exercise   Contractual
      Range of Exercise Prices     Outstanding   Price        Life
      ---------------------------  -----------  --------   -----------
      $21.01 -- $24.00.........     1,621,122   $ 22.88        8.1
      $24.01 -- $28.00.........       763,086     26.73        7.7
                                    ---------
      Total....................     2,384,208     24.09        8.0
                                    =========

     The following  table  provides  certain  information  with respect to stock
options exercisable at December 31, 2000:

                                               Weighted
                                                Average
                                     Options   Exercise
      Range of Exercise Prices     Exercisable   Price
      --------------------------- --------------------
      $21.01 -- $24.00.........       448,328  $  21.91
      $24.01 -- $28.00.........       364,654     26.81
                                      -------
      Total...................        812,982     24.11
                                      =======

     The  weighted  average  fair  values  at date  of grant for options granted
during 2000, 1999 and 1998 were $3.36, $6.29 and $5.69,  respectively,  and were
estimated  using the  Black-Scholes  option  valuation  model with the following
weighted-average assumptions:

                                  2000     1999    1998
                                -------  ------- ------
      Expected life in years..     4.0      3.7     3.7
      Interest rate...........    6.66%    5.79%   5.46%
      Volatility..............   20.94%   20.74%  19.16%
      Dividend yield..........    5.80%    5.00%   5.00%



                                      F-21
<PAGE>
     Had compensation  costs  been determined as prescribed  by SFAS No. 123 for
options in Southern and Mirant, Mirant's net income would  have been  reduced by
approximately $23 million in 2000, by approximately $12  million in 1999  and by
approximately $6 million in 1998. Earnings  per share would have been reduced by
$0.07,  $0.05 and $0.02 for the same periods, respectively.

Phantom Stock

     During 1999, Mirant made awards of  approximately  39,000 phantom  Southern
stock shares and  approximately  130,000  phantom Mirant stock shares to certain
employees and officers.  The aggregate  amount  awarded was  approximately  $2.7
million with cliff vesting  during 2003.  Mirant  records  compensation  expense
ratably  during the vesting  period,  taking into  account the  fluctuations  in
market value of the  underlying  stock during each period.  During 2000,  Mirant
made awards of  approximately  304,925  Mirant  phantom  stock shares to certain
employees and officers.  The aggregate  amount  awarded was  approximately  $6.7
million  with  vesting  based  on  stock  price  appreciation.   Mirant  records
compensation  expense as shares become vested.  Compensation expense during 2000
and 1999 was approximately $1.7 million and $500,000, respectively.

7.   Debt

     At December 31, 2000 and 1999,  Mirant's  long-term debt (including current
maturities) was as follows (in millions):
                                                          2000          1999
                                                         ------        ------
  Senior notes:
    Dollar-denominated:
       7.40% notes, due 2004.........................     $  200        $  200
       7.90% notes, due 2009.........................        500           500
    Sterling-denominated:
       6.38% notes, due 2001*........................          0           163
       6.80% notes, due 2006*........................          0           321
  Debt supported by long-term banking arrangements:
    Dollar-denominated:
       7.10% to 7.34% note, due 2001.................          0             6
       7.76%  to 8.00% notes, due 2002...............      1,942           792
       8.06% to 9.75% note, due 2003.................         71            21
       8.06% to 9.50% notes, due 2004................         68            89
       Variable rate (7.47% at December 31, 2000),
        04...........................................        300           140
       5.43% note, due 2004, guaranteed by Mirant....          0           100
       7.69% to 10.00% notes, due 2005...............        422           417
       7.64% to 9.70% notes, due 2006................         49            51
       7.16% to 10.25% notes, due 2007...............        427           495
       5.95% to 10.56% notes, due 2011...............        754           742
    Deutsche mark-denominated:
       5.14% to 5.17% note, due 2004.................        512           522
  Other long-term debt:
    Dollar-denominated:
       11.00% note, due 2000.........................          0            71
       7.75% and  10.50% senior loan participation
        certificate, due 2005 and 2006...............        340           340
       7.78% to 11.00% loans, due 2000 to 2007.......         25            24
       8.12% notes, due 2018.........................        153           153
    Sterling-denominated:
       0% to 7.64% loans, due 2000 and 2002..........          5            13
    Deutsche Mark-denominated:
       5.35% loan, due 2008..........................         29            31
                                                         -------       -------
         Total long-term debt........................      5,797         5,191
  Less current maturities............................        201           237
                                                         -------       -------
         Total                                           $ 5,596       $ 4,954
                                                         =======       =======
    *WPD long-term debt was consolidated in 1999.
                                      F-22
<PAGE>
     At December 31, 2000, the annual  scheduled  maturities  of long-term  debt
during the next five years were as follows (in millions):

                 2001........   $201
                 2002........  2,138
                 2003........    261
                 2004........  1,195
                 2005........    432

  Bank Arrangements

     Mirant has bank  credit  arrangements  with  various  lending  institutions
totaling  approximately  $6,647  million.  At  December  31,  2000,  used credit
arrangements with banks totaled $4,190 million,  of which $1,298 million expires
during 2001 and $2,892 million during 2002 and beyond.  The credit  arrangements
generally  require payment of commitment fees based on the unused portion of the
commitments or the  maintenance of compensating  balances with the banks.  These
balances are not legally restricted from withdrawal.

     In April 1999, Mirant entered into three revolving credit agreements with a
group of lending banks, as agent, with commitments totaling $1,300 million. Each
of the corporate credit facilities is available for general corporate  purposes,
including  commercial paper backstop.  Facility A with total commitments of $500
million  was  intended  to  be  a  temporary  facility  until  Mirant  completed
subsequent financings. Accordingly, this facility was cancelled in October 1999.
Facility  B, a $350  million,  364-day  revolving  line of credit with an annual
commitment fee of $532,000,  originally matured in March 2000;  however,  it has
extension and commitment  increase options subject to the lenders'  approval and
currently  matures in March 2001.  Facility C,  totaling  $450  million  with an
annual  commitment  fee of  $798,000,  also has a letter  of credit  option  and
matures  in April  2004.  No  amounts  were  drawn  under the  Facility C credit
arrangement at December 31, 2000 or 1999. However,  Mirant had letters of credit
outstanding  under  Facility C in the amount of $406 million and $250 million at
December 31, 2000 and 1999, respectively.  In April 1999, Mirant also instituted
a commercial paper program that is used in conjunction with the corporate credit
facilities as an alternate funding source. At December 31, 2000 and 1999, $0 and
$50 million were outstanding, respectively, under this program.

     The April 1999 Credit Agreements contain  various  business  and  financial
covenants   including,   among  other  things,  (i)  limitations  on  dividends,
redemptions and repurchases of capital stock, (ii) limitations on the incurrence
of  indebtedness  and liens,  (iii)  limitations on capital  expenditures,  (iv)
limitations on ratio of recourse debt to recourse capital and (v) maintenance of
minimum ratios of Corporate Debt Service to Corporate Interest.

     In October 1999, Mirant  Americas  Generation,  Inc.  ("MAGI")  completed a
$1,450  million  corporate-style  bank  financing  consisting  of  three  credit
facilities.  Facility A is a $1,150  million  364-day  term loan with a two-year
term-out  option and no commitment fee.  Facility B is a $250 million  five-year
revolving credit facility, with an annual commitment fee of $380,000, to be used
for capital  expenditures,  and Facility C is a $50 million five-year  revolving
credit facility,  with an annual commitment fee of $76,000,  for working capital
needs.  The draws under  Facilities  B and C, in the amount of $300  million and
$140  million at  December  31,  2000 and 1999,  respectively,  are  included in
long-term debt in the  accompanying  balance sheets.  The term out of Facility A
was executed in October 2000,  and the facility will mature in October 2002. The
MAGI facilities  contain covenants  substantially  equivalent to those discussed
above for the April 1999 Credit Agreement.

                                      F-23
<PAGE>

     In May 2000,  Mirant entered into a revolving credit agreement with Bank of
America,  as agent,  with commitments  totaling $550 million.  In June 2000, the
facility was  syndicated  among a group of lending banks and increased to $1,000
million to be used for general corporate  purposes,  including  commercial paper
backstop.  The June  2000  credit  agreement  contains  covenants  substantially
equivalent to those discussed above for the April 1999 credit agreement.

     In August 2000,  Mirant  entered  into  a  letter of  credit  facility with
commitments totaling $100 million to be used for general corporate purposes.  As
of December 31,  2000,  Mirant had $85.5  million in  letters  of credit  issued
under this  facility.   The  August  2000 credit  agreement  contains  covenants
substantially equivalent to those  discussed  above for the April  1999 and June
2000 credit agreements.

     In connection with the Potomac Electric Power Company ("PEPCO") acquisition
in  December  2000 (Note 12),  Mirant  entered  into  credit  agreements  with a
syndicate of banks that provided two facilities to MAGI totaling  $1,020 million
with  recourse to MAGI and one facility of $650 million to Mirant with  recourse
to Mirant.  At  December  31, 2000 $1,145  million was  outstanding  under these
agreements.

    During 2000, MAEM renewed its existing  line-of-credit facility with a group
of lenders for an additional  364-day term and increased its borrowing  capacity
by $30 million to $180 million.  The facility bears interest based on the London
Interbank  Offering Rate plus a variable spread based on MAEM's credit rating at
the date of the borrowing,  payable  monthly.  MAEM had $90 million  outstanding
under this  line-of-credit  facility at December  31, 2000.  In July 1999,  MAEM
entered into a commercial paper agreement with certain  financial  institutions.
Each note has a maturity of 366 days or less. As of December 31, 2000,  MAEM had
no commercial paper outstanding.

    On July 21, 2000,  Mirant Americas Energy  Marketing  Canada Ltd.  ("MAEMC")
entered into a $35 million  (Canadian  dollar)  revolving  credit  facility.  On
November 20, 2000,  MAEMC amended the initial  facility  increasing  the maximum
borrowing amount to $70 million (Canadian dollar). The one-year agreement can be
extended an  additional  year on November 1, 2001.  The  facility's  interest is
payable monthly.  The interest rate depends on the currency of the borrowing and
generally  is computed  at LIBOR plus 85 to 100 basis  points.  At December  31,
2000, the outstanding borrowings were $41.8 million (U.S. Dollar borrowings).

    On March 3, 2000,  Mirant Americas Energy Capital entered into a $50 million
credit  facility  that  matures on March 3, 2003.  The  facility's  interest  is
payable monthly. For base rate advances,  interest is computed as the U.S. prime
rate plus zero points. For London Interbank Offering Rate advances,  interest is
computed as LIBOR plus 200 basis points.  At December 31, 2000, the  outstanding
borrowings were $50 million.

    Mirant  believes  it is in  compliance  with all  of  the  covenants  in the
preceding agreements at December 31, 2000.

    In addition,  Mirant, from time-to-time,  borrows under uncommitted lines of
credit with banks and through  commercial paper programs that have the liquidity
support of committed bank credit arrangements.

