**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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Form 10-K

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe Fiscal Year Ended December 31, 2004**

**Or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe Transition Period from                    to                    **

**Mirant Corporation**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                        | **001-16107**             | **58-2056305**                        |
|---------------------------------------------------------------------|---------------------------|---------------------------------------|
| (State or other  jurisdiction  of Incorporation or Organization)    | (Commission File  Number) | (I.R.S. Employer  Identification No.) |
| **1155 Perimeter Center West, Suite 100,****Atlanta, Georgia** | ** **                | **30338**                             |
| (Address of  Principal Executive Offices)                           |                      | (Zip Code)                            |
| **(678) 579-5000**                                                  | ** **                | **www.mirant.com**                    |
| (Registrant’s Telephone Number, Including Area Code)           | Web Page                  |

 

**Securities registered pursuant toSection 12(b) of the Act:**

**None**

**Securities registered pursuant toSection 12(g) of the Act:**

**CommonStock, par value $0.01 per share**

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. x  Yes  o  No

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrants’knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.     o

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2of the Act). x  Yes  o  No

Aggregatemarket value of voting stock held by non-affiliates of the registrant wasapproximately $121,700,425 on June 25, 2004 (based on $0.30 per share, theclosing price in the daily composite list for transactions on the Pink SheetsElectronic Quotation Service for that day). As of February 25, 2005, therewere 405,468,084 shares of the registrant’s Common Stock, $0.01 par value pershare outstanding.

 

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**TABLE OF CONTENTS**
|               | ** **                                                                                                          | **Page** |
|---------------|---------------------------------------------------------------------------------------------------------------------|----------|
|          | **PART I**                                                                                                     |     |   |
| Item 1.       | Business                                                                                                            | 5        |   |
| Item 2.       | Properties                                                                                                          | 27       |   |
| Item 3.       | Legal  Proceedings                                                                                                  | 29       |   |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                | 55       |   |
|          | **PART II**                                                                                                    |     |   |
| Item 5.       | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 56       |   |
| Item 6.       | Selected  Financial Data                                                                                            | 57       |   |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 58       |   |
| Item 7A. | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 90       |   |
| Item 8.       | Financial  Statements and Supplementary Data                                                                        | 93       |   |
| Item 9.       | Changes  In and Disagreements with Accountants on Accounting and Financial Disclosure                               | 94       |   |
| Item 9A.      | Controls  and Procedures                                                                                            | 94       |   |
|          | **PART III**                                                                                                   |     |   |
| Item 10.      | Directors  and Executive Officers of the Registrant                                                                 | 95       |   |
| Item 11.      | Executive  Compensation                                                                                             | 99       |   |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 104      |   |
| Item 13.      | Certain  Relationships and Related Transactions                                                                     | 105      |   |
| Item 14.      | Principal  Accountant Fees and Services                                                                             | 105      |   |
|          | **PART IV**                                                                                                    |     |   |
| Item 15.      | Exhibits  and Financial Statement Schedules                                                                         | 107      |   |

 

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGINFORMATION**

The information presented in this Form 10-Kincludes forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 in addition to historical information. These statements involveknown and unknown risks and uncertainties and relate to future events, ourfuture financial performance or our projected business results. In some cases,you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”“target,” “potential” or “continue” or the negative of these terms or othercomparable terminology.

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

**General Factors**

·       legislativeand regulatory initiatives regarding deregulation, regulation or restructuringof the electric utility industry; changes in state, federal and otherregulations (including rate and other regulations); changes in, or changes inthe application of, environmental and other laws and regulations to which weand our subsidiaries and affiliates are subject;

·       thefailure of our assets to perform as expected;

·       ourpursuit of potential business strategies, including the disposition orutilization of assets, suspension of construction or internal restructuring;

·       changesin market conditions, including developments in energy and commodity supply,demand, volume and pricing or the extent and timing of the entry of additionalcompetition in the markets of our subsidiaries and affiliates;

·       marketvolatility or other market conditions that could increase our obligations topost collateral beyond amounts which are expected;

·       ourinability to access effectively the over-the-counter (“OTC”) and exchange-basedcommodity markets or changes in commodity market liquidity or other commoditymarket conditions, which may affect our ability to engage in asset hedging andoptimization activities as expected;

·       ourability to borrow additional funds and access capital markets;

·       weatherand other natural phenomena;

·       war,terrorist activities or the occurrence of a catastrophic loss;

·       deteriorationin the financial condition of our counterparties and the resulting failure topay amounts owed to us or to perform obligations or services due to us; and

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

**Bankruptcy-Related Factors**

·       theactions and decisions of our creditors and of other third parties withinterests in the voluntary petitions for reorganization filed with the U.S.Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the “BankruptcyCourt”) on July 14, 2003, July 15, 2003, August 18, 2003, October 3,2003 and November 18, 2003, by Mirant Corporation and substantially all ofits wholly-owned and certain non-wholly-owned U.S. subsidiariesunder Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “BankruptcyCode”), including actions taken by our creditors and other third parties withrespect to our proposed plan of reorganization, filed with the Bankruptcy Courton January 19, 2005, and any amendments thereto (the “Plan”);

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·       ourability to satisfy the conditions precedent to the effectiveness of our proposedPlan, including our ability to secure the necessary financing commitments;

·       theeffects of the Chapter 11 proceedings on our liquidity and results ofoperations;

·       the instructions, ordersand decisions of the Bankruptcy Court, the U.S. District Court for the NorthernDistrict of Texas, the U.S. Court of Appeals for the Fifth Circuit and otherlegal and administrative proceedings, settlements, investigations and claims;

·       ourability to operate pursuant to the terms of our debtor-in-possession financingagreement;

·       ourability to successfully reject unfavorable contracts;

·       the disposition ofunliquidated claims against us;

·       ourability to obtain and maintain normal terms with vendors and service providersand to maintain contracts that are critical to our operations;

·       possibledecisions by our pre-petition creditors who may receive Mirant common stock uponour emergence from bankruptcy and therefore may have the right to select ourboard members and influence certain aspects of our business operations;

·       the effects of changes in our organizational structure in conjunctionwith our emergence from Chapter 11 protection; and

·       theduration of our Chapter 11 proceedings.

The ultimate outcome of matters with respect to whichwe make forward-looking statements and the terms of any reorganizationplan ultimately confirmed can affect the value of our various pre-petitionliabilities, common stock and other securities. No assurance can be given as towhat values, if any, will be ascribed in the bankruptcy proceedings to each ofthese constituencies. The proposed Plan could result in holders of our commonstock receiving no distribution on account of their interests and cancellationof their interests. Accordingly, we urge that appropriate caution be exercisedwith respect to existing and future investments in our common stock or anyclaims relating to pre-petition liabilities or other Mirant securities.

We undertake no obligationto publicly update or revise any forward looking statements to reflect eventsor circumstances that may arise after the date of this report.

**Factorsthat Could Affect Future Performance**

Other factors that could affect our future performance(business, financial condition or results of operations and cash flows) are setforth under “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Factors that Could Affect FuturePerformance.”

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**PART I**

**Item 1.**                        *Business*

**Overview**

We are an international energy company incorporated inDelaware on April 20, 1993. Our revenues are primarily generated throughthe production of electricity in the United States, the Philippines and theCaribbean. As of December 31, 2004, we owned or leased approximately18,000 megawatts (“MW”) of electric generating capacity.

Wemanage our business through two principal operating segments: North America andInternational. Our North America segment consists of the ownership andoperation of power generation facilities and energy trading and marketingoperations. The International segment includes power generation businesses inthe Philippines, Curacao and Trinidad and Tobago, and integrated utilities inthe Bahamas and Jamaica. The table below summarizes selected 2004 financialinformation about our business segments.
| ** **                  | ** ** | **Revenues**                  | ** ** | **%**  | ** ** | **Gross  Margin** | ** ** | **%**  | ** ** | **Operating  Income  (Loss)** | ** ** | **Total  Assets** | ** ** | **Cash from  Operating  Activities** | ** ** |
|-----------------------------|------------|-------------------------------|------------|--------|------------|-------------------|------------|--------|------------|-------------------------------|------------|-------------------|------------|-------------------------------------------|------------|
| ** **                  | ** ** | **($ in millions)** | ** ** |
| Business Segment:           |       |                          |       |   |       |              |       |   |       |                          |       |              |       |                                      |       |   |   |   |   |   |   |
| North America               |       |                          | $          | 3,522  |       |              | 77         | %      | $          | 1,196                         |       | 61                | %          |                                      | $          | 242 |   |   | $ | 9,354 |   |   | $ | (168 | ) |   |
| International               |       |                          | 1,050      |   |       | 23                |       | 756    |       | 39                            |       |              | (246       | )                                         |       | 4,730 |   |   | 371 |   |   |
| Corporate and  Eliminations |       |                          | —     |   |       | —            |       | — |       | —                        |       |              | (14        | )                                         |       | (2,660 | ) |   | (132 | ) |   |
| Total                       |       |                          | $          | 4,572  |       |              | 100        | %      | $          | 1,952                         |       | 100               | %          |                                      | $          | (18 | ) |   | $ | 11,424 |   |   | $ | 71 |   |   |

 

The annual, quarterly and current reports, and anyamendments to those reports, that we file with or furnish to the SEC areavailable free of charge on our website at www.mirant.com as soon as reasonablypracticable after they are electronically filed with or furnished to the SEC.General information about us, including our Corporate Governance Guidelines,the charters for our Audit, Compensation, and Nominating and GovernanceCommittees, and our Code of Ethics and Business Conduct, can be found atwww.mirant.com. We will provide print copies of these documents to anyshareholder upon written request to Corporate Secretary, Mirant Corporation,1155 Perimeter Center West, Atlanta, Georgia 30338. Information contained inour website is not incorporated into this Form 10-K.

As used in this report, “we,”“us,” “our,” the “Company” and “Mirant” refer to Mirant Corporation and itssubsidiaries, unless the context requires otherwise.

***Proceedings under Chapter 11 of the Bankruptcy Code***

On July 14, 2003 and July 15, 2003(collectively, the “Petition Date”), Mirant and 74 of its wholly-ownedsubsidiaries in the United States (collectively, the “Original Debtors”) filedvoluntary petitions for relief under Chapter 11 in the Bankruptcy Court. On August 18,2003, October 3, 2003 and November 18, 2003, four additional wholly-ownedsubsidiaries and four affiliates of Mirant commenced Chapter 11 cases under theBankruptcy Code (together with the Original Debtors, the “Mirant Debtors”). TheChapter 11 cases of the Mirant Debtors are being jointly administered forprocedural purposes only under the case caption In re Mirant Corporation *et al*., Case No. 03-46590 (DML).

Additionally, on the Petition Date, certain of ourCanadian subsidiaries, Mirant Canada Energy Marketing, Ltd. and MirantCanada Marketing Investments, Inc. (together, the “Mirant CanadianSubsidiaries”), filed an application for creditor protection under theCompanies’ Creditors Arrangement Act in Canada (“CCAA”), which, like Chapter 11,allows for reorganization under the protection of the court system. The MirantCanadian Subsidiaries emerged from creditor protection on May 21, 2004.The 

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accounting for theiremergence is reflected in this report and did not have a material impact on ouroperating results.

Our businesses in the Philippines and the Caribbeanwere not included in the court-supervised reorganizations.

The Mirant Debtors are operating their businesses asdebtors-in-possession under the jurisdiction of the Bankruptcy Court and inaccordance with the applicable provisions of the Bankruptcy Code, the Federal Rules ofBankruptcy Procedure and applicable orders, as well as other applicable lawsand rules. In general, each of the Mirant Debtors, as a debtor-in-possession,is authorized under the Bankruptcy Code to continue to operate as an ongoingbusiness, but may not engage in transactions outside the ordinary course ofbusiness without the prior approval of the Bankruptcy Court.

The Office of the United States Trustee hasestablished a committee of unsecured creditors for Mirant Corporation and acommittee of unsecured creditors for Mirant Americas Generation, LLC  (collectively, the “Creditor Committees”).The Office of the United States Trustee also has established a committee ofequity security holders of Mirant Corporation (the “Equity Committee” and, collectively with the CreditorCommittees, the “Statutory Committees”). Pursuant to an order of the BankruptcyCourt, the Office of the United States Trustee appointed an examiner (the “Examiner”)in these cases to analyze certain potential causes of action and to act as amediator with respect to certain disputes that may arise among the MirantDebtors, the Statutory Committees and other parties in interest.

Subject to certain exceptions in the Bankruptcy Code,the Chapter 11 filings automatically stayed the initiation or continuationof most actions against the Mirant Debtors, including most actions to collectpre-petition indebtedness or to exercise control over the property of thebankruptcy estates. As a result, absent an order of the Bankruptcy Court,creditors of the Mirant Debtors are precluded from collecting pre-petitiondebts and substantially all pre-petition liabilities are subject to compromiseunder a proposed plan or plans of reorganization in the bankruptcy proceedings.One exception to this stay of litigation is for an action or proceeding by agovernmental agency to enforce its police or regulatory power.

On July 24, 2003, the Bankruptcy Court approvedan interim procedure requiring certain direct and indirect holders of claims,preferred securities and common stock to provide at least ten days advancenotice of their intent to buy or sell claims against the Mirant Debtors orshares in Mirant Corporation. The Bankruptcy Court entered a final order on September 17,2003 and such order establishes notice procedures applicable only to thosetransactions with a person or entity owning (or, because of the transaction,resulting in ownership of) an aggregate amount of claims equal to or in excessof $250 million or such higher amount determined under the order and, withrespect to shares, only those persons or entities owning (or, because of thetransaction, resulting in ownership of) 4.75% or more of any class ofoutstanding shares. In addition, each entity or person that owns at least$250 million, or such higher amount determined under the order, of certainclaims or preferred securities must provide Mirant and the Creditor Committeeswith notice of ownership information. The Court’s orders also provide forexpedited procedures to impose sanctions for a violation of its orders,including monetary damages and, in some cases, the voidance of any suchtransactions that violate the order. Upon election, a special regime allowingvirtually unlimited trading of claims without having to provide notice thereofmay be available to certain claimholders, although such electing claimholdersmay be required to sell a portion of their claims before a specific date. Theemergency and final relief was sought to prevent potential trades of claims ofstock that could negatively impact the availability of the Mirant Debtors’ U.S.net operating loss carryforwards and other tax attributes. The U.S. federal netoperating loss carryforward is approximately $2.8 billion at December 31,2004. Even with the relief that has been granted, Mirant cannot guarantee thatit will be able to benefit from all, or any portion, of its U.S. federal netoperating loss carryforwards and other tax attributes. Similarly, there areapproximately $3.9 billion of state net operating loss carryforwards. See “CriticalAccounting Policies and Estimates” for further information.