                                      F-24
<PAGE>

Preferred Securities and Related Notes Receivable from Southern Company

     In a series of transactions during 1998 and 1997,  subsidiaries  of  Mirant
borrowed $350 million and $682 million, respectively,  dollar denominated income
preferred  securities.  The securities are due between 2027 and 2037  with fixed
interest  rates  between 6.875% and 8.235%. Mirant entered into a swap agreement
to effectively  convert the $82 million  security  borrowed  in 1997 to  British
Pounds Sterling at the time of issuance.  This amount is not  included  in  2000
as WPD  is no  longer consolidated for accounting purposes effective December 1,
2000.  $950  million  and  $1,031 million were  outstanding on the securities at
December 31, 2000 and 1999, respectively (Note 9).

     These subsidiary obligated mandatorily redeemable preferred securities have
been issued by special purpose financing  entities of Mirant.  Substantially all
of the assets of these special financing entities are junior  subordinated notes
issued  by  subsidiaries  of Mirant in the  amount of $979  million  and held by
Southern Company.  Payment terms and interest rates on the note receivables from
Southern Company are identical to the related  preferred  securities.  The notes
are due  between  2027 and 2037 with fixed  interest  rates  between  6.875% and
8.19%.  These  receivables from Southern are included in notes receivable in the
accompanying  balance  sheets  (Note 9). These will be  transferred  to Southern
Company as part of Mirant's separation from Southern Company.

Convertible Trust Preferred Securities

     On  October  2,  2000,  Mirant  Trust I  closed  the  sale  of 6.9  million
convertible  trust  preferred  securities  for an  initial  price of $50.00  per
preferred  security.  The  net  proceeds  from  the  offering,  after  deducting
underwriting discounts and commissions payable by Mirant, were $334 million.

     Unless Mirant redeems the  debentures,  and subject to its right to elect a
cash settlement,  holders of preferred securities will have the right to convert
the preferred  securities into shares of Mirant's common stock at any time after
October 2, 2001 and prior to October 1,  2030.  Preferred  securities  that have
been called for  redemption  may only be converted on or before the business day
prior to the close of business on the applicable  redemption date. The preferred
securities  will convert into Mirant common stock at an initial  conversion rate
of 1.8182 shares of common stock for each preferred  security.  This  conversion
rate is equivalent to the conversion  price of $27.50 per share of Mirant common
stock. The initial conversion rate may be subject to adjustment. Upon conversion
of a preferred  security,  a  corresponding  debenture held by the trust will be
canceled.

     From October 2, 2001 and until the next business day  following the date of
the  distribution  of  Mirant  common  stock  held by  Southern  Company  to its
stockholders,  Mirant  may elect to make a cash  settlement  in  respect  of any
preferred securities surrendered for conversion. The amount of cash that holders
of the preferred securities will receive if Mirant elects a cash settlement will
be equal to the value of the underlying shares of common stock.

                                      F-25
<PAGE>
8.   Income Taxes

     Details of the income tax provision for the years ended  December 31, 2000,
1999 and 1998 are as follows (in millions):

                                                          2000    1999    1998
                                                          ----    ----    ----
     Income Tax Provision:
     Income tax from continuing operations:
       United States:
          Current provision (benefit).................   $  44   $ (16)  $ (87)
          Deferred provision (benefit)................      43      36     (44)
       International:
          Current (benefit) provision.................      (2)     18      15
          Deferred provision (benefit)................       1      91      (7)
                                                         -----   -----    ----
            Total provision (benefit) from continuing
             operations...............................   $  86  $  129   $(123)
                                                         =====  ======   =====
     Income tax from discontinued operations:
          Current benefit.............................     (90)    (54)    (33)
          Deferred provision..........................      70      39      11
                                                         -----  ------   -----
            Total benefit from discontinued operations   $ (20) $  (15)  $ (22)
                                                         =====  ======   =====

     The tax effects of temporary differences  between the  carrying  amounts of
assets and  liabilities  in the financial  statements  and their  respective tax
bases which give rise to deferred tax assets and  liabilities are as follows (in
millions):

                                                    2000   1999
                                                   ------ ------
     Deferred Tax Liabilities:
     Property and intangibles basis differences    $(377) $(699)
     Pensions..................................        0    (64)
     Other.....................................     (204)   (49)
                                                   -----  -----
       Total...................................    $(581) $(812)
                                                   =====  =====
     Deferred Tax Assets:
     Obligations under energy delivery             $ 802  $   6
     commitments...............................
     Impairment loss...........................       84     85
     Deferred costs............................       12     20
     Other.....................................      239     21
                                                   -----  -----
       Total...................................    1,137    132
                                                   -----  -----
       Net deferred tax assets (liabilities)...    $ 556  $(680)
                                                   =====  =====

     Deferred   tax  assets   and  liabilities  attributable  to  the  same  tax
jurisdiction are netted  where  appropriate  in  the  accompanying  consolidated
balance sheets.

     A reconciliation  of  Mirant's  federal  statutory  income  tax rate to the
effective income tax rate for continuing operations for the years ended December
31, 2000, 1999 and 1998 is as follows:

                                                 2000    1999   1998
                                                 ----  ------- -----
     Statutory income tax rate.................    35%    35%   (35)%
     State income tax, net of federal benefit..     4      1       3
     Non-U.S. taxes............................   (23)   (17)   (192)
     Other.....................................     1      0       0
                                                 ----  -----    ----
       Effective income tax rate.......            17%    19%   (224)%
                                                 ====  =====   =====

     The difference between the statutory rate and the effective income tax rate
for  discontinued  operations  for 2000,  1999 and 1998 is primarily  due to the
utilization of domestic tax credits.

                                      F-26
<PAGE>
     Mirant and the other subsidiaries  of Southern file a consolidated  federal
income tax return.  Under a joint income tax agreement,  each company's  current
and  deferred  tax  expense  is  computed  on a  stand-alone  basis.  Under this
agreement,  Mirant  received tax refunds  from  Southern of  approximately  $136
million, $99 million and $118 million during 2000, 1999 and 1998,  respectively.
Approximately  $85 million  and $100  million of the other  current  receivables
balance at  December  31,  2000 and 1999,  respectively,  are  comprised  of tax
refunds  under  the  consolidated  income  tax  agreement  or from  various  tax
authorities.  Approximately  $168 million and $152 million of the other  current
payables balance at December 31, 2000 and 1999,  respectively,  are comprised of
income taxes currently payable to various tax authorities.

     The undistributed earnings of certain foreign subsidiaries  aggregated $773
million as of December  31, 2000,  which,  under  existing tax law,  will not be
subject  to U.S.  income  tax  until  distributed.  Of the  total  undistributed
earnings,  provisions  for U.S.  taxes  have not been  accrued  on $382  million
related  to  earnings  that  have  been,  or are  intended  to be,  indefinitely
reinvested.

     On July 1, 2000, Mirant adopted a strategy under  which  only  a portion of
the future earnings of certain foreign subsidiaries will be deferred in order to
reinvest funds for further growth in Asia, fund construction  efforts or service
debt  obligations.  The remaining  earnings will be repatriated for reinvestment
elsewhere in the world or to service parent debt obligations.

9.   Financial Instruments

  Commodity Trading Activities

     Mirant  provides  risk  management  services  associated  with  the  energy
industry  to its  customers in  the  North American and European markets.  These
services are provided  through a variety of  exchange-traded  energy  contracts,
forward  contracts,   futures  contracts,   option contracts, and financial swap
agreements. These  contractual  commitments,  which  represent  risk  management
assets and  liabilities,  are accounted for using the  mark-to-market  method of
accounting. Accordingly,  they are  reflected at fair  value in the accompanying
consolidated balance sheets.

     The trading  operations  engage  in risk  management  activities.  All such
transactions and related expenses are recorded on a trade-date basis.  Financial
instruments  and  contractual  commitments  utilized  in  connection  with these
activities  are accounted  for using the  mark-to-market  method of  accounting.
Under  the  mark-to-market  method  of  accounting,  financial  instruments  and
contractual  commitments,  including  derivatives  used for these purposes,  are
recorded  at fair  value.  The  determination  of fair value  considers  various
factors,  including  closing exchange or  over-the-counter  ("OTC") market price
quotations, time value and volatility factors underlying options and contractual
commitments.

     The volumetric  weighted  average  maturities at December 31, 2000 were 3.1
years and 2.3 years for the North  American  portfolio  and European  portfolio,
respectively.  The  net  notional  amount  of the  risk  management  assets  and
liabilities  at  December  31,  2000 was  approximately  18  million  equivalent
megawatt-hours. The notional amount is indicative only of the volume of activity
and not of the amount  exchanged  by the parties to the  financial  instruments.
Consequently, these amounts are not a measure of market risk.

                                      F-27
<PAGE>
     Risk management  assets and  liabilities  as of December 31, 2000 primarily
relate to MAEM, the North American energy marketing subsidiary.  As discussed in
Note 12, this subsidiary was accounted for under the equity method of accounting
until the August 10, 2000  purchase by Mirant of the  remaining  interest in the
subsidiary.  The fair value of the North  American and European risk  management
assets  and  liabilities  recorded  in the  consolidated  balance  sheets  as of
December  31, 2000 and the  average for the year then ended are  included in the
following  table.  The averages  are based on  quarter-end  balances  during the
entire year.
<TABLE>
<CAPTION>

                                    Risk Management Assets        Risk Management Liabilities
                                   ---------------------------   ----------------------------
                                                   Value at                       Value at
                                    Average      December 31,      Average      December 31,
                                     Value           2000           Value           2000
                                    -------      ------------      -------      ------------
Energy commodity instruments:
<S>                                    <C>            <C>            <C>            <C>
Electricity.......................    $1,513         $ 2,017        $1,505         $1,971
Natural gas.......................     1,065           1,738         1,068          1,721
Crude oil.........................        59              85            40             83
Other.............................        56              68            32             30
                                      ------         -------        ------         ------
  Total...........................    $2,693         $ 3,908        $2,645         $3,805
                                      ======         =======        ======         ======
</TABLE>

  Asset and Liability Management

     Mirant is exposed to market risk,  including  changes  in  interest  rates,
currency  exchange rates, and certain commodity prices. To manage the volatility
relating to these exposures,  Mirant enters into various derivative transactions
pursuant to its policies in such areas such as counterparty exposure and hedging
practices.

  Commodity Contracts

     Mirant engages in  commodity-related  marketing  and price risk  management
activities  in order to hedge  market risk and  exposure to  electricity  and to
natural gas,  coal, and other fuels  utilized by its  generation  assets.  These
financial instruments primarily include forwards,  futures, and swaps. The gains
and losses related to these derivatives are recognized in the same period as the
settlement of the  underlying  physical  transaction.  These  realized gains and
losses  are  included  in  operating  revenues  and  operating  expenses  in the
accompanying income statements.

     At December 31, 2000,  Mirant had  unrealized  net losses of  approximately
$397 million related  to these  financial  instruments.  The  fair  value of its
nontrading commodity financial  instruments is determined using various factors,
including closing exchange or  over-the-counter  market price  quotations,  time
value and volatility factors underlying options and contractual commitments.