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Under the Bankruptcy Code, the Mirant Debtors alsohave the right to assume, assign, or reject certain executory contracts andunexpired leases, subject to the approval of the Bankruptcy Court andsatisfaction of certain other conditions. The Mirant Debtors are continuing toevaluate their executory contracts in order to determine which contracts willbe assumed, assigned or rejected.

In response to a motionfiled under section 502(c) of the Bankruptcy Code (the “Estimation Motion”)by the Mirant Debtors, the Bankruptcy Court entered an order establishingprocedures for estimating proofs of claim under section 502(c) of theBankruptcy Code that are binding for all purposes, including voting on,feasibility of and distribution under a Chapter 11 plan for the MirantDebtors. As a result, the Mirant Debtors filed approximately sixty materialclaim objections and three notices of intent to contest claims.

***Plan of Reorganization***

On January 19, 2005, the Mirant Debtors filed aproposed Plan of Reorganization and Disclosure Statement (the “DisclosureStatement”) with the Bankruptcy Court. The proposed Plan sets forth a proposedstructure of the Company at emergence and how the claims of creditors andstockholders are to be treated. If the Disclosure Statement is found by theBankruptcy Court to contain adequate information, then we will solicit votes onthe proposed Plan from those creditors, security holders and interest holderswho are entitled to vote on the proposed Plan.

The proposed Planimplements and includes the following key elements:

·       thebusiness of the Mirant Debtors will continue to be operated in substantiallyits current form, subject to certain internal structural changes that theMirant Debtors believe will improve operational efficiency, facilitate andoptimize their ability to meet financing requirements and accommodate theenterprise’s debt structure as contemplated at emergence;

·       theoriginal Mirant Debtors that are parties to the Chapter 11 proceedings,excluding Mirant Americas Generation, LLC (“Mirant Americas Generation”) andits subsidiaries (collectively, the “Mirant Americas Generation Debtors”), aresubstantively consolidated for all purposes under the proposed Plan;

·       theMirant Americas Generation Debtors are substantively consolidated for allpurposes under the proposed Plan;

·       theunsecured debt of the Mirant Americas Generation Debtors is to be paid in fullthrough (i) the issuance to the lenders under the Mirant AmericasGeneration revolving credit facilities and the holders of Mirant AmericasGeneration senior notes maturing in 2006 and 2008 of (a) new debtsecurities of a newly formed intermediate holding company under Mirant AmericasGeneration (“New Mirant Americas Generation Holdco”) in an amount equal to 90%of the full amount owed to such creditors (as determined by the BankruptcyCourt) and (b) common stock in the new corporate parent of the MirantDebtors (“New Mirant”) having a value equal to 10% of such amount owed; and (ii) thereinstatement of Mirant Americas Generation senior notes maturing in 2011, 2021and 2031;

·       toensure the feasibility of the proposed Plan with respect to the Mirant AmericasGeneration Debtors and to resolve intercompany claims, the proposed Planprovides that additional value shall be contributed to Mirant AmericasGeneration, including the trading business (subject to an obligation to returna portion of the embedded capital in the trading business to Mirant), theZeeland generating facility and commitments to make prospective capitalcontributions of up to $150 million (for refinancing) and $265 million (forsulfur dioxide capital expenditures);

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·       theprospective working capital requirements of Mirant Americas Generation will bemet with the proceeds of a new first lien facility in the amount of at least$750 million;

·       thebulk of the contingent liabilities of the Mirant Debtors associated with theCalifornia energy crisis and certain related matters will be resolved pursuantto a global settlement as described in “Item 3. Legal Proceedings” containedelsewhere in this report;

·       substantiallyall of the assets of Mirant will be transferred to a new company to be formedpursuant to the proposed Plan, which will serve as the corporate parent of ourbusiness enterprise on and after the effective date of the proposed Plan andwhich shall have no successor liability for any unassumed obligations of MirantCorporation, including any obligations to Potomac Electric Power Company (“PEPCO”)under the back-to-back agreement discussed under “Item 3. Legal Proceedings”;similarly, the trading business shall be transferred to Mirant Energy Trading,LLC, which shall have no successor liability for any unassumed obligations ofMirant Americas Energy Marketing, L.P. (“Mirant Americas Energy Marketing”),including any obligations to PEPCO under the back-to-back agreement discussedunder “Item 3. Legal Proceedings” ; and

·       theoutstanding common stock in Mirant Corporation will be cancelled and theholders thereof will receive any surplus value after creditors are paid in full,plus the right to receive a pro rata share of warrants issued by New Mirant ifthey vote to accept the proposed Plan.

At present, the proposed Plan has not been approved byany of the Statutory Committees. As such, the Mirant Debtors anticipate that negotiations(which, whether or not successful, could lead to material changes to certaincomponents of the proposed Plan) will continue between the Mirant Debtors andeach of the Statutory Committees until the hearing to approve the adequacy ofthe Disclosure Statement. At present, the Bankruptcy Court has set thefollowing schedule with respect to the Disclosure Statement:  the First Amended Disclosure Statement is tobe filed by March 25, 2005; objections to the draft Disclosure Statementare to be filed by April 1, 2005; the Second Amended Disclosure Statement isto be filed by April 15, 2005; and the Disclosure Statement adequacyhearing in the Bankruptcy Court is set for April 20, 2005.

At this time, it is notpossible to accurately predict if or when the proposed Plan will be approved bythe creditors and security holders and confirmed by the Bankruptcy Court, or ifand when some or all of the Mirant Debtors may emerge from Bankruptcy Courtprotection under Chapter 11.

***U.S. Competitive Environment***

The power industry is one of the largest industries inthe United States and has an influence on practically every aspect of the U.S.economy. Historically, the power generation industry in the United States wascharacterized by electric utility monopolies selling to franchised customerbases. In response to increasing customer demand for access to low-costelectricity and enhanced services, regulatory initiatives were adopted,primarily to increase wholesale and retail competition in the power industry. Followingthe resulting industry restructuring, merchant companies purchased plants fromregulated utilities, built new capacity and began marketing to customers. Atthe same time, Independent System Operators (“ISOs”) and/or RegionalTransmission Organizations (“RTOs”) were created to administer the new marketswhile maintaining system reliability. In recent years, state and federalrestructuring efforts have stalled, primarily in response to the Californiaenergy crisis and financial troubles of many merchant energy companies. Inaddition, ISOs have begun exerting more control over market prices. The resultis a blend of competitive and regulatory constructs, often different by state,under which merchant generators must compete with regulated utilities.

The substantial increase in new generation capacitythat followed the restructuring of the U.S. power markets, utility capitalinvestments to extend lives of older units, and the inability to decommissionplants 

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for reliability reasonshave created a prolonged oversupply situation. We do not expect our primarymarkets to reach target reserve margins, approximately 15% of excess capacityover peak demand, until 2008 to 2010. The market oversupply situation, pricecontrols during periods of high demand or local constraint, and lack ofappropriate compensation for locational capacity value currently limit fixedcost recovery for merchant generators.

With the expansion of the Pennsylvania-NewJersey-Maryland Interconnection, LLC (“ PJM”) market and the ongoing developmentof Midwest Independent System Operators (“MISO”), the markets themselvescontinue to evolve. This evolution has changed not only the utilization ofgeneration and transmission resources, but also the voting interests amongmarket participants.

Recently, natural gas has been the fuel of choice fornew power generation facilities for economic, operational and environmentalreasons. While this trend is expected to continue, some regulated utilities arenow constructing clean coal units and renewable resources, often with subsidiesor under legislative mandate. These utilities enjoy a lower cost of capitalthan most merchants and often are able to recover fixed costs through rate basemechanisms, allowing them to build, buy and upgrade generation without relyingexclusively on market clearing prices to recover their investments.

Market liquiditystabilized or improved in most regions in 2004, as compared to 2003, allowingus to economically hedge portions of our expected electricity production up to24 months in advance, primarily through exchange-traded contracts. However,market conditions, as well as conditions specific to us, have significantlyreduced our marketing and risk management activities as compared to previousyears.

**Business Segments**

For selected financialinformation about our business segments and information about geographic areas,see Note 20 to our consolidated financial statements contained elsewherein this report. See “Item 2. Properties” for a complete list of ourassets.

***North America***

***Overview***

In our North Americasegment, our core business is the production and sale of electrical energy,electrical capacity (essentially the ability to produce electricity on demand)and ancillary services. Our customers in the United States are utilities,municipal systems, aggregators, electric-cooperative utilities, producers,generators, marketers and large industrial customers. In the United States, weserve four primary geographic areas:  (i) theMid-Atlantic Region, (ii) the Northeast Region, (iii) theMid-Continent Region, and (iv) the West Region.

*Ownership andOperations of Electricity Generation Assets*

As of December 31, 2004, we owned or leasedgeneration facilities in the United States with an aggregate generation capacityof over 14,500 MW (including our Coyote Springs facility, the sale of whichclosed in January 2005, and our Wrightsville facility, which we expect tosell during 2005). Our domestic generating portfolio is diversified across fueltypes, power markets and dispatch types and serves customers located near manymajor metropolitan load centers. Our total generation capacity includedapproximately 28% baseload units, 46% intermediate units and 26% peaking units.Mirant Americas Generation owns or controls approximately two-thirds of ourU.S. generating capacity. We have six facilities in our North America businessunit operating under long term contracted capacity contracts. At December 31,2004, our contracted capacity was approximately 4,325 MW pursuant to agreementswith terms expiring May 2005 through December 2014.

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*CommercialOperations*

Our commercial operations, which are conducted throughour Mirant Americas Energy Marketing subsidiary, consist of fuel procurement,power dispatch, logistics, asset hedging and risk management, and optimizationtrading. Mirant Americas Energy Marketing conducts its business in the marketsin which we have an asset presence, which enhances our ability to deliveradditional value as compared to only buying fuel and selling power in the spotmarket.

Pursuant to agreements with our subsidiaries that owngeneration facilities, Mirant Americas Energy Marketing enters intotransactions for the benefit of such subsidiaries pursuant to which MirantAmericas Energy Marketing procures the appropriate fuel, formulates the dailydispatch decisions and sells the electricity generated in the wholesale marketfor the generation facilities. Mirant Americas Energy Marketing uses dispatchmodels to make daily decisions regarding the quantity and the price of thepower it will sell into the markets. In most markets governed by ISOs/RTOs,Mirant Americas Energy Marketing bids the energy from our generation facilitiesinto the ISO-run day-ahead energy market. Mirant Americas Energy Marketing alsosells ancillary services through the ISO markets. In real-time, Mirant AmericasEnergy Marketing works with the ISOs/RTOs to ensure that our generationfacilities are dispatched economically to meet the reliability needs of themarket. In non-ISO markets, Mirant Americas Energy Marketing conducts businessthrough bilateral transactions, on a day-ahead basis, pursuant to which MirantAmericas Energy Marketing provides the generation facilities with firmschedules to follow.

Mirant Americas Energy Marketing enters into contractsof varying terms to secure appropriate quantities of fuel that meet the varyingspecifications of our generating facilities. For our coal fired generationfacilities, Mirant Americas Energy Marketing purchases coal from a variety ofsuppliers under both short-term and multi-year contracts. For our oil firedunits, fuel is typically purchased under short-term contracts usuallylinked to a transparent oil index price. For our gas fired units, fuel istypically purchased under short-term contracts with a variety of suppliers.

Mirant Americas Energy Marketing enters intotransactions to economically hedge our power price exposure by selling powerinto the wholesale market over a variety of tenors through over-the-countertransactions, exchanges and structured transactions. Mirant Americas EnergyMarketing sells both energy and energy-linked commodities, including capacityand ancillary services. Mirant Americas Energy Marketing economically hedgesthe energy component of gross margin through futures, forwards, swaps andoptions. All of Mirant Americas Energy Marketing’s commercial activities aregoverned by our Risk Management Policy (“RMP”). The RMP requires that MirantAmericas Energy Marketing engage only in risk reducing activities with respectto hedging our assets.

While over-the-counter transactions make up asubstantial portion of our economic hedge portfolio, Mirant Americas EnergyMarketing also has a marketing function that serves as the interface betweenour generation facilities and customers. The marketing organization is focusedon selling non-standard, structured products to customers. In addition to loadfollowing energy sales, these products typically include capacity, ancillary services,transmission losses and other energy products. Mirant Americas Energy Marketingviews these transactions as a method of mitigating the risk of certain portionsof our business that are not easy to economically hedge in the over-the-countermarket. Typically, Mirant Americas Energy Marketing is able to sell theseproducts at a higher premium than standard products. For certain generationfacilities, Mirant Americas Energy Marketing has sought to enter intolonger-term transactions to provide certainty of cash flows over an extendedperiod. These transactions are typically tolling transactions whereby wereceive a fixed capacity payment and, in return, grant an exclusive right forthe counterparty to procure the fuel for the generation facility and take titleto the power generated.

In addition to the riskmanagement services that Mirant Americas Energy Marketing provides to oursubsidiaries that own generation facilities, Mirant Americas Energy Marketingengages in optimization trading for its own account. Mirant Americas EnergyMarketing generates gross margin by taking market 

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positionsbased, in part, on market and other information gathered from its relationshipwith our generation facilities. The optimization trading activities also are governedby the RMP, which sets forth limits on the size of trading positions andvalue-at-risk that Mirant Americas Energy Marketing can bear at any given time. By participating in the markets in thisway, Mirant Americas Energy Marketing is better able to avoid disclosing to themarkets the direction of its trading and hedging activity—to the benefit of oursubsidiaries that own generation facilities. We also benefit from tighterbid/offer spreads because Mirant Americas Energy Marketing is active in the marketsas both a buyer and seller.

*Mid-Atlantic Region*

We own, directly and indirectly, or lease fourgeneration facilities comprising 5,256 MW of generation capacity in theMid-Atlantic region: Chalk Point, Morgantown, Dickerson and Potomac RiverStation. Our Mid-Atlantic facilities were acquired from Potomac Electric PowerCompany (“PEPCO”) in December 2000. These facilities consist of coal andoil fired baseload units as well as coal, gas and oil fired intermediate andpeaking units in Maryland and Virginia. Our largest facility in the region, theChalk Point facility, has two coal fired baseload units, two oil and gas firedintermediate units and seven either oil fired or oil and gas fired peakingunits, totaling 2,429 MW of capacity. The next largest facility, the Morgantownfacility, consists of two coal and oil fired baseload units and six oil firedpeaking units, totaling 1,492 MW of capacity. The Dickerson facility has threecoal fired baseload units and three peaking units, totaling 853 MW of capacity,and the Potomac River Station, a coal fired facility, has three baseload andtwo intermediate units, totaling 482 MW of capacity.

Power generated by our Mid-Atlantic facilities is soldinto the PJM market. For a discussion of the PJM market, see “RegulatoryEnvironment—U.S. Public Utility Regulation” below. In connection with theacquisition of the Mid-Atlantic facilities from PEPCO in 2000, we, throughMirant Americas Energy Marketing, agreed to supply PEPCO its full loadrequirement in the District of Columbia under a transition power agreement (“TPA”),which expired in January 2005 (the “DC TPA”). There was also a similar TPAin place to supply PEPCO’s load in Maryland, which expired in June 2004(the “Maryland TPA”).

Also, in connection with our acquisition of theMid-Atlantic facilities from PEPCO in 2000, we agreed to purchase from PEPCOall power it received under long-term power purchase agreements with OhioEdison Company (“Ohio Edison”) and Panda-Brandywine L.P. (“Panda”) thatexpire in 2005 and 2021, respectively. We and PEPCO entered into a contractualarrangement (the “PEPCO Back-to-Back Agreement”) with respect to PEPCO’sagreements with Panda and Ohio Edison under which (1) PEPCO agreed toresell to us all “capacity, energy, ancillary services and other benefits” towhich it is entitled under those agreements; and (2) we agreed to payPEPCO each month all amounts due from PEPCO to Panda or Ohio Edison for theimmediately preceding month associated with such capacity, energy, ancillaryservices and other benefits. Under the PEPCO Back-to-Back Agreement, we areobligated to purchase power from PEPCO at prices that are significantly higherthan existing market prices for power in the PJM market. On August 28,2003, we filed a motion with the Bankruptcy Court to reject the PEPCOBack-to-Back Agreement. On December 9, 2004, we notified PEPCO and theBankruptcy Court that we were suspending all future payments to PEPCO under thePEPCO Back-to-Back Agreement. For further information, see “Item 3. Legal Proceedings.”

Since the expiration of theMaryland TPA in June 2004 and the expiration of the DC TPA in January 2005,Mirant Americas Energy Marketing has been hedging the output of theMid-Atlantic portfolio in the bilateral market as described previously. Theterms for these transactions extend into 2006.  In addition, Mirant Americas Energy Marketingenters into structured transactions with entities serving load in the greaterWashington, D.C. area. Structured transactions are inherently more complicatedthan bilateral transactions, and we look to extract value over the mid-point ofthe market for such transactions. The terms for these transactions extend into2006 as well.

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MirantAmericas Energy Marketing also has participated in standard offer service auctionsin Maryland and Washington, D.C. Power sales, made either directly throughthese functions or indirectly through subsequent market transactions that are aresult of the auction process, serve as economic hedges for the Mid-Atlanticassets.

*Northeast Region*

We directly own or operate generating facilities inthe Northeast region consisting of approximately 3,063 MW of capacity. TheNortheast region is comprised of the New York and New England sub-regions.

The Mirant New York facilities were acquired fromOrange and Rockland Utilities, Inc. and Consolidated Edison Company of NewYork, Inc. in June 1999. The New York generating facilities consistof the Bowline and Lovett facilities and various smaller generating facilitiescomprising a total of approximately 1,675 MW of capacity. The Bowline facilityis a 1,133 MW dual fueled (natural gas and oil) facility comprised of twointermediate units. The Lovett facility consists of two baseload units capableof burning coal and gas comprising a total of 348 MW and a peaking unit capableof burning gas or oil comprising 63 MW. The smaller New York plant operationsinclude two peaking units (the Hillburn gas turbine station and the Shoemakergas turbine station), three hydroelectric stations (Mongaup 1-4, SwingingBridge 1-2 and Rio 1-2) and an operational interest in theGrahamsville Hydroelectric Station comprising a total of 132 MW. An expansionat the Bowline facility, a 750 MW natural gas and distillate oil fired combinedcycle unit, is currently suspended.

The Mirant New England facilities, with a totalcapacity of 1,388 MW, were acquired from subsidiaries of Commonwealth EnergySystem and Eastern Utilities in December 1998. The New England generatingfacilities consist of the Canal station, the Kendall station, the Martha’sVineyard diesels and the Wyman Unit 4 interest. The Canal and Kendallfacilities, consisting of approximately 1,109 MW and 256 MW of generatingcapacity, respectively, are designed to operate during periods of intermediateand peak demand, and are located in close proximity to Boston. The Kendallfacility has been repowered since its acquisition and is now a natural gascombined cycle facility capable of producing both steam and electricity forsale. Both the Canal and Kendall facilities possess the ability to burn bothnatural gas and fuel oil. The Martha’s Vineyard diesels, with 14 MW ofcapacity, supply electricity on the island of Martha’s Vineyard during periodsof high demand or in the event of a transmission interruption. The Wyman Unit 4interest is an approximate 1.4% ownership interest (equivalent to 8.8 MW) inthe 614 MW Wyman Unit 4 located on Cousin’s Island, Yarmouth, Maine. It isprimarily owned and operated by the Florida Power and Light Group.

Generation is sold from our Northeast assets through acombination of bilateral contracts and spot market transactions, as well asstructured transactions. The Mirant New York plants participate in a marketoperated by the Independent System Operator of New York (“NYISO”). Thecapacity, energy and ancillary services from the Mirant New England generatingunits are sold into the New England Power Pool (“NEPOOL”) through ourcommercial operations. NEPOOL is administered by the ISO of New England (“ISO-NE”).For a discussion of the NYISO, NEPOOL and the ISO-NE, see “RegulatoryEnvironment—U.S. Public Utility Regulation” below.

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Marketfundamentals in the NYISO do not permit us to operate the Lovett facility on aneconomic basis as a merchant generation facility because of upcoming requiredenvironmental capital expenditures and property taxes associated with thefacility. Our current plan is to retire the Lovett facility, starting with Unit5 in 2007 and Units 3 and 4 in 2008. Market fundamentals in NEPOOL do notpermit us to operate the Kendall facility on an economic basis as a merchantfacility. Our plan has been to shutdown, at least temporarily, the Kendallfacility from January 2006 through December 2007, with thepossibility of restarting operations as early as January 2008. However,the ISO-NE has determined that a small part of the capacity of the Kendallfacility is needed for reliability and has negotiated a Reliability-Must-Run (“RMR”)contract with respect to the Kendall facility with a term of approximately oneyear. We filed this contract with the Federal Energy Regulatory Commission (“FERC”)for RMR status under the existing tariff on October 7, 2004 and arecurrently waiting for FERC approval or acceptance of the agreement and therevenue requirements contained within it. We and the other parties in thisproceeding are currently in settlement negotiations. We and NStar Electric &Gas Corp., the local contracting utility, have reached a preliminary agreementthat, once finalized and accepted or approved by the FERC, will resolvevirtually all of the issues raised in this proceeding.

*Mid-ContinentRegion*

The Mirant Mid-Continent facilities, consisting of anequity interest in roughly 2,668 MW, are located in the Midwest and Southeastmarkets. The Midwest facilities, which include our Sugar Creek and MirantZeeland facilities, consist of over 1,372 MW of generating capacity and are allnatural gas fired peaking and/or intermediate units. The Southeast facilitiesinclude three facilities, Wrightsville, West Georgia and Shady Hills, with anet equity interest of 1,296 MW.

The Sugar Creek facility is a combined cycle facilitywith the capability to produce 535 MW. Located in West Terre Haute, Indiana,the Sugar Creek facility has the physical capability to be interconnected witheither the Cinergy or American Electric Power, Inc. (“AEP”) systems.Cinergy is a member of the MISO, and AEP is a member of the PJM market. Thefacility is eligible to deliver energy and participate in the energy, capacityand ancillary markets of the PJM market.

The Mirant Zeeland facility, a combined cycle facilityin Zeeland, Michigan, has generating capacity of 837 MW and is interconnectedwith the International Transmission Company, which is a member of the MISO. Both the Zeeland and Sugar Creek facilitiesoperate under the East Central Area Reliability Coordination Agreement (“ECAR”).

The West Georgia facility in Thomaston, Georgia andthe Shady Hills facility in Pasco County, Florida consist of gas and oil firedcombustion turbines serving peak loads of approximately 605 MW and 468 MW,respectively.

The Wrightsville facility consists of gas firedintermediate/peaking units with generating capacity of 438 MW. In 2004, wemothballed this facility, pending regional recovery of power prices. In February 2005,we entered into an agreement to sell the Wrightsville facility to ArkansasElectric Cooperative Corporation (“AECC”), subject to Bankruptcy Court approvaland certain other regulatory and third-party consents and approvals. We expectthe sale of the Wrightsville facility to close in 2005.

For a discussion of MISOand ECAR, see “Regulatory Environment—U.S.Public Utility Regulation” below.

*West Region*

Our West region facilities consist of a net equityinterest in 3,602 MW of gas fired generating capacity in California, Oregon,Nevada and Texas.

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The generating assets in California provide a totalcapacity of 2,347 MW and consist of the Pittsburg, Contra Costa and Potreroplants, which include facilities operating at both intermediate and peak demandlevels located in, or in close proximity to, San Francisco. The Pittsburg andContra Costa plants consist of five intermediate natural gas fired steamgenerating units with approximately 1,985 MW of generating capacity locatedapproximately ten miles apart along the Sacramento/San Joaquin River Delta. ThePotrero plant has one baseload natural gas fired conventional steam generatingunit and three peaking distillate fueled combustion turbines with a combinedcapacity of 362 MW.  

The majority of our California assets are subject toRMR agreements with the CaliforniaIndependent System Operator (“CAISO”). These agreements are describedfurther under “Regulatory Environment—U.S. Public Utility Regulation” below.The Mirant California subsidiaries currently have the largest portfolio ofunits which operate under RMR contracts, reflecting the fact that the locationof these units is key to the electric system reliability.  Contra Costa Unit 6 is not a party to an RMRagreement, and thus functions solely as a merchant facility in the CAISO.  Mirant Americas Energy Marketing sells theoutput of Contra Costa Unit 6 into the market through bilateral transactionswith utilities and other merchant players.

In October 2004, the CAISO notified us that the RMR contract for PittsburgUnit 7 would not be renewed for 2005.  OnJanuary 3, 2005, Mirant Americas Energy Marketing announced that it was seekingproposals for a one-, two- or three-year tolling arrangement for Pittsburg Unit7 and Contra Costa Unit 6.  We receivedbids on January 28, 2005, and we are in the process of evaluating these bids atthis time.  If this request for proposaldoes not result in an acceptable contract for Pittsburg Unit 7, we intend toretire Pittsburg Unit 7, consisting of 682 MW, by the middle of 2005, due tonew nitrogen oxide (“NOx”) emissions standards that would require significantcapital and operating and maintenance expenditures.

Coyote Springs is a 280 MW intermediate combined-cyclegas fired plant, located in Boardman, Oregon, that began commercial operationsin July 2003. In October 2004, we entered into an agreement to sell our 50%interest in Coyote Springs to Avista Utilities, subject to Bankruptcy Court andthe FERC approval.  The Bankruptcy Courtand the FERC approved the sale in December 2004 and the sale was completed for$63 million in January 2005.

The Apex generating facility, a 500 MW intermediategas combined-cycle facility located near Las Vegas, Nevada, was developed by usand began commercial operations in May 2003. 

We operate two facilities in Texas: the Bosquefacility and the Wichita Falls facility. The Bosque facility consists of a gas fired combustion turbine with acorresponding steam turbine (combined cycle unit) with a capacity of 230 MWthat is available to serve baseload and intermediate demand.  Additionally, Bosque Units 1 and 2 are gasfired peakers with a capacity of 154 MW each. The Wichita Falls facility is a combined cycle facility and consists ofthree gas turbines and a steam turbine with a total capacity of 77 MW.  The Wichita Falls facility primarily sellsits electrical output to the merchant market.

Both the Bosque andWichita Falls facilities operate in the Electric Reliability Council of Texas (“ERCOT”)market.   For a discussion of ERCOT, see “RegulatoryEnvironment—U.S. Public Utility Regulation” below. 

***International***

Through varioussubsidiaries, we own or control under operating agreements various generation,transmission and distribution operations in the Philippines and the Caribbean.A complete list of our international properties is contained in “Item 2.Properties.” 

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***Philippines***

We, indirectly through our Philippine subsidiaries,have ownership, leasehold or similar interests in nine generating facilities inthe Philippines.  As of December 31,2004, our net ownership interest in the generating capacity of these facilitieswas approximately 2,300 MW.  Over 80% ofthe generation capacity in the Philippines facilities is sold under long-termenergy conversion agreements with the Philippine government-ownedNational Power Corporation (“NPC”).  NPCacts as both the fuel supplier and the energy purchaser under the energyconversion agreements for our Pagbilao, Sual, Navotas II and Ilijanfacilities.  NPC procures all of the fuelnecessary for generation under an energy conversion agreement, at no cost tothe respective subsidiary or associate, and has substantially all fuel risksand fuel related obligations under the agreement other than those relating tothe fuel burning efficiency of the facility. In addition to the energyconversion agreements with NPC, our Sual and Pagbilao subsidiaries have jointmarketing agreements with NPC for excess capacity of 218 MW and 35 MW,respectively. Currently, electricity from the excess capacity of our Sualfacility is provided to select markets such as economic zones, industries andprivate electric distribution companies and cooperatives. 

Under the energy conversion agreements, our respectivesubsidiaries and associates receive both fixed capacity fees and variableenergy fees.  Currently, approximately90% of our revenues with respect to our Philippine operations come from fixedcapacity charges under long-term contracts that are paid without regard to thedispatch level of the facility.  Nearlyall of our capacity fees are denominated in U.S. dollars.  Energy fees have both U.S. dollar andPhilippine peso components that are indexed to inflation.  The majority of the obligations of NPC underthe energy conversion agreements are guaranteed by the full faith and credit ofthe Philippine government.  The energyconversion agreements are executed under the Philippine government’s build-operate-transferprogram.  At the end of the term of each energyconversion agreement, the facility is to be transferred to NPC, free from anylien or payment of compensation.  Theenergy conversion agreements for our Navotas II, Sual, Pagbilao and Ilijanfacilities expire in July 2005, October 2024, August 2025 and January2022, respectively. 

Our larger Philippineprojects have been granted preferred or pioneer status that, among otherthings, has qualified them for income tax holiday incentives of three to sixyears. The income tax holiday incentive expired in June 2002 for ourPagbilao facility and will expire in October 2005 and January 2008 for ourSual and Ilijan facilities, respectively. The amount of benefit from theseholiday incentives is $54 million, $50 million, and $69 million for 2004, 2003,and 2002, respectively.