     At December 31, 2000, Mirant had contracts that related to periods  through
2003. The net notional amount of the risk  management  assets and liabilities at
December 31, 2000 was 4.9 million equivalent megawatt-hours. The notional amount
is indicative only of the volume of activity and not of the amount  exchanged by
the parties to the financial instruments.  Consequently, these amounts are not a
measure of market risk.

  Interest Swaps

     Mirant's policy is to manage interest expense using a combination of fixed-
and variable-rate  debt. To manage this mix in a cost-efficient  manner,  Mirant
enters into  interest  rate swaps in which it agrees to  exchange,  at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an  agreed-upon  notional  principal  amount.  These  swaps  are

                                      F-28
<PAGE>

designated to hedge  underlying debt  obligations.  For qualifying  hedges,  the
interest rate  differential  is reflected as an  adjustment to interest  expense
over the life of the swaps.  Gains and losses  resulting from the termination of
qualified  hedges prior to their stated  maturities are recognized  ratably over
the remaining life of the instrument being hedged.

     Currency swaps are used by Mirant to hedge its net  investment  in  certain
foreign  subsidiaries.  Gains or losses on these  currency  swaps  designated as
hedges of net investments are offset against the translation  effects  reflected
in other  comprehensive  income, net of tax. Currency forwards are used to hedge
contracts denominated in a foreign currency.

     The interest rates  noted  in  the  following  table represent the range of
fixed interest  rates  that  Mirant pays on the related interest rate swaps.  On
virtually all of these interest rate swaps,  Mirant receives  floating  interest
rate  payments  at LIBOR.  The  currency  derivatives  manage  Mirant's exposure
arising on certain foreign currency transactions.
<TABLE>
<CAPTION>

                              Year of Maturity    Interest        Number of     Notional    Unrecognized
Type                           or Termination       Rates      Counterparties    Amount      (Loss) Gain
----                           --------------     ------------ --------------    ------    -------------
                                                                                    (in millions)
<S>                                  <C>               <C>            <C>           <C>         <C>
Interest rate swaps               2002-2012        6.55%-7.12%         9          $2,150     $ (110)
                                  2002-2007        4.98%-5.79%         2           DM691         (5)
Cross currency swaps                   2002                  -         2       (pound)44          1
Cross currency swaption                2003                  -         2           DM338         24
Currency forwards                 2001-2003                  -         1           CAD19          -
                                       2001                  -         4      (pound)116         (5)
                                                                                             ------
                                                                                             $  (95)
                                                                                             ======
</TABLE>

         (pound) - Denotes British pounds sterling
              DM - Denotes Deutschemark
             CAD - Denotes Canadian Dollars

     The  unrecognized  gain/loss for interest rate swaps is determined based on
the  estimated  amount that Mirant would  receive or pay to  terminate  the swap
agreement  at  the  reporting   date  based  on  third-party   quotations.   The
unrecognized  gain/loss for cross-currency  financial  instruments is determined
based on current  foreign  exchange  rates.  If the existing asset and liability
management  derivative  financial  instruments at December 31, 2000 and 1999 had
been  discontinued  or Mirant  counterparties  defaulted on those dates,  Mirant
would have  recognized  losses of  approximately  $95 million  and $57  million,
respectively.  However,  at December 31, 2000, Mirant believes that its exposure
to credit  risk due to  nonperformance  by the  counterparties  to its asset and
liability  management  financial  derivatives  is  not  material  based  on  the
investment grade rating of the counterparties.

  Market Risk

     Market risk is the  potential  loss Mirant may incur as a result of changes
in the  market  or fair  value of a  particular  instrument  or  commodity.  All
financial  and  commodities-related  instruments,   including  derivatives,  are
subject to market  risk.  Mirant's  exposure to market risk is  determined  by a
number  of   factors,   including   the   size,   duration,   composition,   and
diversification  of positions held, the absolute and relative levels of interest
rates as well as market volatility and illiquidity.  The most significant factor
influencing  the overall  level of market risk to which Mirant is exposed is its
use of hedging  techniques to mitigate such risk.  Mirant manages market risk by
actively  monitoring  compliance with stated risk management policies as well as
monitoring the effectiveness of its hedging policies and strategies.

                                      F-29
<PAGE>

     Mirant's risk  management  policies  limit the amount of total net exposure
and  rolling  net  exposure  during  stated  periods.  These policies, including
related risk limits,  are  regularly  assessed to ensure  their  appropriateness
given Mirant's objectives.

  Credit Risk

     Mirant  is   exposed   to  losses  in  the  event  of   nonperformance   by
counterparties  to its derivative  financial  instruments for those  instruments
that are not  exchange-traded.  Credit risk is measured by the loss Mirant would
record  if its  counterparties  failed  to  perform  pursuant  to terms of their
contractual  obligations  and the  value of  collateral  held,  if any,  was not
adequate to cover such losses.  Mirant has established controls to determine and
monitor  the  creditworthiness  of  counterparties,  as well as the  quality  of
pledged  collateral,  and uses master netting  agreements  whenever  possible to
mitigate Mirant's exposure to counterparty credit risk. Additionally, Mirant may
require counterparties to pledge additional collateral when deemed necessary.

     Concentrations  of  credit  risk  from  financial  instruments,   including
contractual  commitments,  exist  when  groups of  counterparties  have  similar
business  characteristics  or are  engaged in like  activities  that would cause
their ability to meet their contractual commitments to be adversely affected, in
a similar manner, by changes in the economy or other market  conditions.  Mirant
monitors  credit  risk on both  an  individual  and  group  counterparty  basis.
Accordingly,  management  does not expect  any  material  adverse  impact to its
financial  position  or  results  of  operations  as a  result  of  counterparty
nonperformance.

  Fair Values

     SFAS No.  107,  "Disclosures  About Fair Value of  Financial  Instruments,"
requires  the  disclosure  of  the  fair  value  of all  financial  instruments.
Financial  instruments  recorded  at  market  or fair  value  include  cash  and
interest-bearing  equivalents,  financial instruments used for trading purposes,
commodities,  and  related  instruments  used for  trading  purposes,  including
options and  contractual  commitments.  See the Asset and  Liability  Management
section in this note where  commodity  contracts  for  nontrading  purposes  are
discussed.  The following methods were used by Mirant to estimate its fair value
disclosures for all other financial instruments not carried at fair value on the
accompanying balance sheets:

        Notes  Receivable.  The  fair  value of  Mirant's  note  receivables  is
     estimated using  interest  rates it would receive based on similar types of
     arrangements.

        Notes  Payable and Other Long- and  Short-Term  Debt.  The fair value of
     Mirant's notes  payable and long- and  short-term  debt is estimated  using
     discounted cash flow analysis  based on current  market  interest rates for
     similar types of borrowing arrangements and market quotes, when available.

        Subsidiary Obligated Mandatorily  Redeemable Preferred  Securities.  The
     fair value  of  Mirant's  subsidiary   obligated  preferred  securities  is
     calculated based on current market price.

                                      F-30
<PAGE>

       Company Obligated Mandatorily  Redeemable  Securities.  The fair value of
     Mirant's company  obligated  preferred  securities is  calculated  based on
     current market price.

     The carrying  or notional  amounts  and fair  values of Mirant's  financial
instruments at December 31, 2000 and 1999 were as follows (in millions):
<TABLE>
<CAPTION>

                                                               2000               1999
                                                        -----------------  ------------------
                                                         Carrying   Fair    Carrying   Fair
                                                          Amount    Value    Amount    Value
                                                        ---------  -------  --------  -------
         <S>                                                <C>       <C>      <C>       <C>
     Notes receivable, including current portion....     $ 1,553   $ 1,553  $ 1,415   $ 1,324
     Notes payable and long- and short-term debt....       7,086     6,653    7,152     6,779
     Subsidiary obligated mandatorily redeemable
      preferred Securities..........................         950       934    1,031       907
     Company obligated mandatorily redeemable
      securities of a subsidiary holding solely
      parent company debentures.....................         345       428         0        0
</TABLE>


10.  Capital Transactions

     Initial Public  Offering.  During 2000,  Mirant completed an initial public
offering of 58 million shares of its common stock for an initial price of $22.00
per share.  Simultaneously,  the underwriters exercised options to purchase from
Mirant an  additional  8,700,000  shares of common stock at the initial price of
$22.00  per  share.  The  net  proceeds  from  the  offering,   after  deducting
underwriting  discounts and  commissions  payable by Mirant,  were $1.4 billion.
Mirant  used  the net  proceeds  of the  offering  and the  sale of  convertible
preferred  securities  (Note 7) to repay $900  million of  short-term  debt from
credit lines and $581 million of commercial  paper. The remaining  proceeds were
to be used for general corporate purposes.

     As part of its planned spin-off from Southern,  Mirant agreed to contribute
its  finance  and  leveraged  lease  subsidiaries  (Note  14)  to  Southern.  In
connection with this contribution, on August 30, 2000, Mirant issued to Southern
one share of Series B preferred  stock,  redeemable at the election of Mirant in
exchange for the contribution of these subsidiaries to Southern. The issuance of
the  preferred  share on August 30,  2000 has been  accounted  for as a non-cash
transaction  by Mirant at the book value of these  subsidiaries,  resulting in a
reduction of shareholders equity during 2000. Mirant has not called its Series B
preferred  share  for  redemption.  There  will  not  be a gain or loss from the
disposal because of the transfer accuring at book value.

11.  Commitments and Contingent Matters

California:
     Reliability-Must-Run  Agreements: Mirant  subsidiaries  acquired generation
assets from Pacific Gas  &   Electric  ("PG&E") in  April   1999,   subject   to
reliability-must-run   agreements.   These   agreements   allow  the  California
Independent System Operator Corporation ("CAISO"),  under certain conditions, to
require  certain Mirant  subsidiaries to run the acquired  generation  assets in
order to support the reliability of the California electric transmission system.
Mirant  assumed  these  agreements  from PG&E prior to the  outcome of a Federal
Energy Regulatory  Commission ("FERC") proceeding initiated in October 1997 that
will  determine  the  percentage  of  a  $158.8  million  annual  fixed  revenue
requirement  to be paid to Mirant by the  CAISO  under the  reliability-must-run
agreements.  This  revenue  requirement  was  negotiated  as  part  of  a  prior
settlement of a FERC rate  proceeding.  Mirant  contends that the amount paid by
the CAISO should reflect an allocation based on the CAISO's right to call on the
units (as defined by the reliability-must-run agreements) and the CAISO's actual
calls.   This  approach  would  result  in  annual  payments  by  the  CAISO  of
approximately $120 million, or 75% of the settled fixed revenue requirement. The
decision  in this case will  affect  the amount the CAISO will pay to Mirant for
the period from June 1,1999  through  December  31, 2001.  On June 7, 2000,  the
administrative  law  judge  presiding  over the  proceeding  issued  an  initial
decision in which responsibility for payment of approximately 3% of  the revenue

                                      F-31
<PAGE>


requirement was allocated to the CAISO.  On July 7, 2000,  Mirant  appealed  the
administrative  law  judge's  decision  to the FERC.  The outcome of this appeal
cannot be determined.  A final FERC order in this proceeding may be appealed  to
the U.S. Court of Appeals.