*Deregulation andPrivatization*

In June 2001, the Philippine Congress approvedand passed into law the Electric Power Industry Reform Act (“EPIRA”), providingthe mandate and the framework to introduce competition in the Philippineelectricity market.  EPIRA also providesfor the privatization of the assets of NPC, including its generation andtransmission assets, as well as its contracts with independent power producers(“IPPs”).  The deregulation of thePhilippine electricity industry and the privatization of NPC have been longanticipated, and EPIRA is not expected to have a material impact on ourexisting Philippine assets or our operations.

EPIRA provides that competition in the retail supplyof electricity and open access to the transmission and distribution systemswould occur within three years from its effective date. Prior toJune 2002, concerned government agencies were to establish a wholesaleelectricity spot market, ensure the unbundling of transmission and distributionwheeling rates and remove existing cross-subsidies provided by industrialand commercial users to residential customers. As of December 2004, most ofthese changes have started to occur but are considerably behind the scheduleset by the Philippine Department of Energy.

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Under EPIRA, NPC’s generation assets are to be soldthrough transparent, competitive public bidding, while all transmission assetsare to be transferred to the Transmission Company, initially a government-ownedentity that is to eventually be privatized. The privatization of these NPC assets has been delayed and isconsiderably behind the schedule set by the Philippine Department of Energy.

EPIRA also created the Power Sector Assets andLiabilities Management Corporation (“PSALM”), which is to accept transfers ofall assets and assume all outstanding obligations of NPC, including itsobligations to IPPs.  One of PSALM’sresponsibilities is to manage these contracts with IPPs after NPC’sprivatization.  PSALM also is responsiblefor privatizing at least 70% of  thetransferred generating assets and IPP contracts no later than three years fromthe effective date of the law.  As ofDecember 2004, the work related to the planned privatization has commenced, butis considerably behind schedule.

Consistent with theannounced policy of the Philippine government, EPIRA contemplates continuedpayment of NPC’s obligations under its energy conversion agreements.  The energy conversion agreements of ourPhilippine subsidiaries are not assignable without consent.  We are in continuing discussions with NPC andPSALM on a proposal to add PSALM as an additional obligor under its existingIPP contracts.  Additionally, the Philippinegovernment issued performance undertakings to guarantee the performance of NPC’sobligations under certain energy conversion agreements.  

*Philippine IPPReview*

Pursuant to EPIRA, a governmental inter-agencycommittee reviewed all IPP contracts and reported that some contracts had legalor financial issues requiring further review or action, including contractswith our subsidiaries.  Subsequently, we,along with PSALM, the Philippine Department of Energy and the PhilippineDepartment of Justice entered into a letter of agreement establishing a generalframework (the “General Framework Agreement”) for resolving all outstandingissues raised by the committee about IPP contracts with our subsidiaries. 

In March 2003, theconditions precedent for our Sual and Pagbilao components of the GeneralFramework Agreement were satisfied and the implementation agreements relatingto both became effective.  As a result ofthe General Framework Agreement, the original energy conversion agreements forour Sual and Pagbilao facilities remain intact and are reaffirmed with noresultant material financial impact.  

***Caribbean***

Our net ownership interestin the generating capacity of our Caribbean plants is approximately 1,000 MW.

*Grand Bahama PowerCompany (“Grand Bahama Power”)*

We owna 55.4% interest in Grand Bahama Power, an integrated electric utility companythat generates, transmits, distributes and sells electricity on Grand BahamaIsland. Grand Bahama Power has the exclusive right and obligation to supplyelectric power to the residential, commercial and industrial customers on GrandBahama Island. Grand Bahama Power’s rates are approved by the Grand Bahama PortAuthority.

*The PowerGeneration Company of Trinidad and Tobago (“PowerGen”)*

We own a 39% interest in PowerGen, a power generationcompany that owns and operates three plants located on the island of Trinidad.The electricity produced by PowerGen is provided to the Trinidad and TobagoElectricity Commission (“T&T EC”), the state-owned transmission anddistribution monopoly, which serves approximately 347,000 customers on theislands of Trinidad and Tobago and 

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which holds a 51% interestin PowerGen. PowerGen has a power purchase agreement for approximately 820 MWof capacity and spinning reserve with the T&T EC, which expires in 2009 andis unconditionally guaranteed by the government of Trinidad and Tobago. Underthis contract, the fuel is provided by the T&T EC. 

In response to a September3, 2004 request for proposals issued by National Gas Company of Trinidad andTobago Limited (“NGC”), on November 30, 2004, PowerGen submitted a bid to buildnew generation and provide electric generation capacity under long term powerpurchase agreements to National Energy Corporation (“NEC”) and T&T EC.  The request for proposals contemplates a needof between 200 MW and 250 MW for T&T EC and possibly a further need ofbetween 400 MW and 540 MW for NEC with commercial operations dates between thethird quarter of 2006 and March 2008. PowerGen will likely have definite resolution related to this bid bymid-2005.    

*Jamaica PublicService Company Limited (“JPS”)*

We ownan 80% interest in JPS, a fully integrated electric utility company thatgenerates, transmits, distributes and sells electricity on the island ofJamaica. JPS operates under a 20-year All-Island Electric License that expiresin 2021 and that provides JPS with the exclusive right to sell power inJamaica. JPS has installed generation capacity of 600 MW, and it purchases anadditional 146 MW of firm capacity from three IPPs under long-term purchaseagreements and an additional 20 MW of energy from a wind farm on anas-available basis.  JPS supplieselectric power to approximately 540,000 residential, commercial and industrialcustomers in Jamaica.  At present, JPS isregulated by the Office of Utilities and Regulation under a price cap model withrate cases held every five years and with interim adjustments indexed toinflation and foreign exchange movements. 

*Curacao UtilitiesCompany (“CUC”)*

We owna 25.5% interest in CUC at the Isla Refinery in Curacao, Netherlands Antilles.The 133 MW facility provides electricity, steam, desalinated water andcompressed air to the refinery and up to 45 MW of electricity to the Curacaonational grid. 

*Aqualectra*

We owna $40 million convertible preferred equity interest in Aqualectra, anintegrated water and electric company in Curacao, Netherlands Antilles, ownedand operated by the government. Aqualectra has electric generating capacity of235 MW and drinking water production capability of 69,000 cubic meters per day.Aqualectra serves approximately 65,000 electricity and water customers. Wereceive 16.75% preferred dividends on our $40 million investment on a quarterlybasis. Aqualectra has a call option and we have a put option, both of whichbecame exercisable for the three-year period beginning on December 19, 2004. Wealso have an option to convert our convertible preferred equity interest inAqualectra to common shares during the same three-year period beginningDecember 19, 2004.

**Regulatory Environment**

***U.S. Public Utility Regulation***

The U.S. electricity industry is subject tocomprehensive regulation at the federal, state and local levels. At the federallevel, the FERC has exclusive jurisdiction under the Federal Power Act (the “FederalPower Act”), over sales of electricity at wholesale and the transmission ofelectricity in interstate commerce.  AMirant subsidiary that owns generating facilities selling at wholesale or thatmarkets electricity at wholesale outside of ERCOT is a  “public utility” subject to the FERC’sjurisdiction under the Federal Power Act. These Mirant subsidiaries must comply with certain FERC reportingrequirements and FERC-approved market rules and are subject to FERC oversightof mergers and acquisitions, the 

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disposition ofFERC-jurisdictional facilities, and the issuance of securities, for whichblanket authority has been granted.  Inaddition, under the Natural Gas Act (“NGA”), the FERC has limited jurisdictionover certain sales for resale of natural gas, but does not regulate the pricesreceived by the Mirant subsidiary that markets natural gas.

The FERC has authorized the public utility Mirantsubsidiaries to sell energy and capacity at wholesale market-based rates andhas authorized some of the public utility Mirant subsidiaries to sell certainancillary services at wholesale market-based rates. The majority of theoutput of the generation facilities owned by Mirant’s public utilitysubsidiaries in the United States is sold pursuant to this authorization,although certain of our facilities sell their output under cost-based RMRagreements, as explained below. The FERC may revoke or limit our market-basedrate authority if it determines that we possess market power. The FERC requiresthat our subsidiaries with market-based rate authority, as well as those withblanket certificate authorization permitting market-based sales of natural gas,adhere to certain market behavior rules and codes of conduct,respectively.  If our subsidiary violatesthe market behavior rules or codes of conduct, the FERC may require adisgorgement of profits or revoke its market-based rate authority orblanket certificate authority. If the FERC were to revoke market-basedrate authority, the Mirant subsidiary would have to file a cost-based rateschedule for all or some of its sales of electricity at wholesale. If the FERCrevoked the blanket certificate authority of a Mirant subsidiary, it would nolonger be able to make certain sales of natural gas. 

In an effort to promote greater competition inwholesale electricity markets, the FERC has encouraged the formation of ISOsand RTOs.  In those areas where ISOs orRTOs control the regional transmission systems, market participants haveexpanded access to transmission service. ISOs and RTOs also may operate real-time and day-ahead energy andancillary services markets, which are governed by FERC-approved tariffs andmarket rules.  Some RTOs and ISOs alsooperate capacity markets.  Changes to theapplicable tariffs and market rules may be requested by market participants,state regulatory agencies and the system operator, and such proposed changes,if approved by the FERC, could have an impact on our operations and businessplan.  While participation bytransmission-owning public utilities in ISOs and RTOs has been and isexpected to continue to be voluntary, the majority of such public utilities in NewEngland, New York, the Mid-Atlantic, the Midwest and California have joined theexisting ISO/RTO for their respective region. The majority of ourfacilities operate in these ISO/RTO regions.

We are not currently subject to the Public UtilityHolding Company Act of 1935, as amended (“PUHCA”), and do not anticipatebecoming so unless we acquire the securities of a public utility company orpublic utility facility that does not qualify as an exempt wholesale generator,a foreign utility company, or a qualifying small power production orcogeneration facility. Currently, our subsidiaries owning generation in theUnited States are exempt wholesale generators under PUHCA, and all of oursubsidiaries owning generation outside the United States are either foreignutility companies or exempt wholesale generators. 

At the state and local levels, regulatory authoritieshave historically overseen the distribution and sale of retail electricity tothe ultimate end user, as well as the siting, permitting and construction ofgenerating and transmission facilities. Our existing generation may be subjectto a variety of state and local regulations, including regulations regardingthe environment, health and safety, maintenance, and expansion of generationfacilities.  Our subsidiaries that sellat the retail level in states that have a retail access program may be subjectto state certification requirements and to bidding rules to provide defaultservice to customers who choose to remain with their regulated utilitydistribution companies.

*Mid-AtlanticRegion**—*OurMid-Atlantic assets sell power into the markets operated by PJM, which the FERCapproved to operate as an ISO in 1997 and as an RTO in 2002.  We have access to the PJM transmission systempursuant to PJM’s Open Access Transmission Tariff. PJM operates the PJMInterchange Energy Market, which is the region’s spot market for wholesaleelectricity, provides ancillary 

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services for itstransmission customers and performs transmission planning for the region. Toaccount for transmission congestion and losses, PJM calculates electricityprices using a locational-based marginal pricing model and dispatcheselectricity on a security constrained least cost basis.  On January 24, 2005, the FERC issued an orderchanging PJM’s  mitigation rules forfrequently mitigated units (those mitigated in excess of 80% of annual runninghours), as well as the retirement policy rules. The revised policy provides some opportunity for  increased compensation for frequentlymitigated units.  Under the old rules,such units were restricted to bidding variable costs plus 10% when atransmission constraint caused the unit to be selected out of economic meritorder.  Under the new rules, therestriction is variable costs plus $40/megawatt hour (“MWh”). Units mitigatedless than 80% of the time remain under the old “cost plus 10%” policy. PJM alsoproposed a revised generation retirement policy that sets forth a process bywhich PJM will address a request by a generation owner to deactivate a unit,determine whether established reliability criteria would be violated if theunit were deactivated, and provide compensation to the generation owner when aunit proposed for deactivation is required to continue operating forreliability.  This proposal was alsoapproved. Both changes are currently effective, although possibly subject torevision via requests for rehearing.  PJMis also developing a redesign of its capacity obligations, referred to as aReliability Pricing Model (“RPM”), and the RPM is anticipated to be filed atthe FERC in late March 2005. If filed in a form resembling stakeholderdiscussions to date, and ultimately approved by the FERC, this proposal wouldalso provide some opportunity for an improved revenue stream for Mirant-ownedcapacity.  However, the FERC’s responseto these issues and the final impact, if any, on our facilities cannot bedetermined at this time.

PJM has greatly expanded its system over the last two years with theaddition of the service areas of Allegheny Power, Commonwealth Edison,AEP, Duquesne Light and Dayton Power & Light (“DP&L”) and theanticipated addition of Dominion-Virginia Power in 2005. In the fall of 2004, PJM completed its integrationof AEP and DP&L into the PJM RTO. For purposes of determiningdeliverability to the unforced capacity market (“UCAP market”), AEP andDP&L were deemed to be capable of providing capacity to all areas of PJM.This effectively provided the same comparability of delivery for a generator inwestern Ohio to deliver capacity to the PEPCO zone where our assets arelocated. The deliverability standard and the additional capacity that the newentrants are now capable of providing to the UCAP market in PJM has severelydepressed forward pricing for capacity. PJM has proposed a new RPM that willprovide for recognition of locational deliverability zones. The model proposesa phase in to locational zones over a four-year period.  In addition, PJM andMISO have been directed by the FERC to establish a common and seamless market,an effort that is largely dependent upon MISO’s ability to first establish andoperate its markets.