     If Mirant is unsuccessful in its appeal of the  administrative  law judge's
decision,  it  will  be  required  to  refund  certain  amounts  of the  revenue
requirement  paid by the CAISO for the period  from June 1, 1999 until the final
disposition  of the appeal.  The amount of this  refund as of December  31, 2000
would have been  approximately $138 million,  however,  there would have been no
effect on net income for 2000. This amount does not include interest that may be
payable in the event of a refund.  If Mirant is unsuccessful  in its appeal,  it
plans  to  pursue  other  options   available  under  the   reliability-must-run
agreements  to mitigate the impact of the  administrative  law judge's  decision
upon its future operations.  The outcome of this appeal is uncertain, and Mirant
cannot provide assurance that it will be successful.

     CAISO and California Power Exchange Corporation ("PX")Price Caps: Beginning
in May 2000,  wholesale  energy  prices in the California  markets  increased to
levels well above 1999 levels. In response, on June 28, 2000, the CAISO Board of
Governors  reduced the price cap applicable to the CAISO's wholesale  energy and
ancillary services  markets from $750/Mwh to $500/Mwh.   The CAISO  subsequently
reduced  the  price  cap  to $250/Mwh  on  August  1, 2000.  During this period,
however,  the PX  maintained a separate price  cap set at a  much  higher  level
applicable to the  "day-ahead"  and  "day-of" markets administered by the PX. On
August 23, 2000, the FERC denied a  complaint filed  August 2, 2000 by San Diego
Gas & Electric Company  ("SDG&E") that sought  to extend  the  CAISO's  $250/Mwh
price cap to all California energy and ancillary service markets,  not just  the
markets  administered  by the CAISO.  However,  in its order denying the relief
sought by SDG&E, the FERC  instructed its staff to initiate an investigation  of
the  California  power markets and to  report its findings  to the FERC and held
further   hearing   procedures   in   abeyance   pending  the  outcome  of  this
investigation.

     On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation,  together with  an  "Order  Proposing  Remedies  for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the  California  power  market  structure  and market rules were
seriously flawed,  and that these flaws,  together with short supply relative to
demand,  resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called  "soft"  price cap at  $150/MWh to be applied to both the PX and CAISO
markets,  which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain  reporting  obligations  requiring  sellers to provide cost
data and/or identify applicable  opportunity costs and specifying that such bids
may  not  set  the  overall  market  clearing  price,  (b)  elimination  of  the
requirement  that the  California  utilities  sell into and buy from the PX, (c)
establishment of independent  non-stakeholder governing boards for the CAISO and
the PX, and (d)  establishment  of penalty  charges  for  scheduling  deviations
outside of a  prescribed  range.  In the  November 1 Order the FERC  established
October 2, 2000,  the date 60 days after the filing of the SDG&E  complaint,  as
the  "refund  effective  date."  Under the  November 1 Order  rates  charged for
service after that date through  December 31, 2002 will remain subject to refund
if  determined  by the  FERC  not to be just  and  reasonable.  While  the  FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly  suggested that refunds would not be permissible for charges in the
period  prior to  October  2,  2000,  it noted  that it was  willing  to explore
proposals for equitable relief with respect to charges made in that period.

     On December 15, 2000, the FERC issued a  subsequent  order that affirmed in
large measure the  November 1 Order (the  "December 15 Order"). Various  parties
have filed  requests for administrative  rehearing  and  for  judicial review of
aspects of  the FERC's  December  15 Order.  The  outcome of these  proceedings,
and the extent to which  the FERC or a reviewing court may revise aspects of the
December  15  Order  or  the  extent  to which these proceedings may result in a

                                      F-32
<PAGE>

refund of or reduction in the amounts charged by Mirant's subsidiaries for power
sold in the CAISO and PX markets, cannot be determined at this time,  and Mirant
cannot  determine  what affect any action by the FERC will have on its financial
condition.

     Class Action Litigation:  Five  lawsuits  have  been  filed in the superior
courts of  California   alleging  that  certain  owners  of electric  generation
facilities  in  California  and energy marketers,  including Mirant Corporation,
Mirant Americas  Energy   Marketing,  LP,   Mirant Delta,  Mirant  Potrero,  and
Southern  Company, engaged  in various  unlawful and anti-competitive  acts that
served to manipulate wholesale power markets  and inflate wholesale  electricity
prices in California. Four of the suits seek class  action  status.  One lawsuit
alleges  that,   as  a  result  of  the  defendants'  conduct,   customers  paid
approximately $4 billion more for electricity than they otherwise would have and
seeks an award of treble damages,   as well as other  injunctive  and  equitable
relief. The other suits likewise seek treble damages and equitable relief. While
two  of  the  suits name Southern Company as a  defendant,   it appears that the
allegations,  as they may relate to Southern Company and its  subsidiaries,  are
directed  to activities  of subsidiaries  of Mirant Corporation.  One  such suit
names  Mirant Corporation itself as a defendant.  Southern Company has  notified
Mirant of its claim for indemnification for costs  associated with these actions
under the terms of the Master Separation  Agreement  that governs the separation
of Mirant from Southern Company, and Mirant has undertaken the defense of all of
the claims. The final outcome of the lawsuits cannot now be determined.

     Department of Energy Order: On December  14,  2000,  the  Secretary  of the
Department  of Energy  ("DOE")  ordered  that certain  suppliers of  electricity
provide  electricity to the CAISO for delivery to California  utility  companies
when the CAISO certified that there was inadequate electrical supply.

Bewag:
     On August 10, 2000, E.on Energie announced that it had reached an agreement
with Hamburgische Electricitaets-Werke AG ("HEW") to  sell  E.on  Energie's  49%
share of Bewag effective January 1, 2001. Mirant, through its subsidiaries,  had
previously  made an offer to purchase E.on  Energie's 49% interest in Bewag.  On
August 14,  2000,  at the  request of the State of Berlin,  the Berlin  district
court issued a temporary injunction preventing E.on Energie from selling part of
its stake in Bewag,  as it had not obtained the approval of the State of Berlin.
This  temporary  injunction  was extended by the Berlin high court on August 16,
2000.  On August 15, 2000,  the Berlin high court issued a separate  preliminary
injunction,  at  Mirant's  request,  to  prevent  the  sale  of  E.on  Energie's
shares in Bewag to HEW.  This  injunction  was upheld on December  4, 2000.  The
matter  is  currently  scheduled  for  binding  arbitration.  E.on  Energie  has
submitted a counterclaim to the arbitrator seeking recovery of damages it claims
it suffered as a result of the injunction  issued by the Berlin court. The first
meeting of the parties with the arbitrators is scheduled for March 9, 2001. Upon
E.on Energie's  request,  Mirant instituted legal proceedings in the state court
of Berlin seeking the same injunction as in the  arbitration.  Both  proceedings
are in their initial stage.  Therefore,  Mirant is uncertain as to the result of
the  pending  proceedings.  Mirant has also  stated its  desire to  negotiate  a
settlement  with E.on Energie and HEW with respect to a joint  partnership  with
HEW regarding  their  combined  shares in Bewag  including the shares  presently
owned by E.on Energie.

Companhia Energetica de Minas Gerais ("CEMIG"):
     In September 1999,  the state of Minas Gerais, Brazil, filed a lawsuit in a
state  court  seeking  temporary  relief   against   Southern   Electric  Brasil
Participacoes, Ltda. ("SEB") exercising voting  rights  under the  shareholders'
agreement, between the state and SEB regarding SEB's interest in CEMIG,  as well
as a permanent rescission of the agreement. On March 23, 2000,  a state court in
Minas Gerais ruled that the shareholder agreement was invalid.  SEB has appealed
that  decision  and  a  second   decision  by the  same court  invalidating  the
shareholder agreement in a case brought by employees of CEMIG  against the state
of Minas Gerais.  Mirant believes that this is a temporary situation and expects
that the shareholders' agreement will be fully restored. Failure  to  prevail in
this  matter  would  limit  Mirant's influence on the daily operations of CEMIG.
However, SEB would still have 33% of the voting shares of CEMIG and hold 4 of 11
seats on CEMIG's board of directors. SEB's economic interest in CEMIG would  not

                                      F-33
<PAGE>


be  affected.  The  significant  rights  SEB  would lose relate to supermajority
rights and  the  right to  participate  in the daily  operations  of CEMIG.  SEB
obtained  financing  from Banco Nacional de  Desenvolvimento  Economico e Social
("BNDES") for approximately  50% of the total purchase price of the CEMIG shares
which  is  secured by  a pledge of SEB's shares in CEMIG.  The interest  payment
originally due May 15, 2000, in the amount of $107.8 million,  has been deferred
until May 15, 2001.

State Line Energy, L.L.C. ("State Line"):
     On July 28, 1998, an explosion occurred at State  Line  causing  a fire and
substantial damage to the plant. The precise cause of the explosion and fire has
not been  determined.  Thus far, seven personal  injury lawsuits have been filed
against Mirant, five of which were filed in Cook County, Illinois.  Mirant filed
a  motion  to  dismiss  these  five  cases  in 1998  for  lack of "in  personam"
jurisdiction.  The motion  was  denied in August  1999.  In  October  1999,  the
Appellate Court of Illinois granted Mirant's  petition for leave to appeal.  The
outcome of these proceedings  cannot now be determined and an estimated range of
loss cannot be made.

Mobile Energy Services Company, L.L.C.("Mobile  Energy"):
     Mobile  Energy  is the  owner of  a facility  that  generates  electricity,
produces  steam  and  in the past processed  black liquor  as part of a pulp and
paper complex in Mobile,  Alabama. On January 14, 1999, Mobile Energy and Mobile
Energy  Services  Holdings,  Inc.,  which guaranteed  debt obligations of Mobile
Energy,  filed voluntary  petitions in the  United States  Bankruptcy  Court for
the Southern  District of Alabama,  seeking protection  under  Chapter 11 of the
United States Bankruptcy Code. Southern Company has guaranteed certain potential
environmental  and  certain other obligations  of Mobile Energy that represent a
maximum  contingent  liability  of $19 million  as of December 31, 2000. A major
portion of the maximum  contingent liability  escalates at the rate equal to the
producer  price index.  As part of its separation from Southern  Company, Mirant
has agreed to indemnify Southern Company for any obligations incurred under such
guarantees.

     An amended plan  of  reorganization  was  filed by Mobile Energy and Mobile
Energy Services Holdings on February 21, 2001. This  amended  plan  proposes  to
cancel the existing taxable  and  tax-exempt  bond  debt of  Mobile  Energy  and
transfer  ownership  of Mobile Energy and Mobile Energy Services Holdings to the
holders  of that debt.  Approval of that proposed plan of  reorganization  would
result  in a  termination of Southern  Company's  direct and indirect  ownership
interests in both entities, but would not affect Southern  Company's  continuing
guarantee obligations that are described above. The final outcome of this matter
cannot now be determined.