*NortheastRegion**—*Our New Yorkplants participate in a market controlled by NYISO, which replaced the New YorkPower Pool (“NYPP”). NYISO provides statewide transmission service under asingle tariff and interfaces with neighboring market control areas.  To account for transmission congestion andlosses, NYISO calculates energy prices using a locational-based marginalpricing model that is similar to that used in the PJM and ISO-NE. NYISO alsoadministers a spot market for energy, as well as markets for installedcapacity, operating reserves and regulation service. NYISO employs an AutomatedMitigation Procedure (“AMP”) in its day-ahead market that automatically capsenergy bids when certain established bid screens indicate a bidder may havemarket power. On January 14, 2005, the U.S. Court of Appeals for the D.C.Circuit vacated and remanded the FERC’s orders approving the AMP.  The AMP provisions of the NYISO’s tariffremain in effect pending further proceedings. In addition, the NYISO’s locational capacity market rules use a “demandcurve” mechanism to determine for every month the required amount of installedcapacity as well as installed capacity prices for three locational zones: NewYork City, Long Island and the rest of New York. Our facilities operate outsideof New York City and Long Island.  Thedemand curve is derived for each of the three zones by setting the price ofinstalled capacity for 118% of peak load (peak load plus an 18% reserve margin)at the assumed price for a new generating plant to serve peak demand (“newentrant”) and then sloping the “demand curve” for installed capacity downwardto reflect 

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additional amounts ofcapacity beyond the 118%.  The FERCapproved the new entrant price for use from the summer of 2003 to the spring of2005, and required NYISO to file three proposed new entrant prices that would beapplicable from the summer of 2005 through the spring of 2008. On January 7,2005, NYISO filed revisions to its services tariff to define the demand curvesfor capability years 2005/2006, 2006/2007 and 2007/2008.AFERC order is expected on the 2005 through 2008 demand curves in March2005.  The FERC’s 2003 order approvingthe existing demand curves has been appealed by a trade association to the U.S.Court of Appeals for the D.C. Circuit. 

Our New England plants also participate in a marketadministered by ISO-NE, under contract to NEPOOL, which is a voluntaryassociation of electric utilities and other market participants in Connecticut,Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. The FERC hasapproved a RTO for the New England region (“RTO-NE”), which assumedresponsibility for the operation of transmission systems and administration andsettlement of the wholesale electric energy, capacity and ancillary servicesmarkets on February 1, 2005. ISO-NE utilizes a locational marginal pricing model, with a price mitigation methodsimilar to NYISO’s AMP. In 2004, the FERC approved a locational installedcapacity market for ISO-NE based on the “demand curve” concept also used byNYISO, to be implemented in January 2006. A hearing on the demand curveparameters was held in late February and early March and a FERC order on theseproposals is expected in mid to late-2005. 

*Mid-ContinentRegion**—*OurMid-Continent plants are located in the Midwest and Southeast markets. In theMidwest markets, our plants participate in a market to be administered byMISO.  The FERC approved the formation ofMISO in 2001, and it currently administers transmission operations.  MISO intends to operate energy marketssimilar to those operated by PJM and has received FERC approval to commenceoperating energy markets on March 1, 2005. However, due to a desire to testthoroughly before implementation, MISO has voluntarily elected to delay actualimplementation until April 1, 2005. MISO plans to use locational marginal pricingfor energy and associated financial transmission rights so that marketparticipants may manage the risks associated with moving energy from generationsources to load. The market plan also includes both a day-ahead energy marketbased on firm financial commitments to provide energy and a real-time marketfor physical supply and demand.  MISOproposes to implement a capacity market by June 1, 2006, but has not yetidentified a specific capacity market design. MISO also proposes to implementmitigation rules similar to those of NYISO, but will likely not implement an automatic price cap. Whiletangible progress continues to be made toward actual implementation, we stillcannot provide assurance regarding whether or when MISO will commence operationof its new market or what the impact on our earnings could be. The Sugar Creekfacility is interconnected to both MISO and PJM, through Cinergy and AEP’stransmission system, and can sell into either market (though not into bothsimultaneously). Sugar Creek is eligible to participate in the PJM capacity andenergy markets.

In the Southeast, we currently sell electric energyand capacity from our facilities under bilateral contracts that contain termsand conditions that are not standardized and that have been negotiated on anindividual basis. Customers in this region include investor-owned,vertically integrated utilities, municipalities and electric cooperatives.

*WestRegion**—*Our Westplants are located in the Western Interconnection and the ERCOT market in Texas.California accounts for roughly 40% of the energy consumption in the WesternInterconnection. Approximately 75% of California’s demand is served fromfacilities in the CAISO control area, which includes our California facilities.The CAISO schedules transmission transactions, arranges for necessary ancillaryservices and administers a real-time balancing energy market. The CAISO hasproposed changes to its market design to more closely mirror the eastern RTOmarkets. The market redesign has been delayed several times, with fullimplementation now expected in 2007 or 2008. The California Public UtilityCommission (“CPUC”) has taken the lead role for establishing capacityrequirements in California and has ordered California’s load-serving entitiesto meet specific load and reserve requirements beginning in the summer of 2006.The CAISO has not proposed a capacity market mechanism in its market redesign.

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The majority of our assets in California are subjectto RMR agreements with the CAISO. These agreements require certain of ourfacilities, under certain conditions and at the CAISO’s request, to operate atspecified levels in order to support grid reliability. Under the RMRagreements, we recover through fixed charges either a portion (RMR ContractCondition 1) or all (RMR Contract Condition 2) of the annual fixedrevenue requirement of the generation assets as approved by the FERC (the “AnnualRequirement”). Our California generation assets operating under RMR ContractCondition 1 depend on revenue from sales of the output of the plants at marketprices to recover the portion of the plant’s fixed costs not recovered in RMRpayments. For these generation assets, only a percentage of the AnnualRequirement, as approved by the FERC, can be recovered through RMR payments,whereas RMR Contract Condition 2 Units recover 100%. The contracts requireyearly filings for FERC approval of theAnnual Requirement for the following calendar year.

The CAISO imposes a $250/MWh cap on prices for energyand capacity and has implemented an AMP similar to that used by NYISO. Ownersof non-hydroelectric generation in California, including certain of ourfacilities, must offer power in the CAISO’s spot markets if the output is notscheduled for delivery within the hour. For the remaining units located outsideof California, but within the Western Interconnection, there is no singleentity responsible for a centralized bid-based market. Outside of California,the primary markets in the West today are bilateral and adhere to thereliability standards of the Western Electricity Coordinating Council (“WECC”).Although we are active participants in initiatives to establish new ISOs orRTOs in the West, we can neither predict when, nor if, such entities willemerge nor if market developments will have a positive or negative impact onfuture earnings from our Western assets.

Our Texas plants participate in a market administeredby the ERCOT ISO, which manages a major portion of the state’s electric powergrid. ERCOT ISO oversees competitive wholesale and retail markets resultingfrom electricity restructuring in Texas and protects the overall reliability ofthe ERCOT grid. ERCOT ISO, the only ISO that manages both wholesale and retailmarket operations, is regulated by the Public Utility Commission of Texas (“PUCT”).The PUCT conducts market monitoring within ERCOT. Price mitigation measures inERCOT include a $1,000 per MWh price cap and RMR-type contracts for congestedareas. To improve congestion management, the PUCT recently established arulemaking proceeding on wholesale market design issues that will focus onadding a congestion management mechanism based on locational pricing, similarto that used in PJM, and a day-ahead market. A revised market design isexpected to be in place by 2005 but, as with other evolving market structures,we cannot provide assurance as to when the enhancements will be completed andimplemented, or what the impact on earnings in the ERCOT market will be.

***Environmental Regulation***

*United States*

*Air Emissions Regulations:  *Ourbusiness is subject to extensive environmental regulation by federal, state andlocal authorities, which requires continuous compliance with regulations andconditions established by their operating permits. Our most significantenvironmental requirements in the United States arise under the federal CleanAir Act of 1990, as amended (the “Clean Air Act”), and similar state laws. Underthe Clean Air Act, we are required to comply with a broad range of requirementsand restrictions concerning air emissions, operating practices and pollutioncontrol equipment. Several of our facilities are located in or nearmetropolitan areas, such as New York City, Boston, San Francisco and WashingtonD.C., which are classified by the U.S. Environmental Protection Agency (“EPA”)as not achieving certain federal ambient air quality standards. The regulatoryclassification of these areas subjects our operations in these areas to morestringent air regulation requirements, potentially including, in some cases,required emission reductions. Also, states are required by Section 185 ofthe Clean Air Act to impose additional fees for air emissions from majorsources in areas that are classified as severe non-attainment for ozoneand that fail to meet the attainment deadline. For example, the Virginia and 

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Maryland suburbs ofWashington D.C. are part of the Washington, D.C. non-attainment area andcurrently are classified as severe non-attainment for ozone, applying aone-hour ozone standard. The EPA has designated this area as moderatenon-attainment applying a new eight-hour standard and has indicated that itwill rescind the one-hour ozone standard in June 2005. If it does notrescind the one-hour standard and the November 2005 attainment deadlineunder the one hour standard is not met, Section 185 of the Clean Air Actwould require Virginia and Maryland to begin imposing additional fees on majorsources of ozone beginning in 2006. The formula for determining this fee hasnot been finally established, but is likely to be a significant cost for ourMid-Atlantic plants.******On September 27, 2004,we entered into a conditional consent decree resolving an enforcement proceedingwith the state of Virginia and EPA. The consent decree was also entered into bythe state of Maryland and the Department of Justice (the “DOJ”) on behalf ofthe EPA. The consent decree creates annual and ozone season caps on NOxemissions, provides for certain additional pollution controls, supplementalenvironmental projects to be done at the Potomac River plant and a $500,000fine. Approvals by the Federal District Court in Alexandria and the BankruptcyCourt are being sought.

In the future, we anticipate increased regulation ofgeneration facilities under the Clean Air Act and applicable state laws andregulations concerning air quality. The EPA and several states in which weoperate are in the process of enacting more stringent air quality regulatoryrequirements.

For example, the EPA promulgated regulations (referredto as the “NOx SIP Call”), which establish emission cap and trade programs forNOx emissions from electric generating units in most of the Eastern states. Theseprograms were implemented beginning May 2003 in the Northeast and May 2004in the rest of the region. Under these regulations, a plant receives anallocation of NOx emission allowances, and if a plant exceeds its allocatedallowances, the plant must purchase additional, unused allowances from otherregulated plants or reduce emissions, which could require the installation ofemission controls. Our plants in Maryland, New York and Massachusetts compliedwith similar state and regional NOx emission cap and trade programs from 1999to 2002, which has been superseded by the EPA NOx cap and trade program. Someof our plants in these states are required to purchase additional NOxallowances to cover their emissions and maintain compliance. The cost of theseallowances may increase in future years and may result in some of our plantsreducing NOx emissions through additional controls, the cost of which could besignificant but would be offset in part by the avoided cost of purchasing NOxallowances to operate the plant.

The EPA also has promulgated regulations thatestablish emission cap and trade programs for sulfur dioxide (“SO2”) emissions(the “Acid Rain Program”) from electric generating units in the United States. ThisAcid Rain Program was implemented in two phases. Phase I began in 1995 andaffected 263 units at 110 mostly coal-burning electric utility plants locatedin 21 Eastern and Midwestern states. Phase II, which began in 2000, tightenedthe annual emissions limits imposed on Phase I plants and also set restrictionson smaller, cleaner plants fired by coal, oil and gas encompassing over 2,000units in all. The Acid Rain Program affects existing utility units servinggenerators with an output capacity of greater than 25 MW and all new utilityunits. The Acid Rain Program represents a dramatic departure from traditionalcommand and control regulatory methods, which establish specific, inflexibleemissions limitations with which all affected sources must comply. Instead, theAcid Rain Program introduces an allowance trading system that harnesses theincentives of the free market to reduce pollution. Under this system, affectedutility units were allocated allowances based on their historic fuelconsumption and a specific emissions rate. Each allowance permits a unit to emitone ton of SO2 during or after a specified year. Allowances may be bought, soldor banked. Anyone may acquire allowances and participate in the trading system.The Acid Rain Program set a permanent ceiling (or cap) of 8.95 millionallowances for total annual allowance allocations to utilities. All of ourfacilities are in compliance with the requirements of the Acid Rain Program. Someof our plants have surplus allowances and some are required to purchaseadditional SO2 allowances to cover their emissions and maintain compliance. Thecosts of these allowances may increase in future years and may result in someof our plants reducing SO2 emissions through additional controls, 

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the cost of which could besignificant but would be offset in part by the avoided cost of purchasing SO2allowances to operate the plant.

The Acid Rain Program also has a NOx emissionreduction program. This program only affects coal fired units and also wasimplemented in a two-phase approach in 1995 and 2000. This program is not a capand trade program but identifies specific emission rates and/or controltechnology requirements. We have installed the NOx control technology and/or aremeeting applicable emission rates. All our coal units are in compliance withrequirements of the Acid Rain Program’s NOx emission reduction program. Weforesee no additional expense to comply with this program.

The EPA has proposed regulations to govern mercury airemissions from coal fired power plants. This proposal offers alternateregulatory approaches, which include a cap and trade program that would go intoeffect in January 2010 and a maximum achievable control technologystandard (unit specific emission standard) that would go into effect in December 2007,which may be extended by the EPA to December 2008. The mercury regulationsare likely to require significant emission reductions from coal fired powerplants. This rulemaking also proposes new regulations governing nickel airemissions from oil fired power plants, which would either go into effect in December 2007,with a possible one-year extension by the EPA to December 2008, or go intoeffect January 2010. The cost to comply with such requirements could besignificant.

During the course of this decade, the EPA will beimplementing new, more stringent ozone and particulate matter ambient airquality standards. It will also address regional haze visibility issues, whichwill result in new regulations that will likely require further emissionreductions from power plants, along with other emission sources such asvehicles. To implement these air quality standards, the EPA promulgated theClean Air Interstate Rule (“CAIR”) on March 10, 2005. The CAIR establishesin the eastern United States a more stringent SO2 cap and allowance-tradingprogram and a year round NOx cap and allowance-trading program applicableto power plants. These cap and trade programs will be implemented in twophases, with the first phase going into effect in 2009 and more stringent capsgoing into effect in 2015.

These future mercury and nickel regulations and theCAIR would increase compliance costs for our operations and would likelyrequire emission reductions from some of our power plants, which would necessitatesignificant expenditures on emission controls or have other impacts onoperations. These rulemakings are likely to be finalized in early 2005. Untilthe final regulations are promulgated, we cannot predict whether theregulations will have a material adverse effect on our financial condition,cash flows and results of operations.

In addition to implementation of statutes already inexistence, there are additional environmental requirements under strongconsideration by the federal and various state legislatures. The BushAdministration has submitted Clean Air Act multi-emission reformlegislation to Congress, which would promulgate a new emissions cap and tradeprogram for NOx, SO2 and mercury emissions from power plants. This legislationwould require overall reductions in these pollutants from national power plantemissions of approximately 50-75% phased in during the 2008 - 2016 timeframe,which is similar to the types of overall reductions likely to be required underthe future EPA regulations discussed above. Other more stringent multi-emissionreform legislation also has been proposed in Congress by some lawmakers. Thereare many political challenges to the passage of multi-emission reformlegislation through Congress, and it is unclear whether any of this legislationultimately will be enacted into law.