     In  addition  to the  matters  discussed  above,  Mirant  is party to legal
proceedings  arising  in the  ordinary  course of  business.  In the  opinion of
management,  the  disposition of these matters will not have a material  adverse
impact on the results of operations or financial position of Mirant.

Commitments and Capital Expenditures

     Mirant  has  made  firm  commitments  to  buy  materials  and  services  in
connection  with its  ongoing  operations  and  planned  expansion  and has made
financial guarantees relative to some of its investments.

     The material commitments are discussed in the following sections.

                                      F-34
<PAGE>

  Energy Marketing and Risk Management

     Mirant  has  approximately $877  million  trade credit support  commitments
related to its energy  marketing and risk  management  activities as of December
31, 2000.  Mirant has also guaranteed the performance of its obligations under a
multi-year   agreement  entered  into  by  Mirant  with  Brazos  Electric  Power
Cooperative  ("Brazos").  Under the agreement,  effective  January 1999,  Mirant
provides  all the  electricity  required  to meet the needs of the  distribution
cooperatives served by Brazos. Also, Mirant is entitled to the output of Brazos'
generation  facilities  and its  rights  to  electricity  under  power  purchase
agreements  Brazos has entered into with third parties.  Mirant's  guarantee was
$75 million for the first year of the  agreement  and declines by $5 million per
year to $55 million in the fifth year of the agreement.

    To the extent that Mirant does not maintain an investment  grade rating,  it
would be required to provide alternative  collateral to certain  counterparties.
Such  collateral  might  be in  the  form  of  letters  of  credit.  Performance
guarantees assure a subsidiary's  performance of contractual obligations whether
it is commodity delivery or payment.

     Mirant  also  has  a  guarantee  related to Pan  Alberta  Gas,  Ltd. of $64
million issued in 2000 and outstanding at December 31, 2000.

     Vastar, a subsidiary of BP Amoco,  and Mirant had issued certain  financial
guarantees  made in the  ordinary  course  of  business,  on  behalf  of  MAEM's
counterparties,  to financial institutions and other credit grantors. Mirant has
agreed to indemnify BP Amoco against losses under such  guarantees in proportion
to Vastar's former ownership percentage of MAEM (Note 12). At December 31, 2000,
such guarantees amounted to approximately $312 million.

     MAEM has a contract with BP Amoco through December 31, 2007 to purchase the
natural gas that would have been  produced by Vastar (now a unit of BP Amoco) in
Canada,  Mexico,  and the contiguous states of the United States. The negotiated
purchase  price of  delivered  gas is  generally  equal to the  daily  spot rate
prevailing at each delivery point.  As part of Mirant's  acquisition of Vastar's
40% interest in MAEM (Note 12), Mirant agreed to amend the gas purchase and sale
agreement  whereby  BP  Amoco  is  obligated  to  deliver  fixed  quantities  at
identified  delivery points. The agreement will continue to be in effect through
December 31, 2007. The amendment became effective November 1, 2000.

  Turbine Purchases and Other Construction-Related Commitments

     Mirant,  either  directly  or  indirectly through its subsidiaries, entered
into agreements to purchase 94 turbines and equipment  packages  scheduled to be
completed and  delivered  through 2005.  Minimum  termination  amounts under the
contracts were $196 million at December 31, 2000. Total amounts to be paid under
the  agreements if all turbines and equipment  packages are purchased as planned
were approximately $3,240 million at December 31, 2000.

     Mirant has  entered  into firm  commitments  to  meet ongoing  construction
obligations  at its projects,  including  contracts for materials  purchases and
engineering, procurement and construction-related services. These commitments at
December 31, 2000 totaled approximately $474 million.

  Long-term Service Agreements

     Mirant has entered into long-term service  agreements for  the  maintenance
and repair of its combustion turbine and combined cycle generating plants. These
agreements may be  terminated in  the event a planned  construction  project  is

                                      F-35
<PAGE>


cancelled.  Minimum termination amounts under the  agreements  were $168 million
at  December  31,  2000.  At  December 31,   2000,   the  amount  committed  for
construction projects in process was approximately $2,255 million.

  Power Purchase Agreements

     Under the asset  purchase  and  sale  agreement  for  PEPCO,   Mirant  also
assumed the  obligations  and benefits of five power purchase  agreements with a
total capacity of 735 MW. Three of the power purchase  agreements  represent 730
MW.

  Operating Leases

     Mirant  has  commitments  under  operating  leases  with  various terms and
expiration   dates.   Expenses   associated  with  these   commitments   totaled
approximately $17 million,  $17 million,  and $25 million during the years ended
December 31, 2000, 1999 and 1998, respectively.

     Mirant entered into lease transactions  that provided  $1.5 billion, net of
associated  expenses,  of  the  purchase  price  at  the  closing of the Potomac
Electric  Power  Company ("PEPCO") transaction (Note 12).  The  leases  will  be
treated   as  operating  leases  for  book  purposes  whereby  one  of  Mirant's
subsidiaries  will  record  periodic  lease  rental  expenses.  Mirant  has  the
following  annual  amounts  committed  for long-term service, turbine purchases,
fuel,  power  purchases and operating  leases (in millions):
<TABLE>
<CAPTION>

                                Long-Term        Turbine
                                 Service        Purchase          Fuel       Power Purchase   Operating
      Fiscal Year Ended:        Agreements     Commitments     Commitments     Agreements       Leases
                                ----------     -----------     -----------   --------------   ---------
        <S>                         <C>             <C>            <C>              <C>          <C>
      2001....................    $   23          $ 1,048        $   184          $ 26         $   219
      2002....................        67            1,320            180            11             191
      2003....................       119              712             55             0             170
      2004....................       174              136             54             0             141
      2005....................       180               24             55             0             136
      Thereafter..............     1,692                0             75             0           2,479
                                  ------          -------        -------          ----         -------
        Total minimum payments    $2,255          $ 3,240        $   603          $ 37         $ 3,336
                                  ======          =======        =======          ====         =======
</TABLE>

  Labor Subject to Collective Bargaining Agreements

     At its State Line  facilities in Indiana,  Mirant has a labor contract with
the United  Steel  Workers  that  extends to  January  1, 2004 and  involves  92
employees,  or approximately 75% of State Line's total personnel.  Some of these
employees are currently working at facilities in Michigan and Wisconsin.

     At its newly acquired Mid-Atlantic facilities in and around Washington D.C.
and Maryland,  Mirant has a labor contract with the International Brotherhood of
Electrical  Workers that extends to January 2003 and involves  approximately 680
employees, or 70% of Mirant's Mid-Atlantic facilities total personnel.

     Mirant's California business recently reached agreement on a labor contract
with the International Brotherhood of Electrical Workers that extends to October
2004. This contract will cover  approximately 150 employees,  or 75% of Mirant's
California total  personnel,  who will be hired on April 16, 2001 as a result of
the 1999 asset acquisition from Pacific Gas & Electric Company.

     Mirant's New York business  recently reached  agreement on a labor contract
with the  International  Brotherhood of Electrical  Workers that extends to June
2003 and involves approximately 165 employees, or 70% of Mirant's New York total
personnel.

                                      F-36
<PAGE>
     Mirant  Kendall,  a  subsidiary  of Mirant  located in  Cambridge,  MA, has
recently  extended its contract with the Utilities  Workers' Union of America to
March 2003.  Mirant Canal,  a subsidiary of Mirant  located in Sandwich,  MA, is
currently in negotiations with the Utilities Workers' Union of America regarding
its contract that expires on June 1, 2001. These contracts involve approximately
75% and 70% of each facility's employees, respectively.

  Uncertainties Related to Contract Sales

     Several of Mirant's significant power generation  facilities rely on either
Power  Purchase   Agreements  or  Energy  Conversion   Agreements   ("ECAs"  and
collectively with the Power Purchase  Agreements the "Power Contracts") with one
or a limited  number of entities  for the majority of, and in some cases all of,
the relevant facility's output over the life of the Power Contracts.

     The Power Contracts related to Mirant's facilities are generally  long-term
agreements  covering  the  sale of  power  for 20 or more  years.  However,  the
operation  of such  facilities  is  dependent on the  continued  performance  by
customers and suppliers of their  obligations under the relevant Power Contract,
and, in particular,  on the credit quality of the  purchasers.  If a substantial
portion of Mirant's  long-term  Power  Contracts  were  modified or  terminated,
Mirant  would be  adversely  affected  to the extent  that it was unable to find
other customers at the same level of profitability.  Some of Mirant's  long-term
Power  Contracts are for prices above current market prices.  The loss of one or
more significant Power Contracts or the failure by any of the parties to a Power
Contract to fulfill its  obligations  thereunder  could have a material  adverse
effect on Mirant's business, results of operations and financial condition.

     Mirant  has  entered  into  two  significant  Power  Contracts.  These  two
contracts are ECAs between subsidiaries of Mirant Asia-Pacific  and the National
Power Corporation ("NPC")of the Philippines. The contract for the Pagbilao plant
is  for 29 years  and terminates in August 2025. The contract for the Sual plant
is for 25 years and terminates in October  2024.   The  contracted  capacity  is
735 MW and 1,000 MW  for Pagbilao and Sual, respectively.  The capacity fees are
payable as compensation for capacity available for power generation.  These fees
consist of capital  recovery fees,  fixed  operating fees,  infrastructure  fees
and  the components  of service fees.  Over 90% of the  revenues are expected to
come from fixed capacity charges that are paid without regard to dispatch  level
of the plant. The energy fees are based on energy sold and are designed to cover
variable operating and maintenance costs. In accordance with the contracts,  NPC
assumes all fuel risks, including price and delivery.

  Minority Shareholder Put Options

     Sual

     Under shareholder  agreements,  the  minority  shareholders  of the  Mirant
Asia-Pacific subsidiary which holds the Sual project ("SEPI") can exercise a put
option requiring Mirant Asia-Pacific and/or its subsidiaries who hold the shares
of SEPI to purchase the minority  shareholders' interest in the project. The put
option can be exercised  between  December  21, 2002 and December 21, 2005,  the
third and sixth anniversaries of the completion of the project  construction or,
in the event of any change in control,  a change in SEPI's charter  documents or
the transfer of sponsor in violation of the sponsor support  agreement.  The put
option may be  exercised  on the earlier of the date of such changes or December
21, 2011, the twelfth anniversary of the completion of project construction. The
price  would be  determined  by a formula  including  the  present  value of the
remaining years of cash flow less the liabilities  outstanding  plus the current
assets.

                                      F-37
<PAGE>
     Pagbilao

     Under shareholder  agreements,  the  minority  shareholders  of the  Mirant
Asia-Pacific subsidiary which holds the Pagbilao project ("SEQI") can exercise a
put option  requiring  Mirant  Asia-Pacific  and/or its  subsidiaries  who holds
shares of SEQI to purchase the minority shareholders'  interests in the project.
The put option can be exercised  between  August 5, 2002 and August 5, 2008, the
sixth and twelfth  anniversaries  of the completion of the project  construction
or, in the event of any change in control,  a change in SEQI's charter documents
or the  transfer  of sponsor in  violation  of the  sponsor  completion  support
agreement.  The put option may be  exercised  on the earlier of the date of such
changes or August 5, 2008, the twelfth  anniversary of the completion of project
construction.  The price would be determined by a formula  including the present
value of the remaining years of cash flow less the liabilities  outstanding plus
the current assets.

12.  Business Developments

     Sale  of   Hidroelectrica   Alicura S. A. ("Alicura"):  On August 25, 2000,
Mirant completed the sale of its 55% indirect interest in  Alicura  to  The  AES
Corporation for total consideration of $205 million, including the assumption of
debt and the  buy-out  of  minority  partners.  Alicura's  principal  asset is a
concession to operate a 1,000 MW hydroelectric  facility located in the province
of  Neuquen,  Argentina.  As part of the sale,  Mirant  was  released  from $200
million of credit support obligations  related to Alicura's bank financing.  The
sale of Alicura did not materially  impact Mirant's  financial  position and did
not have a material effect on Mirant's results of operations.

     Hyder:  On  October 30, 2000,  WPD Limited ("WPDL"),  a company  controlled
jointly  by  a  subsidiary  of  Mirant  and  by a  subsidiary of PPL Corporation
("PPL"), finalized  its  acquisition of Hyder plc ("Hyder") for a total purchase
price for  the  ordinary  shares of  Hyder  of approximately  (pound)565 million
(approximately  $847 million),  or  365 pence (approximately  $5.47)  per  Hyder
share, plus the  assumption of approximately  (pound)2.1 billion  (approximately
$3.2 billion) of debt as of March 31, 2000.

     As part of the arrangement  between Mirant and PPL, Mirant had a call right
to  acquire  an  additional  9% of the  shares in WPDL from PPL and to acquire a
proportionate  interest  (based on its  ownership  interest) of the  shareholder
loans to WPDL and WPD Holdings UK for a total consideration of approximately $38
million. Mirant exercised that right effective December 1, 2000, which increased
Mirant's economic interest in WPD Holdings UK to 49%.

     In  conjunction  with  the  completion  of this  acquisition  and  with the
approval of lenders, Mirant and a subsidiary of PPL, effective December 1, 2000,
have  modified  the voting  rights of WPD  Holdings  UK to 50% each so that each
party will equally share operational and management  control of WPD Holdings UK.
As of December 1, 2000,  WPD  Holdings UK was  deconsolidated  and its income is
included in equity in earnings on Mirant's consolidated statement of income.

                                      F-38
<PAGE>
     The following unaudited pro forma results of operations for Mirant's fiscal
years  ended  December  31,  2000 and  1999  have  been  prepared  assuming  the
acquisition  of Hyder was  effective  January  1999.  Pro forma  results are not
necessarily  indicative of the actual  results that would have been realized had
the  acquisition  occurred  on  the  assumed  date,  nor  are  they  necessarily
indicative of future results.  Pro forma  operating  results are for information
purposes only and are as follows:

                                                                Pro Forma
                                                As reported    (Unaudited)
----------------------------------------------- ------------ --------------
2000
Operating revenues (in millions)                    $13,315        $13,001
Consolidated net income (in millions)                   359            357
Basic earnings per share                               1.24           1.24
1999
Operating revenues (in millions)                      2,265          1,289
Consolidated net income (in millions)                   372            370
Basic earnings per share                               1.37           1.36

     Acquisition of Generating Assets of PEPCO:  On  December 19, 2000,  Mirant,
through  its  subsidiaries  and  together  with  lessors in  a  leveraged  lease
transaction,  closed the asset purchase of PEPCO's generation assets in Maryland
and  Virginia.   The  net  purchase  price  paid  for  these   acquisitions  was
approximately  $2.75  billion   that  includes   working   capital  and  capital
expenditures  of  approximately   $100 million  and  approximately  $1.5 billion
provided by a leveraged lease transaction (Note 11). As part of the acquisition,
Mirant  assumed  net  liabilities,   primarily  transition  power agreements and
obligations  under power  purchase  agreements  (Note 11).  The acquisition  was
accounted for as a purchase  business combination in accordance with APB Opinion
No. 16. The preliminary purchase price allocation is as follows (in millions):

         Current assets.................................     $    63
         Property, plant and equipment..................       2,913
         Goodwill and other intangibles.................       1,498
         Deferred tax asset resulting from acquisition..         683
         Out-of-market contract liabilities assumed.....      (2,416)
                                                             --------
             Total purchase price.......................     $  2,741
                                                             ========

     The acquired  assets  consist   primarily  of  four  generating   stations,
Morgantown,   Chalk  Point,   Dickerson   and  Potomac   River,   which  provide
approximately  5,154 MW capacity.  Immediately  upon completion of the purchase,
Mirant Mid-Atlantic, LLC ("MMA") entered into a $1.5 billion long-term leveraged
lease  transaction  with respect to two of the purchased  generating  facilities
(Note 11). In addition to the  electric  generating  stations,  Mirant,  through
subsidiaries,  also acquired three separate coal ash storage facilities,  a 51.5
mile oil  pipeline  and an  engineering  and  maintenance  service  facility and
related  assets.  Mirant  also  entered  into a lease of the  land on which  the
Potomac River station is located,  power sales  agreements  with PEPCO under two
separate  transition  power  agreements  with terms of up to four years, a local
area support agreement with PEPCO requiring the Potomac River station to operate
for  purposes of  supporting a local load pocket,  a  three-year  operation  and
maintenance  agreement  for  PEPCO's  two  generating  stations  located  in the
District of Columbia. In addition, Mirant assumed five of PEPCO's power purchase
agreements totaling 735 MW (Note 11).

     The following unaudited pro forma results of operations for Mirant's fiscal
years  ended  December 31,  2000  and  1999  have  been  prepared  assuming  the
acquisition  of  PEPCO  was  effective  January 1999.  Pro forma results are not

                                      F-39
<PAGE>


necessarily indicative of the actual  results that would have been  realized had
the  acquisition  occurred  on  the  assumed  date,  nor  are  they  necessarily
indicative of future results.  Pro forma  operating  results are for information
purposes only and are as follows:

                                                                Pro Forma
                                                 As reported   (Unaudited)
----------------------------------------------- ------------ ---------------
2000
Operating revenues (in millions)                    $13,315         $14,624
Consolidated net income (in millions)                   359             288
Basic earnings per share                               1.24            1.00
1999
Operating revenues (in millions)                      2,265           3,482
Consolidated net income (in millions)                   372             205
Basic earnings per share                               1.37            1.05

     MAEM: On September 11, 2000, Mirant closed its acquisition  of Vastar's 40%
interest in MAEM for $250 million.  The  acquisition  was effective as of August
10, 2000. As a result of this  transaction,  MAEM became a wholly owned indirect
subsidiary and has been consolidated in Mirant's financial  statements since the
effective date.

     As part of the  transaction,  Mirant  agreed to amend the gas  purchase and
sale agreement whereby BP Amoco is obligated to deliver fixed quantities to MAEM
at  identified  delivery  points.  The  agreement  will continue to be in effect
through December 31, 2007. The amendment  became effective  November 1, 2000. As
part of the  transaction,  Mirant was relieved of any financial  obligations  to
Vastar under the MAEM partnership  agreement,  including any guaranteed  minimum
cash distributions and any outstanding arbitration (Note 11).

     The following unaudited pro forma results of operations for the years ended
December 31, 2000 and 1999 have been prepared  assuming the  acquisition of MAEM
was effective January 1999. Pro forma results are not necessarily  indicative of
the actual results that would have been realized had the acquisition occurred on
the assumed date, nor are they  necessarily  indicative of future  results.  Pro
forma operating results are for information purposes only and are as follows:

                                                                Pro Forma
                                                 As reported   (Unaudited)
----------------------------------------------- ------------ --------------
2000
Operating revenues (in millions)                    $13,315        $22,828
Consolidated  net income (in millions)                  359            360
Basic earnings per share                               1.24           1.25
1999
Operating revenues (in millions)                      2,265         13,671
Consolidated  net income (in millions)                  372            359
Basic earnings per share                               1.37           1.32


     Mirant  California:   On  April  16, 1999,  the  Company,   through  Mirant
California, acquired  various  generating  assets  in  California  with  a total
capacity of 3,065 MW from Pacific Gas & Electric  Company for $801 million  plus
$39 million for fuel inventory, capital expenditures and property taxes.

     Mirant  New York: On  June 30, 1999,  the Company,  through  certain of its
wholly owned subsidiaries(collectively referred to as Mirant New York), acquired
the generating asset business in the state of New York with a total  capacity of
1,794 MW, from Orange & Rockland Utilities, Inc. and Consolidated Edison Company
of New York for a net purchase  price of  approximately  $476  million,  plus an
additional  $17 million to cover the market value of existing  inventories.  The
acquisition was recorded under the purchase  method of accounting.  A portion of
the purchase price has been allocated to assets acquired and liabilities assumed
based on the estimated  fair market value at the date of  acquisition  while the
balance  of  $48 million   was   recorded  as  goodwill.   The   purchase  price

                                      F-40
<PAGE>


allocation for this acquisition is preliminary and further  refinements  will be
made  based  on  the  completion of the final valuation  studies.  The pro forma
operating results of this acquisition for the years presented was not materially
different  from  actual results. The initial allocation of the purchase price is
as follows (in millions):

                 Current assets.............    $  60
                 Property, plant and equipment    433
                 Goodwill...................       47
                 Liabilities assumed and other    (47)
                                                -----
                 Purchase price.............    $ 493
                                                =====

     SIPD: On  June 30, 1999,  the Company,  through  a wholly owned subsidiary,
acquired  a 9.99%  interest  in  SIPD for $107 million. As of December 31, 1999,
SIPD had an ownership interest in 18 coal-fired  power generating units  with  a
total installed capacity of 5,125 MW in China's Shandong province.   The Company
accounts for its investment in SIPD under the equity method of accounting due to
the preferential board representation and significant operating influence.

     Sale of WPD (formerly SWEB) Supply  Business:  In September 1999, SWEB sold
its  electricity  supply  business  to  London Electricity for the British Pound
Sterling  equivalent of $264 million  and the assumption of certain  liabilities
resulting in a gain of $286 million prior to expenses,  minority  interest,  and
income taxes, and a gain of $78 million after these items.  The Company retained
its 49%  interest  in the distribution  business,  the trading name of which has
been  changed  to Western Power Distribution.  The  Company continues to own 49%
economic interest (50% voting interest) of WPD.

     Sale of Louisiana Generating LLC: During September 1999,  the  Company sold
its 50% investment  in Louisiana  Generating LLC to its partner for $17 million.
The Company  recognized  approximately  $10 million as an after-tax  gain on the
sale which is included in the accompanying statements of income.

     CEMIG: In January 1998, Mirant, as a shareholder in Cayman  Energy  Traders
("CET"),  did not exercise its option to withdraw as a  shareholder  of CET and,
therefore,  transferred  approximately  $114  million to CET in  exchange  for a
27.59% economic interest in CET in order to continue to participate in the CEMIG
project.  Prior to  this  time,  the Company  had no economic interest in CET or
CEMIG.  In May  1998,  this  transaction  was  completed  when  Southern  Energy
transferred  an  additional  $21 million to CET.  The Company  accounts for this
investment under the equity method due to significant influence evidenced by 33%
voting  shares  held by the  Company  and its  investing  partner.  Through  our
acquisition  of a 27.59%  economic  interest in CET in 1998,  it acquired a 3.6%
economic interest in CEMIG.