Various states where we do business also have otherair quality laws and regulations with increasingly stringent limitations andrequirements that will become applicable in future years to our plants andoperations. We expect to incur additional compliance costs as a result of theseadditional state requirements, which could include significant expenditures onemission controls or have other impacts on our operations.

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For example, the Commonwealth of Massachusetts hasfinalized regulations to further reduce NOx and SO2 emissions from certainpower plants and to regulate carbon dioxide and mercury emissions for the firsttime. Mercury emission reductions will be required exclusively from coal firedfacilities. These regulations, which become effective in the 2004-2008timeframe, will apply to our oil fired Canal plant in the state, will increaseour operating costs and will likely necessitate the installation of additionalemission control technology.

Another example is in the San Francisco Bay Area,where we own power plants. NOx emission standards have become increasinglystringent on a specified schedule over a several year period, culminating in2005. We will continue to apply our NOx implementation plan for these plants,which includes the installation of emission controls as well as the gradualcurtailment and phasing out of one or more of our higher NOx emitting units.

Additionally, in 2003, the State of New York finalizedair regulations that significantly reduced allowances for NOx and SO2 emissionsfrom power plants through a state emissions cap and allowance-tradingprogram, which will become effective during the 2004-2008 timeframe. Thisregulation will necessitate that we act on one, or a combination of thefollowing options: install emission controls at some of our units to reduceemissions, purchase additional state NOx and SO2 allowances under theregulatory program or reduce the number of hours that units operate. We expectto incur additional compliance costs as a result of these additional staterequirements, which could include significant expenditures on emission controlsor have other impacts on operations.

These examples are illustrative but not a completediscussion of the additional federal and state air quality laws and regulationsthat we expect to become applicable to our plants and operations in the comingyears. We will continue to evaluate these requirements and attempt to developcompliance plans that enable us to appropriately manage the costs and impacts.

*Other Environmental Regulations:  *Thereare other environmental laws in the United States, in addition to air qualitylaws, that also affect our operations. We are required under the Clean WaterAct to comply with effluent and intake requirements, technological controls andoperating practices. Our wastewater discharges are permitted under the CleanWater Act, and our permits under the Clean Water Act are subject to reviewevery five years. As with air quality regulations, federal and state waterregulations are expected to increase and impose additional and more stringentrequirements or limitations in the future. For example, in 2004, the EPA issueda new rule that imposes more stringent standards on the cooling waterintakes for power plants. We expect to incur additional compliance costs tocomply with this new rule.

Our facilities also are subject to several wastemanagement laws and regulations in the United States. The Resource Conservationand Recycling Act sets forth very comprehensive requirements for handling ofsolid and hazardous wastes. The generation of electricity producesnon-hazardous and hazardous materials, and we incur substantial costs to storeand dispose of waste materials from our facilities. The EPA may develop newregulations that impose additional requirements on facilities that store ordispose of fossil fuel combustion materials, including types of coal ash. Ifso, we may be required to change the current waste management practices at somefacilities and incur additional costs for increased waste management requirements.

Additionally, the Federal Comprehensive EnvironmentalResponse, Compensation and Liability Act, known as the Superfund, establishes aframework for dealing with the cleanup of contaminated sites. Many states haveenacted state superfund statutes. Some of the landfills that are used for thedisposal of ash may be subject to these regulations.

*Current Enforcement Issues:  *In1999, the DOJ on behalf of the EPA commenced enforcement actions against thepower generation industry for alleged violations of the new source reviewregulations promulgated under the Clean Air Act (“NSR”), which requirepermitting and other requirements for maintenance, repairs and replacement workon plants. This action ultimately came to encompass the vast 

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majority of coal firedplants, with litigation against many of the largest utilities. Theseenforcement actions concern maintenance, repair and replacement work (“MRR work”)at power plants that the EPA alleges violated permitting and other requirementsunder the NSR law, which, among other things, could require the installation ofemission controls at a significant cost. As a general proposition, the powergeneration industry disagrees with the EPA’s positions in the lawsuits andcontends that this work was “routine” and exempt from the permit requirement.In 2003, there were two trial court decisions that most directly addressed theissue of whether certain MRR work triggers permitting and other NSRrequirements, and the courts are split on the issue.

To date, no lawsuits or administrative actionsalleging similar NSR violations have been brought by the EPA against us or ourpower plants. However, in 2001 the EPA requested information concerning some ofour Mid-Atlantic plants covering a time period that predates our ownership andleases.

In addition, there were two regulatory developmentsconcerning NSR in 2003 that will affect the EPA’s application of NSR in thefuture and, potentially, the NSR enforcement actions. In a new NSR rule, theEPA promulgated an exemption from NSR for MRR work that does not exceed 20% ofthe replacement value of a unit, which is generally consistent with power plantMRR work practices. In the rulemaking, the EPA also announced a policy ofinterpreting NSR in a way that seems generally consistent with reasonableindustry practices. The new rule is being challenged in federal court andhas been stayed pending judicial review, and, most recently, the EPA hasannounced that it is reconsidering the rule. It is unclear whether this rule willbe changed or what effect these developments will have on the EPA’s NSRenforcement action.

In 2000, the State of New York issued a notice ofviolation (“NOV”) to the previous owner of our Lovett facility alleging NSRviolations associated with the operation of that plant prior to its acquisitionby us. On June 11, 2003, we and the State of New York entered into aconsent decree that releases us from all potential liability for mattersaddressed in the NOV previously issued by the State to the prior owner. Theconsent decree also releases us for any other potential violation of NSR orrelated New York air laws prior to and through the date of entry of the consentdecree by the court.

Under the decree we committed to install comprehensiveemissions reduction technology on Lovett’s two coal-fired units by 2007 to 2008.The consent decree also allows us to shut down or convert one of the units toburning natural gas only rather than install the prescribed emission controlson the unit.

We cannot provide assurance that lawsuits or otheradministrative actions against the power plants under NSR will not be filed ortaken in the future. If an action is filed against us or our power plants andwe are judged to not be in compliance, we could be required to make substantialexpenditures to bring the power plants into compliance, which could have amaterial adverse effect on our financial condition, results of operations orcash flows.

*International*

Some of our international operations are subject tocomprehensive environmental regulations similar to those in the United States,and these regulations are expected to become more stringent in the future.Additionally, other countries in which our subsidiaries have operations, suchas Trinidad and Jamaica, are developing increased environmental regulation ofmany industrial activities, including increased regulation of air quality,water quality and solid waste management.

Over the past several years, federal, state andforeign governments and international organizations have debated the issue ofglobal climate change and policies regarding the regulation of greenhouse gases(“GHGs”), one of which is carbon dioxide emitted from the combustion of fossilfuels by sources such as vehicles and power plants. Recently, the EuropeanUnion and certain developed countries ratified the Kyoto Protocol, aninternational treaty regulating GHGs, and it became effective on February 16,2005. The current U.S. administration is opposed to the treaty, and the UnitedStates has not ratified, and is not expected to ratify, the treaty. Therefore,the treaty does not bind the United States. None of the countries 

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in which we or oursubsidiaries presently own or operate power plants has any binding obligationsunder the treaty. The Commonwealth of Massachusetts has promulgated carbondioxide (“CO2”) emission standards for certain power plants, as discussed abovein this section. We cannot provide assurances that such laws or regulationswill not be enacted in the future in a state or country in which we own oroperate power plants, and in such event the impact on our business would beuncertain but could be material.

**Employees**

At December 31, 2004,our corporate offices and majority owned or controlled subsidiaries employedapproximately 4,700 persons. This number includes approximately 550 employeesin the corporate and North America headquarters in Atlanta, approximately 1,350employees at operating facilities in the United States and approximately 2,800international employees. Approximately 900 of our domestic employees aresubject to collective bargaining agreements with one of the following unions:International Brotherhood of Electrical Workers, Utilities Workers of Americaor United Steel Workers.
| **Union**                                                                                                                         | ** ** | ** **               | ** ** | **Location** | ** ** | **Number of  Employees  Covered** | ** ** | **Contract  Expiration  Date** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------|------------|-----------------------------------|------------|--------------------------------|
| International  Brotherhood of Electrical Workers Local 1900                                                                       |       | Maryland and Virginia    |       | 515          |       | 6/1/2010                          |
| International  Brotherhood of Electrical Workers Local 503                                                                        |       | New York                 |       | 150          |       | 6/1/2008                          |
| International  Brotherhood of Electrical Workers Local 1245                                                                       |       | California               |       | 140          |       | 10/31/2005                        |
| Utility Workers of  America Local 369                                                                                             |       | Cambridge, Massachusetts |       | 30           |       | 2/28/2009                         |
| Utility Workers of  America Local 480                                                                                             |       | Sandwich, Massachusetts  |       | 50           |       | 5/1/2006                          |
| United Steel Workers  Local 12502                                                                                                 |       | Indiana and Michigan     |       | 25           |       | 1/1/2007                          |
| Oilfield Workers’ Trade  Union                                                                                               |       | Trinidad                 |       | 325          |       | 12/31/2005                        |
| The Senior Staff  Association                                                                                                     |       | Trinidad                 |       | 35           |       | 2/28/2006                         |
| Bahamas Industrial  Engineers, Managerial, and Supervisory Union(1)                                                               |       | Grand Bahama             |       | 33           |       | 1/1/2005                          |
| Commonwealth Electrical  Workers Union(2)                                                                                         |       | Grand Bahama             |       | 131          |       | 3/31/2005                         |
| Jamaica Public Service  Managers’ Association(3)                                                                             |       | Jamaica                  |       | 190          |       | 11/30/2004                        |
| Union of Clerical Administrative &  Supervisory Employees; National Workers Union; Bustamante Industrial Trade  Union(3) |       | Jamaica                  |       | 1,130        |       | 12/31/2004                        |

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(1)          Neither side hassubmitted a contract proposal yet. This is not uncommon and there is no workstoppage expected.

(2)          Managementis currently communicating with the union to agree on a start date fornegotiations. Overall, the industrial climate is stable.

(3)          All unionsin Jamaica were requested in writing to submit claims (proposals) prior to theexpiration of the contracts. To date, only the UCASE union has submitted aclaim that is being reviewed. Negotiations have not begun, as management wouldprefer to receive all claims prior to initiation of talks. Overall, theindustrial climate is stable.

To mitigate and reduce therisk of disruption during labor negotiations, we engage in contingency planningfor continuation of our generation and/or distribution activities to the extentpossible during an adverse collective action by one or more of our unions.Additionally, if our non-unionized workforce moved toward unionization, wecould be materially impacted through increased employee costs, work stoppages orboth.

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**Item 2.**                        *Properties*

The following propertieswere owned or leased as of December 31, 2004:

**Operating Plants:**
| **Power Generation   Business**    | ** ** | ** **                 | ** ** | **Location**                  | ** ** | **Plant Type**         | ** ** | **Primary Fuel** | ** ** | **Mirant’s %   Leasehold/   Ownership   Interest(1)** | ** ** | **Total    MW(2) ** | ** ** | **Net Equity   Interest/   Lease in   Total MW(2)** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|-------------------------------|------------|-----------------------------|------------|-----------------------|------------|-----------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------------------------------|------------|
| **NORTH AMERICA**                       |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| **West Region:**                        |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| Mirant California                       |       | California                 |       | Peaking/Intermediate          |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 2,347      |                                                               |       |   | 2,347 |   |   |
| Mirant Texas                            |       | Texas                      |       | Peaking/Baseload              |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 538        |                                                               |       |   | 538 |   |   |
| Apex                                    |       | Nevada                     |       | Intermediate                  |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 500        |                                                               |       |   | 500 |   |   |
| Coyote  Springs(3)(4)                   |       | Oregon                     |       | Intermediate                  |       | Natural Gas/Steam           |       |                  | 50         |                                                            |       |                          | 280        |                                                               |       |   | 140 |   |   |
| Mirant Wichita Falls               |       | Texas                      |       | Peaking                       |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 77         |                                                               |       |   | 77 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 3,742      |                                                               |       |   | 3,602 |   |   |
| **Northeast Region:**                   |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| Mirant New England(5)                   |       | Massachusetts              |       | Intermediate/Peaking          |       | Natural Gas/Oil             |       |                  | 100        |                                                            |       |                          | 1,993      |                                                               |       |   | 1,388 |   |   |
| Mirant New York                         |       | New York                   |       | Intermediate/Peaking/Baseload |       | Natural  Gas/Hydro/Coal/Oil |       |                  | 100        |                                                            |       |                          | 1,675      |                                                               |       |   | 1,675 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 3,668      |                                                               |       |   | 3,063 |   |   |
| **Mid-Atlantic Region:**                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| Mirant Mid-Atlantic                |       | Maryland                   |       | Intermediate/Peaking/Baseload |       | NaturalGas/Coal/Oil         |       |                  | 100        |                                                            |       |                          | 4,252      |                                                               |       |   | 4,252 |   |   |
| Mirant Peaker and  Mirant Potomac River |       | Maryland/Virginia          |       | Intermediate/Peaking/Baseload |       | NaturalGas/Coal/Oil         |       |                  | 100        |                                                            |       |                          | 1,004      |                                                               |       |   | 1,004 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 5,256      |                                                               |       |   | 5,256 |   |   |
| **Mid-Continent Region:**               |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| Mirant Zeeland                          |       | Michigan                   |       | Peaking/Intermediate          |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 837        |                                                               |       |   | 837 |   |   |
| West Georgia(3)                         |       | Georgia                    |       | Peaking                       |       | Natural Gas/Oil             |       |                  | 100        |                                                            |       |                          | 605        |                                                               |       |   | 605 |   |   |
| Sugar Creek                             |       | Indiana                    |       | Peaking                       |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 535        |                                                               |       |   | 535 |   |   |
| Shady Hills(3)                          |       | Florida                    |       | Peaking                       |       | Natural Gas                 |       |                  | 100        |                                                            |       |                          | 468        |                                                               |       |   | 468 |   |   |
| Wrightsville(6)                         |       | Arkansas                   |       | Peaking/Intermediate          |       | Natural Gas                 |       |                  | 51         |                                                            |       |                          | 438        |                                                               |       |   | 223 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 2,883      |                                                               |       |   | 2,668 |   |   |
| North America  Total               |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 15,549     |                                                               |       |   | 14,589 |   |   |
| **INTERNATIONAL**                       |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| **Philippines:**                        |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| Sual(7)                                 |       | Philippines                |       | Baseload                      |       | Coal                        |       |                  | 94.9       |                                                            |       |                          | 1,218      |                                                               |       |   | 1,155 |   |   |
| Ilijan                                  |       | Philippines                |       | Baseload                      |       | Natural Gas                 |       |                  | 20         |                                                            |       |                          | 1,200      |                                                               |       |   | 240 |   |   |
| Pagbilao                                |       | Philippines                |       | Baseload                      |       | Coal                        |       |                  | 95.7       |                                                            |       |                          | 735        |                                                               |       |   | 704 |   |   |
| Navotas II(8)                           |       | Philippines                |       | Standby                       |       | Diesel                      |       |                  | 100        |                                                            |       |                          | 95         |                                                               |       |   | 95 |   |   |
| Sangi                                   |       | Philippines                |       | Baseload/Peaking/Standby      |       | Coal/Oil                    |       |                  | 50         |                                                            |       |                          | 75         |                                                               |       |   | 38 |   |   |
| Panay                                   |       | Philippines                |       | Peaking/Intermediate/Baseload |       | Oil                         |       |                  | 50         |                                                            |       |                          | 71         |                                                               |       |   | 35 |   |   |
| Carmen                                  |       | Philippines                |       | Standby/Peaking               |       | Heavy Fuel Oil              |       |                  | 50         |                                                            |       |                          | 37         |                                                               |       |   | 19 |   |   |
| Avon River                              |       | Philippines                |       | Peaking/Intermediate/Baseload |       | Oil                         |       |                  | 50         |                                                            |       |                          | 18         |                                                               |       |   | 9 |   |   |
| Mindoro                                 |       | Philippines                |       | Peaking/Intermediate/Baseload |       | Heavy Fuel Oil              |       |                  | 50         |                                                            |       |                          | 6          |                                                               |       |   | 3 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 3,455      |                                                               |       |   | 2,298 |   |   |
| **Caribbean:**                          |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          |       |                                                               |       |   |   |   |   |
| PowerGen                                |       | Trinidad & Tobago |       | Intermediate/Peaking/Baseload |       | Natural Gas                 |       |                  | 39         |                                                            |       |                          | 1,157      |                                                               |       |   | 451 |   |   |
| JPS                                     |       | Jamaica                    |       | Intermediate/Baseload/Peaking |       | Oil/Hydro                   |       |                  | 80         |                                                            |       |                          | 600        |                                                               |       |   | 480 |   |   |
| Grand Bahama Power                      |       | Bahamas                    |       | Peaking/Intermediate/Baseload |       | Oil                         |       |                  | 55.4       |                                                            |       |                          | 133        |                                                               |       |   | 74 |   |   |
| CUC                                     |       | Netherlands Antilles       |       | Baseload/Peaking              |       | Pitch/Refinery Gas          |       |                  | 25.5       |                                                            |       |                          | 133        |                                                               |       |   | 34 |   |   |
| Subtotal                                |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 2,023      |                                                               |       |   | 1,039 |   |   |
| International Total                     |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 5,478      |                                                               |       |   | 3,337 |   |   |
| **Total**                               |       |                       |       |                          |       |                        |       |                  |       |                                                            |       |                          | 21,027     |                                                               |       |   | 17,926 |   |   |