     EDELNOR: During 1998, the  Company  purchased an additional 15% interest in
its  Chilean  investment  in  Empresa   Electrica  del  Norte  Grande  S.A.  for
approximately  $57 million.  The  purchase  price  resulted  in  $32 million  of
negative  goodwill  which  was  recorded  as  a  reduction  in  the basis of the
Company's long-lived assets.

     Sale of Interest in WPD (formerly SWEB): On June 18, 1998, the Company sold
a 26% interest in its subsidiary, SWEB Holdings Limited ("Holdings") to PP&L for
approximately $170 million.  The Company recorded a pretax gain of approximately
$20 million on the sale,  which is included in the  accompanying  statements  of
income.  This sale increased  PP&L's  economic  interest in Holdings to 51% and,
conversely, reduced Mirant's economic interest to 49%. Subsequently, on June 18,
1998,  shares  of  Holdings  held by  Southern  Company  and PP&L were exchanged
for equivalent shares in SWEB Holdings U.K.  ("Holdings U.K."). Mirant continues
to hold 50% of the voting shares in Holdings U.K.

                                      F-41
<PAGE>


     Mirant New England: On  December 30, 1998,  the Company,  through  a wholly
owned subsidiary, Mirant New England, LLC ("Mirant New England"),  acquired  the
generating asset business, with a total capacity of 1,245 MW,  from subsidiaries
of  Commonwealth  Energy  Systems  and  Eastern  Utilities  Associates  for $536
million.  The acquisition was recorded  under the purchase method of accounting.
A portion  of the  purchase  price  has been  allocated  to  assets acquired and
liabilities  assumed  based on the  estimated fair  market value at  the date of
acquisition while the balance of $261  million was recorded as goodwill. The pro
forma operating results of this acquisition for 1997 and 1998 was not materially
different from actual results. The  purchase price was allocated as  follows (in
millions):

                 Current assets....................  $   13
                 Property, plant, and equipment....     188
                 Acquired intangibles..............     143
                 Goodwill..........................     261
                 Liabilities assumed and other.....     (69)
                                                     ------
                   Purchase price..................  $  536
                                                     ======

13.  Investments in Affiliates

     The  following  table  sets  forth  certain   summarized  income  statement
information of Mirant's investments in 50% or less-owned  investments  accounted
for under the equity method for the years ended December 31, 2000, 1999 and 1998
(in  millions).  WPD is included in the following  table for 2000 only as it was
consolidated in 1999 and 1998.

                                                    2000       1999     1998
                                                  ------     -------  ------
                                                         (in millions)
     Combined Investments
     Income Statement:
     Revenues..............................     $  5,879     $ 5,608  $ 5,051
     Operating income......................        1,565         703    1,147
     Net income from continuing operations.          772         100      540
     Balance Sheet:
     Current assets........................        4,084       1,794
     Noncurrent assets.....................       15,013      11,642
     Current liabilities...................        4,455       3,193
     Noncurrent liabilities................        8,516       5,534


     As of December  31,  2000,  the Company had  accumulated  $144  million  in
undistributed  earnings  of  entities  accounted  for by the  equity  method  of
accounting.

14.  SE Finance (Discontinued Operations)

     Mirant has investments in leveraged  leases through its leasing  subsidiary
SE-Finance.  Mirant entered into leveraged  leases in December of 1996, 1998 and
1999.  Mirant's net investment in leveraged  leases consists of the following at
December 31, 2000 and 1999 (in millions):

                                                          2000     1999
                                                        -------  --------
      Net rentals receivable........................    $1,430   $ 1,339
      Unearned income...............................      (834)     (783)
                                                        ------   -------
      Investment in leveraged leases................       596       556
      Deferred taxes arising from leveraged leases..      (129)      (58)
                                                        ------   -------
      Net investment in leveraged leases............    $  467   $   498
                                                        ======   =======

    The following is a summary of the  components  of the income from  leveraged
leases for the years ending December 31, 2000, 1999 and 1998 (in millions):

                                             2000  1999   1998
                                             -----  ------------
           Pretax leveraged lease income...  $ 61   $  28  $  5
           Income tax expense..............    21      10     2
                                             ----   -----  ----
           Income from leveraged leases....  $ 40   $  18  $  3
                                             ====   =====  ====
     As part of its planned spin-off from Southern,  Mirant agreed to contribute
SE Finance to Southern (Note 10).

                                      F-42
<PAGE>

15.    Earnings Per Share

     Mirant   calculates   basic  earnings   per share  by  dividing  the income
available to common shareholders by the weighted average number of common shares
outstanding.  The following  table shows the  computation  of basic earnings per
share for 2000, 1999 and 1998 (in millions,  except per share data) after giving
effect to the stock split that  occurred  prior to the  offering of common stock
during 2000 (Note 10).  Diluted  earnings per share for 2000 gives effect to the
conversion of Mirant's  value  creation plan ("VCP")  standard  units into stock
options and the grant of new stock  options on  September  27, 2000 (Note 6), as
well as the assumed  conversion of convertible trust preferred  securities (Note
10) and the  related  interest  expense  addback to net income of $3.5  million.
Mirant  had  no  dilutive  securities  outstanding  during  1999  or  1998.  For
comparability among periods, pro forma basic earnings per share is calculated as
though the  offering of common  stock  during  2000 had taken  place  during all
periods presented.  Pro forma diluted earnings per share includes the conversion
of VCP standard units  (which impacted net income  by  $6 million and $1 million
in 2000 and 1999, respectively) and  the issuance of convertible trust preferred
securities (Note 10) as though  potentially  dilutive for all periods and is not
presented for 1998 due to antidilution.

                                                      2000       1999    1998
                                                     ------     -----    -----
  Income from continuing operations                  $  332     $ 362     $(12)
  Discontinued operations                                27        10       12
                                                     ------     -----     ----
  Net income                                         $  359     $ 372     $  -
                                                     ======     =====     ====
Basic
Weighted average shares outstanding                  288.7      272.0     272.0
      Earnings per share from:
         Continuing operations                       $1.15      $1.33   $(0.04)
         Discontinued operations                      0.09       0.04     0.04
                                                     -----      -----   ------
         Net income                                  $1.24      $1.37   $    -
                                                     =====      =====   ======

Diluted
Weighted average shares outstanding                  288.7
Shares assumed due to conversion of stock options
  and equivalents                                      1.2
Shares assumed due to conversion of trust
  preferred securities                                 3.1
                                                     -----
Adjusted shares                                      293.0
                                                     =====
      Earnings per share from:
         Continuing operations                       $1.15
         Discontinued operations                      0.09
                                                     -----
         Net income                                  $1.24
                                                     =====

Pro Forma Basic (Unaudited)
Shares outstanding after initial public offering     338.7      338.7     338.7
     Earnings per share from:
        Continuing operations                        $0.98      $1.07   $(0.04)
        Discontinued operations                       0.08       0.03     0.04
                                                     -----      -----   ------
        Net income                                   $1.06      $1.10   $    -
                                                     =====      =====   ======

Pro Forma Diluted (Unaudited)
Shares outstanding after initial public offering     338.7      338.7
Shares assumed due to conversion of stock options
  and equivalents                                      1.9        0.8
Shares assumed due to conversion of trust
  preferred securities                                12.5       12.5
                                                     -----      -----
                                                     353.1      352.0
                                                     =====      =====
   Adjusted Shares Earnings per share from:
           Continuing operations                     $0.97      $1.03
           Discontinued operations                    0.08       0.03
                                                     -----      -----
           Net income                                $1.05      $1.06
                                                     =====      =====
                                      F-43
<PAGE>

16.  Segment Reporting

     Mirant's principal  business  segments  consist of the geographic  areas in
which it conducts  business --  Americas,  Asia-Pacific,  and Europe.  The other
reportable  business segments are Mirant's financing segment  ("SE-Finance") and
its business development and general corporate activities segment ("Corporate").
Intersegment  revenues are not material.  Financial data for business  segments,
products and services, and geographic areas is as follows (in millions):

<TABLE>
<CAPTION>

                                           Business Segments


                                                                    SE
                                 Americas   Europe  Asia-Pacific  Finance   Corporate  Consolidated
                                ---------  -------  ------------  -------   ---------  ------------
2000:
  <S>                                <C>       <C>         <C>         <C>       <C>        <C>
Operating revenues.............. $ 12,490  $   314    $     502    $    0    $     9    $  13,315
Depreciation and amortization...      115       69          130         0          3          317
Interest expense, net...........      152       97          101         0         78          428
Income taxes from operations....      113     (16)           19         0        (30)          86
Write-down of generating assets.       18        0            0         0          0           18
Net income from equity method
  subsidiaries..................       56       83           57                               196
Segment net income (loss).......      177       82          204        27       (131)         359
Total assets....................   16,796    1,362        4,500       613        865       24,136
Investments in equity method
  subsidiaries..................      163    1,228          338        61          0        1,790
Gross property additions........      449       90           55         0         22          616
Increase in goodwill............    1,523        0            0         0          0        1,523
1999:
Operating revenues..............      939      973          342         0         11        2,265
Depreciation and amortization...       73       90          104         0          3          270
Interest expense, net...........       80      115           53         0         81          329
Income taxes from operations....       58       92           28         0        (49)         129
Write-down of generating Assets.       29       31            0         0          0           60
Net income from equity method
  subsidiaries..................       18        9           83         0          0          110
Segment net income (loss).......       93      170          175        10        (76)         372
Total assets....................    4,071    3,810        4,430       722        830       13,863
Investments in equity method
  Subsidiaries..................      248      762         254         76          0        1,340
Gross property additions........      419      115         194          0         19          747
Increase in goodwill............       48        0           0          0          0           48
1998:
Operating revenues..............      261    1,273         273          0         12        1,819
Depreciation and amortization...       44       79          96          0          2          221
Interest expense, net...........       49      123          67          0         45          284
Income taxes from operations....     (113)      22         (12)         0        (20)        (123)
Write-down of generating assets.      308        0           0          0          0          308
Net income from equity method
  subsidiaries..................      27        64          44          0          0          135
Segment net income (loss).......    (180)      141          68         12        (41)           0
Total assets................       2,166     3,890       4,520        428      1,050       12,054
Investments in equity method
  subsidiaries..................     373       923         131         84          0        1,511
Gross property additions........     101       120         426          0          0          647
Increase in goodwill............     261         0           0          0          0          261

</TABLE>

                                      F-44
<PAGE>


                              Products and Services
                            -------------------------
                       Generation   Distribution
                          and            And
                         Energy      Integrated
                       Marketing      Utility        Other      Total
                      -----------   ------------    --------   --------
                                    (Revenue in millions)
  2000...........       12,816            477         22       13,315
  1999...........        1,087          1,143         35        2,265
  1998...........          495          1,273         51        1,819

                                Geographic Areas
                            -------------------------
                                             International
                         United      The        United       All
                         States  Philippines    Kingdom     Other  Consolidated
                        -------  -----------  ------------  -----  ------------
                                        (Revenue in millions)
  2000.............     12,337       491           314        173      13,315
  1999.............        736       320           976        233       2,265
  1998.............         53       257         1,273        236       1,819

                                  International
                            ------------------------
                   United             The      United       All
                   States  China  Philippines  Kingdom     Other   Consolidated
                   ------  -----  -----------  -------     -----   ------------
                                 (Long-Lived Assets in millions)
  2000..........   8,726    488       1,901       479      2,940       14,534
  1999..........   3,989    534       1,966     2,449      3,254       12,192
  1998..........   2,156    368       1,834     2,463      3,427       10,248

17.  Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for 2000 and 1999 is as follows:

<TABLE>
<CAPTION>

                                                                      Per Common Share
                                                                ----------------------------
                     Operating     Operating   Consolidated                  Price Range
   Quarter Ended      Revenues      Income      Net Income   Earnings     High        Low
   --------------    ---------     ---------   ------------  -------      ----        ---
                            (in millions)
  2000:
       <S>               <C>           <C>          <C>         <C>        <C>        <C>
     March.......      $  519       $   169      $  101      $ 0.37      $   -      $   -
     June........         640           141          93        0.34          -          -
     September...       4,198           217          98        0.36     31.875     28.000
     December....       7,958           137          67        0.23     31.750     20.560
  1999:
     March.......         522            77          80        0.29          -          -
     June........         503            97          69        0.26          -          -
     September...         686           129         156        0.57          -          -
     December....         554           141          67        0.25          -          -
</TABLE>


                                      F-45
<PAGE>



18.  Subsequent Events

California Power Markets

     Department of Energy Order: On December  14,  2000,  the  Secretary  of the
Department  of Energy  ("DOE")  ordered  that certain  suppliers of  electricity
provide  electricity to the CAISO for delivery to California  utility  companies
when the CAISO certified that there was inadequate electrical supply. Subsequent
orders extended this  requirement to February 7, 2001. The DOE orders expired at
that time and have not been renewed. Mirant subsidiaries were called upon by the
CAISO to provide power to the CAISO under the DOE orders.

     Proposed CAISO and PX  Tariff  Amendments:  On January 4,  2001,  the CAISO
filed for approval of a tariff amendment whereby its credit rating  requirements
for certain electricity purchasers would be reduced.  The  action  was  taken in
response  to reports  that  Moody's  and S&P were on the verge of  reducing  the
credit  ratings of Southern  California  Edison ("SCE") and PG&E to ratings that
would not allow SCE and PG&E to purchase  electricity from the CAISO unless they
posted  collateral for their purchases.  In its filing,  the CAISO announced its
intention to implement the reduced credit  requirements  immediately in order to
ensure the reliability of the California  power grid. On January 5, 2001, the PX
filed a  similar  request  with  respect  to the PX's  tariffs  as the CAISO had
requested  on January 4. On February  14,  2001,  the FERC ruled that the tariff
amendment  requested  by the PX  should be  rejected  because  it had  ceased to
operate its day-ahead and day-of markets.  With respect to the CAISO's  request,
the FERC  allowed the CAISO to amend its tariff to remove the  credit-worthiness
requirements only with respect to the scheduling by a utility purchaser from the
CAISO of power from generation  owned by that  purchaser.  The FERC rejected the
proposed  amendment  with  respect to  purchases  by the CAISO from  third-party
suppliers.  The application of this ruling by the FERC to the CAISO's  purchases
under its emergency dispatch authority is currently being disputed.

     Defaults  by  SCE  and  PG&E:  On January 16 and 17, 2001, SCE's and PG&E's
credit and debt ratings were lowered by Moody's and S&P to "junk" or "near junk"
status.  On January 16, 2001 SCE indicated  that it would  suspend  indefinitely
certain  obligations  including a $215 million  payment due to the PX and a $151
million  payment  due to a  qualifying  facility.  On January 30,  2001,  the PX
suspended  operation  of its "day  ahead" and "day of"  markets.  On February 1,
2001,  PG&E indicated that it intended to default on payments of over $1 billion
due to the PX and qualifying facilities.

     DWR Power Purchases: On January 17, 2001, the Governor of California issued
an emergency proclamation giving the California  Department  of Water  Resources
("DWR")  authority  to enter into  arrangements  to  purchase  power in order to
mitigate  the  effects  of  electrical  shortages  in the  state.  The DWR began
purchasing  power under that  authority  the next day. On February 1, 2001,  the
Governor  of  California  signed  Assembly  Bill No. 1X  authorizing  the DWR to
purchase power in the wholesale markets to supply retail consumers in California
on a long-term basis.  The Bill became effective  immediately upon its execution
by the Governor. The Bill did not, however,  address the payment of amounts owed
for power  previously  supplied to the CAISO or PX for purchase by SCE and PG&E.
The CAISO and PX have not paid the full amounts owed to MAEM for power delivered
to the CAISO and PX in prior  months and are  expected to pay less than the full
amount owed on further  obligations  coming due in the future for power provided
to the PX or the CAISO for sales that were not arranged by the DWR.

     Mirant  through its subsidiaries  has  approximately  3000 MW of generating
capacity in California. This includes facilities which  operate  during  periods
of higher-than-average (intermediate load) and very high (peak)  demand  levels.
Mirant's California  subsidiaries  generated an amount equivalent to about 4% of
the  total  California  energy  consumption  in 2000.   The  Company's  combined

                                      F-46
<PAGE>


receivables from the  both the PX and the  CAISO  as of  December  31,  2000 and
as of late  February  2001  (unaudited)  were  approximately  $375  million  and
$385 million (unaudited), respectively, net of settlements  due to the PX. There
are other  sources  of collateral and revenues which could  potentially  provide
additional offset to this net receivable.  On a going-forward basis, Mirant does
not expect a material  portion  of its income to be derived from receivables due
from the PX and CAISO  attributable to purchases on behalf of  non-credit-worthy
entities in California. In addition,  Mirant  has  taken a  provision  which  it
believes adequately  covered its exposure as of December 31, 2000 related to the
increased  credit  and  payment  risks  associated  with  the  California  power
situation. The Company continues to monitor the situation in California and will
re-evaluate the amount  of the  provision needed at the end of the first quarter
of 2001.

     Attorney General and California Public Utilities Commission Investigations.
The California Public Utilities Commission ("CPUC") and the California  Attorney
General's office have each launched  investigations  into the California  energy
markets  that have  resulted in the  issuance  of  subpoenas  to several  Mirant
entities.  The CPUC issued one subpoena to Mirant entities in mid-August of 2000
and one in September of 2000. In addition,  the CPUC has had personnel onsite on
a periodic basis at Mirant's  California  generating  facilities since December,
2000. The California  Attorney General issued its subpoena to Mirant in February
of 2001 under the  following  caption:  "In the Matter of the  Investigation  of
Possibly Unlawful,  Unfair, or Anti-Competitive  Behavior Affecting  Electricity
Prices in  California."  Each of these  subpoenas,  as well as the plant visits,
could impose significant compliance costs on Mirant or its subsidiaries. Despite
various measures taken to protect the  confidentiality of sensitive  information
provided to these agencies,  there remains a risk of governmental  disclosure of
the confidential, proprietary, and trade secret information obtained by the CPUC
and the Attorney  General  through this  process.  While Mirant will  vigorously
defend any claims of potential civil liability or criminal  wrong-doing asserted
against it or its subsidiaries, the results of such investigations cannot now be
determined.

Transfer of SE Finance and Capital Funding to Southern: (Unaudited)

     On  March 5, 2001,   Mirant  transferred   SE Finance  and Capital  Funding
subsidiaries to Southern Company. See Note 10 and 14.

                                      F-47

<PAGE>




                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 21st day of March,
2001.

                               MIRANT CORPORATION


By: /s/Raymond D. Hill                         By: /s/James A. Ward
       Raymond D. Hill                             James A. Ward
       Executive Vice President, and               Senior Vice President,
       Chief Financial Officer                     and Controller
       (Principle Financial Officer)              (Principle Accounting Officer)

Pursuant to the requirements of the Securities Exchange act of 1934, this report
has been signed  below on March 21, 2001 by the  following  persons on behalf of
the registrant and in the capacities indicated.

             Signatures                              Title

         /s/A. W. Dahlberg          Chairman of the Board
         -----------------
         A. W. Dahlberg

         /s/S. Marce Fuller         President, Chief Executive Officer
         ------------------
         S. Marce Fuller            And Director (Principle Executive Officer)

         /s/A. D. Correll           Director
         ----------------
         A. D. Correll

         /s/H. Allen Franklin       Director
         --------------------
         H. Allen Franklin

         /s/Elmer B. Harris         Director
         ------------------
         Elmer B. Harris

         /s/William M. Hjerpe       Director
         --------------------
         William M. Hjerpe

         /s/David J. Lesar          Director
         -----------------
         David J. Lesar

         /s/W. L. Westbrook         Director
         ------------------
         W. L. Westbrook






<PAGE>


              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Mirant Corporation:

    We have audited,  in accordance with generally accepted auditing  standards,
the consolidated  financial  statements of Mirant  Corporation  included in this
Annual Report on Form 10-K and have issued our report thereon dated February 28,
2001.  Our  audits  were made for the  purpose  of  forming  an opinion on those
statements taken as a whole.  The schedule listed in the  accompanying  index is
the  responsibility  of the Company's  management,  is presented for purposes of
complying with the Securities and Exchange  Commission's  rules, and is not part
of the basic  financial  statements.  The  schedule  has been  subjected  to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion,  fairly  states in all  material  respects  the  financial  data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.

/s/ Arthur Andersen LLP

Atlanta, Georgia
February 28, 2001


<PAGE>
<TABLE>
<CAPTION>



                   MIRANT CORPORATION AND SUBSIDIARY COMPANIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 2000, 1999 and 1998
                        (Stated in Thousands of Dollars)

                                                                    Additions
                                   Balance at Beginning   Charged to   Charged to Other                  Balance at End
           Description                   of Period          Income         Accounts        Deductions       of Period
           --------------------    --------------------   ----------   ----------------   -----------    ---------------
           Provision for
             Uncollectible
             accounts (current)
              <S>                           <C>               <C>               <C>           <C>                <C>
             2000..............          $ 43,586          $ 54,145        $     747     $  4,782(Note1)    $  93,696
             1999..............           101,243            19,566          (11,805)      65,418(Note1)       43,586
             1998..............            67,443            33,082            6,153        5,435(Note1)      101,243
           Provision for
             Uncollectible
             Accounts (long-term)
             2000..............          $ 60,543          $ 29,398        $ (40,797)    $      0           $  49,144
             1999..............            40,000            30,543          (10,000)           0              60,543
             1998..............                 0            40,000                0            0              40,000

</TABLE>

Note 1: Represents  write-off of accounts  considered to be uncollectible,  less
        recoveries of amounts previously written off.