 

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| **Distribution Business** | ** ** | ** **  | ** ** | **Location** | ** ** | **Mirant’s %Ownership  Interest** | ** ** | **Customers/  end-users** | ** ** |
|--------------------------------|------------|-------------|------------|--------------|------------|---------------------------------------------|------------|---------------------------|------------|
| ** **                     | ** ** | ** **  | ** ** | ** **   | ** ** | **(in thousands)**                     | ** ** |
| Grand Bahama  Power            |       | Bahamas     |       |         | 55.4       | %                                           |       |                      | 18         |   |   |
| JPS                            |       | Jamaica     |       |         | 80.0       |                                        |       |                      | 540        |   |   |
| Visayan Electric  Company Inc  |       | Philippines |       |         | 1.95       |                                        |       |                      | 273        |   |   |
| Total                          |       |        |       |         |       |                                        |       |                      | 831        |   |   |

 

**Other Plants:**
| **Power Generation Business** | ** ** | ** **     | ** ** | **Location** | ** ** | **Plant Type** | ** ** | **Primary Fuel** | ** ** | **Mirant’s %  Leasehold/  Ownership  Interest(1)** | ** ** | **Total  MW(2)** | ** ** | **Net Equity  Interest/  Lease in  Total MW(2)** | ** ** |
|-----------------------------------------|------------|----------------|------------|--------------|------------|---------------------|------------|-----------------------|------------|--------------------------------------------------------------|------------|------------------|------------|-----------------------------------------------------------------|------------|
| Bowline expansion(9)                    |       | New  York      |       | Intermediate |       | Natural  Gas        |       |                  | 100        | %                                                            |       |             | 750        |                                                            |       |   | 750 |   |   |
| Contra Costa  expansion(9)              |       | California     |       | Intermediate |       | Natural  Gas        |       |                  | 100        |                                                         |       |             | 580        |                                                            |       |   | 580 |   |   |
| Wyandotte(9)                            |       | Michigan       |       | Intermediate |       | Natural  Gas        |       |                  | 100        |                                                         |       |             | 560        |                                                            |       |   | 560 |   |   |
| Longview Mint  Farm(9)                  |       | Washington     |       | Intermediate |       | Natural  Gas        |       |                  | 100        |                                                         |       |             | 298        |                                                            |       |   | 298 |   |   |
| Bahamas(10)                             |       | Grand  Bahamas |       | Baseload     |       | Diesel              |       |                  | 55.4       |                                                         |       |             | 18         |                                                            |       |   | 10 |   |   |
| Nabas(11)                               |       | Philippines    |       | Baseload     |       | Oil                 |       |                  | 50.0       |                                                         |       |             | 11         |                                                            |       |   | 6 |   |   |
| New Washington(11)                      |       | Philippines    |       | Baseload     |       | Oil                 |       |                  | 50.0       |                                                         |       |             | 5          |                                                            |       |   | 2 |   |   |

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  (1)Amounts reflect Mirant’spercentage economic interest in the total MW.

  (2)MWamounts reflect net dependable capacity.

  (3)Generatingplant is operated by an independent third party

  (4)In October 2004, MirantOregon LLC (“Mirant Oregon”), our wholly-owned subsidiary, entered into anagreement to sell its 50% undivided interest in Coyote Springs 2 to AvistaEnergy, subject to Bankruptcy Court and regulatory approval. Mirant completedthe sale in January 2005.

  (5)TotalMW reflects a 1.4% ownership interest, or 8.8 MW, in the 614 MW Wyman plant.

  (6)Mirant temporarily shutdown this facility in January 2004.In February 2005, we entered into an agreement to sell theWrightsville facility to AECC, subject to Bankruptcy Court approval and certainother regulatory and third-party consents and approvals. We expect the sale ofthe Wrightsville facility to close in 2005.

  (7)Mirantacquired an additional 2.94% ownership interest in the Sual project in thefirst quarter of 2004, bringing its ownership interest to 94.9%.

  (8)TheBuild-Operate-Transfer (“BOT”) agreement related to Navotas II is scheduled toexpire in July 2005.

  (9)Mirantdoes not expect to independently complete these construction projects and willeither pursue partnerships to complete, sell or abandon these projects. Abandonas used in this document means ceasing to operate the affected generationasset.

(10)The Bahamas facility is scheduledto be operational in 2005.

(11) The Nabas and New Washingtonfacilities are scheduled to be in operation by mid 2005.

We also own an oil pipeline, which is approximately51.5 miles long and serves the Chalk Point and Morgantown generatingfacilities.

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**Item 3.**                        *Legal Proceedings*

As debtors-in-possession,the Mirant Debtors are authorized under Chapter 11 to continue to operate as anongoing business, but may not engage in transactions outside the ordinarycourse of business without the prior approval of the Bankruptcy Court. As ofthe Petition Date, most pending litigation (including some of the actionsdescribed below) is stayed, and absent further order of the Bankruptcy Court,no party, subject to certain exceptions, may take any action, again subject tocertain exceptions, to recover on pre-petition claims against the MirantDebtors. One exception to this stay of litigation is for an action or proceedingby a governmental agency to enforce its police or regulatory power. The claimsasserted in litigation and proceedings to which the stay applies may be fullyand finally resolved in connection with the administration of the bankruptcyproceedings and, to the extent not resolved, will need to be addressed in the Plan.On November 19, 2003, the Bankruptcy Court entered an order staying mostlitigation pending against current or former officers, directors and managersof the Mirant Debtors arising out of the performance of their duties andagainst certain potential indemnitees of the Mirant Debtors. The BankruptcyCourt took that action to avoid the risk that the continuation of suchlitigation would impede the Mirant Debtors’ ability to reorganize or would havea negative impact upon the assets of the Mirant Debtors. At this time, it isnot possible to predict the outcome of the Chapter 11 filings or their effecton the business of the Mirant Debtors or outstanding legal proceedings. TheMirant Debtors intend to resolve as many of these claims as possible throughthe claims resolution process in the bankruptcy proceeding or the Plan.

*CaliforniaLitigation by Governmental Units and Certain Other Parties*

*General.  *The high pricesfor wholesale electricity and natural gas experienced in the western marketsduring 2000 and 2001 prompted several governmental entities to investigate thewestern power markets, including activities by Mirant, Mirant Americas EnergyMarketing and several of Mirant Americas Generation’s wholly-owned subsidiaries.These governmental entities include the FERC, the DOJ, CPUC, the CaliforniaSenate, the California State Auditor, California’s Electricity Oversight Board(the “EOB”), the General Accounting Office of the United States Congress, theSan Joaquin District Attorney and the Attorney General’s offices of the Statesof Washington, Oregon and California. These investigations, some of which arecivil and some criminal, resulted in the issuance of civil investigative demands,subpoenas, document requests, requests for admission and interrogatoriesdirected to several Mirant entities.

*General FERC Investigation.  *OnFebruary 13, 2002, the FERC directed its staff to undertake a fact-findinginvestigation into whether any entity manipulated short-term prices in electricenergy or natural gas markets in the West or otherwise exercised undueinfluence over wholesale prices in the West, for the period January 1,2000 and forward. On March 26, 2003, the FERC staff issued its finalreport regarding its investigation. Although the staff reaffirmed the FERC’sconclusion set forth in an order issued December 15, 2000 that significantsupply shortfalls and a fatally flawed market design were the root causes ofthe problems that occurred in the California wholesale electricity market in2000 and 2001, the staff also found that significant market manipulation hadoccurred in both the gas and electricity markets. The staff concluded thattrading strategies of the type engaged in by Enron Corporation and itsaffiliates (“Enron”) as described in certain Enron memos released by the FERCin May 2002 violated provisions of the CAISO and the California PowerExchange Corporation (“Cal PX”) tariffs that prohibited gaming. It identifiedMirant, without being specific as to the particular Mirant entities involved,as being one of a number of entities that had engaged in one or more of thosepractices. The FERC staff also found that bidding generation resources to theCal PX and CAISO at prices unrelated to costs constituted economic withholdingand violated the antigaming provisions of the CAISO and Cal PX tariffs. Mirantwas one of the entities identified as engaging in that bidding practice, withthe FERC staff again not being specific as to the Mirant entities involved.

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On March 26, 2003, the FERC staff issued aseparate report addressing allegations of physical withholding by Mirant and fourother out of state owners of generation assets in California made by the CPUCin reports issued in September 2002 and January 2003. The CPUCasserted that on days in the fall of 2000 through the spring of 2001 duringwhich the CAISO had to declare a system emergency requiring interruption ofinterruptible load or imposition of rolling blackouts, Mirant and four otherout of state owners of generation assets in California had generating capacitythat either was not operated or was out of service due to an outage and thatcould have avoided the problem if operated. The CPUC reports identified theMirant entity discussed in the reports as Mirant Americas Energy Marketing,although Mirant’s generating facilities in California are owned by subsidiariesof Mirant Americas Generation. The FERC staff concluded that the CPUC’scontention that thirty-eight service interruptions could have beenavoided had those five generators produced all of their available power was notsupported by the evidence. The staff also indicated, however, that the FERC wascontinuing to investigate whether withholding by generators had occurred during2000 and 2001.

As discussed below under “California Settlement,” on January 14,2005,**Mirant and certain of its subsidiariesentered into a Settlement and Release of Claims Agreement (the “CaliforniaSettlement”) with Pacific Gas and Electric Company (“PG&E”), SouthernCalifornia Edison Company (“SCE”), San Diego Gas and Electric Company, theCPUC, the California Department of Water Resources (“DWR”), the EOB and theAttorney General of the State of California (collectively, the “CaliforniaParties”) and with the Office of Market Oversight and Investigations of theFERC. If the California Settlement becomes effective, it will result in the terminationof the FERC’s investigation of potential withholding by generators (the “FERCWithholding Investigation”) as to Mirant and its subsidiaries.

*FERC Bidding Investigation.  *OnJune 25, 2003, the FERC issued an order (the “Bidding Order”) initiatingan investigation by its staff into bidding practices in the Cal PX and CAISOmarkets between May 1, 2000 and October 1, 2000 of more than 50parties, including Mirant Americas Energy Marketing. The entities subject toinvestigation under the Bidding Order were previously identified in the reportissued by the FERC staff on March 26, 2003 as having bid generationresources to the Cal PX and CAISO at prices unrelated to costs. The BiddingOrder requires those entities, including Mirant Americas Energy Marketing, todemonstrate why bids in the Cal PX and CAISO markets from May 1, 2000through October 1, 2000 that were in excess of $250 per MWh did notconstitute a violation of the CAISO and Cal PX tariffs.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the terminationof the FERC’s investigation under the Bidding Order of Mirant Americas EnergyMarketing’s bidding practices.

*FERC Show Cause Proceeding Relating to TradingPractices.  *On June 25, 2003, the FERC issued ashow cause order (the “Trading Practices Order”) to more than 50 parties,including Mirant Americas Energy Marketing and subsidiaries of Mirant AmericasGeneration, that the FERC staff report issued on March 26, 2003 identifiedas having potentially engaged in one or more trading strategies of the typeemployed by Enron, as described in the Enron memos released by the FERC in May 2002.The Trading Practices Order identified certain specific trading practices thatthe FERC indicated could constitute gaming or anomalous market behavior inviolation of the CAISO and Cal PX tariffs. The Trading Practices Order requiresthe CAISO to identify transactions between January 1, 2000 and June 20,2001 that may involve the identified trading strategies, and then requires theapplicable sellers involved in those transactions to demonstrate why suchtransactions were not violations of the CAISO and Cal PX Tariffs. On September 30,2003, the Mirant entities filed with the FERC for approval of a settlementagreement (the “Trading Settlement Agreement”) entered into between certainMirant entities and the FERC Trial Staff, under which Mirant Americas EnergyMarketing would pay $332,411 to settle the trading practices proceeding, butdid not admit any wrongdoing.

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In a November 14, 2003 order in a differentproceeding, the FERC ruled that certain allegations of improper trading conductwith respect to the selling of ancillary services during 2000 also should beresolved in the show cause proceeding. On December 19, 2003, the Mirantentities filed with the FERC for approval of an amendment to the TradingSettlement Agreement reached with the FERC Trial Staff with respect to the saleof ancillary services. Under the proposed amendment, the FERC would have anallowed unsecured claim in Mirant Americas Energy Marketing’s bankruptcyproceeding for $3.67 million in settlement of the allegations with respectto the sale of ancillary services (the “Ancillary Amount”).

The Trading Settlement Agreement and its amendmentmust be approved by the FERC and the Bankruptcy Court to become effective. TheMirant entities are in the process of obtaining FERC approval and will seekapproval from the Bankruptcy Court thereafter. On March 11, 2004, a FERCadministrative law judge (the “ALJ”) recommended that the FERC approve theTrading Settlement Agreement, finding that the settlement amounts werereasonable. The ALJ, however, suggested that approval of the settlement beconditioned on the Ancillary Amount being treated as an administrative claim ora setoff rather than as an allowed pre-petition claim. If the Ancillary Amountwere to be treated as an administrative claim, that amount would receivepriority status in the payment of claims against Mirant Americas EnergyMarketing in the bankruptcy proceedings.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the CaliforniaParties withdrawing their opposition to the Trading Settlement Agreement asamended and supporting approval of the Trading Settlement Agreement as proposedby Mirant and the FERC Trial Staff without change or modification.

*California Receivables.  *In2001, SCE and PG&E suspended payments to the Cal PX and the CAISO forcertain power purchases, including purchases from Mirant Americas EnergyMarketing. Both the Cal PX and PG&E filed for bankruptcy protection in2001. As discussed below under “California Settlement,” if the CaliforniaSettlement becomes effective, it will result in Mirant Americas EnergyMarketing assigning to the California Parties its outstanding receivables forsales made in the Cal PX and CAISO markets from January 1, 2000 through June 20,2001.

*FERC Refund Proceedings.  *Asa result of the increase in electricity prices in 2000 and 2001, the CaliforniaParties have pursued litigation at the FERC, claiming that the prices chargedby Mirant Americas Energy Marketing and other market participants in theCalifornia energy markets during certain periods in 2000 and 2001 wereexcessive. In July 2001, the FERC issued an order requiring proceedings(the “FERC Refund Proceedings”) to determine the amount of any refunds andamounts owed for sales made to the CAISO or the Cal PX from October 2,2000 through June 20, 2001 (the “Refund Period”). Various parties haveappealed these FERC orders to the United States Court of Appeals for the NinthCircuit (the “Ninth Circuit”) seeking review of a number of issues, includingchanging the Refund Period to include periods prior to October 2, 2000 andexpanding the sales of electricity subject to potential refund to includebilateral sales made to the DWR. Any such expansion of the Refund Period or thetypes of sales of electricity potentially subject to refund could significantlyincrease the refund exposure of Mirant Americas Energy Marketing in thisproceeding. Although Mirant Americas Energy Marketing is the Mirant entity thatengaged in transactions with the CAISO and the Cal PX, the orders issued by theFERC in the refund proceedings, and the filings made by other parties in thoseproceedings, generally refer to the Mirant entity involved as Mirant withoutbeing more specific. Mirant believes that the Mirant entity that would actuallybe liable to third parties for any refunds determined by the FERC to be owed,or that would be due any receivables found to be owed to Mirant, is MirantAmericas Energy Marketing. Agreements that were in effect at the time of thetransactions at issue between Mirant Americas Energy Marketing and the MirantAmericas Generation subsidiaries that own Mirant’s generating facilities inCalifornia would shift some of the economic burden of such refunds or thebenefit of such receivables from Mirant Americas Energy Marketing to thoseMirant Americas Generation subsidiaries.

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On December 12, 2002, a FERC ALJ determined thepreliminary amounts owed to and by each entity acting as a schedulingcoordinator in the CAISO and Cal PX markets, including Mirant Americas EnergyMarketing. Based on the ALJ’s determination, the initial amounts owed to MirantAmericas Energy Marketing totaled approximately $122 million, which is netof refunds owed by Mirant Americas Energy Marketing to the CAISO and the CalPX. The ALJ decision indicated that these amounts did not reflect the finalmitigated market clearing prices, interest that would be applied under the FERC’sregulations, offsets for emission costs or the effect of certain findings madeby the ALJ in the initial decision. A December 2002 errata issued by theALJ to his initial decision indicated that the amounts identified by theinitial decision as being owed to Mirant Americas Energy Marketing and otherparticipants in the Cal PX market failed to reflect an adjustment for January 2001that the ALJ concluded elsewhere in his initial decision should be applied. Ifthat adjustment is applied, the amount owed Mirant Americas Energy Marketing bythe Cal PX, and the net amount owed Mirant Americas Energy Marketing by theCAISO and the Cal PX after taking into account the proposed refunds, wouldincrease by approximately $37 million.

On March 26, 2003, the FERC largely adopted thefindings the ALJ made in his December 12, 2002 order with the exceptionthat the FERC concluded that the price of gas used in calculating the mitigatedmarket prices used to determine refunds should not be based on published priceindices. Instead, the FERC ruled that the price of gas should be based upon theprice at the producing area plus transportation costs. This adjustment by theFERC to the refund methodology is expected to increase the refunds owed byMirant Americas Energy Marketing and therefore to reduce the net amount thatwould remain owed to Mirant Americas Energy Marketing from the CAISO and Cal PXafter taking into account any refunds. Based solely on the staff’s formula, theamount of the reduction could be as much as approximately $110 million,which would reduce the net amount owed to Mirant Americas Energy Marketing bythe CAISO and Cal PX to approximately $49 million. The FERC indicated thatit would allow any generator that could demonstrate it actually paid a higherprice for gas to recover the differential between that higher price and theproxy price for gas adopted by the FERC. Mirant Americas Energy Marketing hasfiled information with the FERC indicating that its actual cost of gas used tomake spot sales of electricity was higher than the amounts calculated under thestaff’s formula, which, if accepted, would decrease significantly the$110 million and increase the resulting net amount owed to Mirant AmericasEnergy Marketing, although the amount of such potential decrease that will beaccepted by the FERC and the resulting net amount owed to Mirant AmericasEnergy Marketing cannot at this time be determined. On October 16, 2003,the FERC issued an order addressing motions for rehearing filed with respect toits March 26, 2003 order, and in that October 16, 2003 order the FERCchanged how certain power sales made to the CAISO were to be treated. MirantAmericas Energy Marketing estimates that the effect of the October 16,2003 order will be to decrease the refunds owed by Mirant Americas EnergyMarketing, and therefore to increase the net amounts owed to Mirant AmericasEnergy Marketing, by $27 million. On May 12, 2004, the FERC issued anorder on rehearing of the October 16, 2003 order that further modified howcertain power sales made to the CAISO are to be treated and that may reducesignificantly the potential benefit to Mirant Americas Energy Marketing of the October 16,2003 order. In another order issued May 12, 2004, the FERC also furtherrefined the methodology to be used to determine the costs of gas that agenerator can recover where it can demonstrate that it paid a higher price forgas than the proxy price for gas previously adopted by the FERC in its March 23,2003 order, and those changes may have the effect of reducing the costs thatMirant Americas Energy Marketing is able to recover. Mirant Americas EnergyMarketing sought rehearing of the May 12, 2004 order, but the FERC deniedthat request for rehearing on September 24, 2004. Mirant Americas EnergyMarketing is unable at this time to quantify further the impact of the May 12,2004 orders.

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The amount owed to Mirant Americas Energy Marketingfrom sales made to either the CAISO or the Cal PX, the amount of any refundthat Mirant Americas Energy Marketing might be determined to owe the CAISO orthe Cal PX, and whether Mirant Americas Energy Marketing may have any refundobligation to the DWR may be affected materially by the ultimate resolution ofthe issues described above related to which gas indices should be used incalculating the mitigated market clearing prices, allegations of market manipulation,whether the Refund Period should include periods prior to October 2, 2000,and whether the sales of electricity potentially subject to refund shouldinclude sales made to the DWR. In addition, in the Chapter 11 proceedings theMirant Debtors initiated adversary actions against PG&E, SCE, the CAISO,the Cal PX, and the DWR seeking a determination that the Bankruptcy Codeprohibits the offsetting of any refunds that Mirant Americas Energy Marketingis found to owe by the FERC in the FERC Refund Proceedings against amounts owedto Mirant Americas Energy Marketing for sales made into the CAISO and Cal PXmarkets.

In the July 25, 2001 order, the FERC also orderedthat a preliminary evidentiary proceeding be held to develop a factual recordon whether there had been unjust and unreasonable charges for spot marketbilateral sales in the Pacific Northwest from December 25, 2000 through June 20,2001. In the proceeding, the California Attorney General, the CPUC and the EOBfiled to recover certain refunds from parties, including Mirant Americas EnergyMarketing, for bilateral sales of electricity to the DWR at theCalifornia/Oregon border, claiming that such sales took place in the PacificNorthwest. The refunds sought from Mirant Americas Energy Marketing totaledapproximately $90 million. If Mirant Americas Energy Marketing wererequired to refund such amounts, subsidiaries of Mirant Americas Generationcould be required under inter-company agreements with Mirant Americas EnergyMarketing to refund amounts previously received from Mirant Americas EnergyMarketing pursuant to sales made on their behalf during the refund period. Inaddition, those Mirant Americas Generation subsidiaries would be owed amountsfor refunds received by Mirant Americas Energy Marketing related to purchasesmade on their behalf by Mirant Americas Energy Marketing from other sellers inthe Pacific Northwest. In an order issued June 25, 2003, the FERC ruledthat no refunds were owed and terminated the proceeding. On November 10,2003, the FERC denied requests for rehearing filed by various parties. Variousparties have appealed the FERC’s decision to the Ninth Circuit.

On September 9, 2004, the Ninth Circuit reversedthe FERC’s dismissal of a complaint filed in 2002**bythe California Attorney General that sought refunds for transactions conductedin markets administered by the CAISO and the Cal PX outside the RefundPeriod set by the FERC and for transactions between the DWR and various ownersof generation and power marketers, including Mirant Americas Energy Marketingand subsidiaries of Mirant Americas Generation. The Ninth Circuit remanded theproceeding to the FERC for it to determine what remedies, including potentialrefunds, are appropriate where entities, including Mirant Americas EnergyMarketing, purportedly did not comply with certain filing requirements fortransactions conducted under market-based rate tariffs. Mirant Americas EnergyMarketing and other parties have filed a motion for rehearing of the NinthCircuit’s decision.

As discussed below under “California Settlement,” theCalifornia Settlement, once effective, will result in the release of most ofMirant Americas Energy Marketing’s potential liability in the FERC RefundProceedings and the other FERC proceedings described in this section. Under theCalifornia Settlement, the California Parties will release Mirant and itssubsidiaries from any liability to the California Parties related to sales ofelectricity and natural gas in the western markets from January 1, 1998through July 14, 2003, including any claims for refunds in the FERC RefundProceedings or in any proceedings conducted by FERC as a result of the NinthCircuit’s ruling with respect to the complaint filed by the California AttorneyGeneral. Also, the California Parties will assume the obligation of MirantAmericas Energy Marketing to pay any refunds determined by the FERC to be owedby Mirant Americas Energy Marketing to other parties for transactions in theCAISO and Cal PX markets during the Refund Period. Some of the consideration tobe received by the California Parties under the settlement will be available to

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other market participantsthat choose to opt into the settlement. Any market participant that elects toopt into the settlement will give releases of liability to Mirant AmericasEnergy Marketing that are the same as those given by the California Parties. Subjectto applicable bankruptcy law, however, Mirant Americas Energy Marketing willcontinue to be liable for any refunds that FERC determines it to owe (1) toparticipants in the Cal PX and CAISO markets that are not California Parties(or that do not elect to opt into the settlement) for periods outside of theRefund Period and (2) to participants in bilateral transactions withMirant Americas Energy Marketing that are not California Parties (or that donot elect to opt into the settlement).

*DWR Power Purchases Proceeding.  *OnMay 22, 2001, Mirant Americas Energy Marketing entered into a 19-monthagreement with the DWR to provide the State of California with approximately500 MW of electricity during peak hours through December 31, 2002 (the “DWRContract”). On February 25, 2002, the CPUC and the EOB filed separatecomplaints at the FERC against Mirant Americas Energy Marketing and othersellers of electricity under long term agreements with the DWR, alleging thatthe terms of these contracts were unjust and unreasonable and that thecontracts should be abrogated or the prices under the contracts should bereduced. The complaints allege that the prices the DWR was forced to paypursuant to these long-term contracts were unreasonable due todysfunctions in the California market and the alleged market power of thesellers. Under inter-company agreements, subsidiaries of Mirant AmericasGeneration bear the risk of any abrogation of or revision to the terms of the May 22,2001 contract between Mirant Americas Energy Marketing and the DWR. On June 26,2003, the FERC issued an order dismissing the complaints filed by the CPUC andthe EOB against Mirant Americas Energy Marketing. On November 10, 2003,the FERC denied motions for rehearing filed by the CPUC and the EOB. The CPUCand EOB have appealed the FERC’s decision to the Ninth Circuit.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the release ofMirant Americas Energy Marketing by the DWR and the other California Parties ofany liability with respect to the DWR Contract and the dismissal by the CPUCand the EOB of their appeal of the FERC’s decision dismissing their complaints.

*Reliability Must Run Agreements Proceeding*.   Certainof the generating facilities acquired by subsidiaries of Mirant AmericasGeneration from PG&E are operated subject to reliability-must-runagreements (“RMR Agreements”), which those subsidiaries assumed from PG&E. Theseagreements allow the CAISO to require the Mirant Americas Generationsubsidiaries, under certain conditions, to operate these facilities to supportthe California electric transmission system. The rates that the Mirant AmericasGeneration subsidiaries could charge the CAISO under those agreements, wherethey were also making sales into the market and were retaining the revenuesfrom those sales, were the subject of an ongoing disputed rate proceedingbefore the FERC at the time of the acquisition of the plants from PG&E and werebeing collected subject to refund. For the plants that are subject to the RMRAgreements and from which the Mirant Americas Generation subsidiaries haveexercised their rights to also make market sales, the Mirant AmericasGeneration subsidiaries have been collecting from the CAISO since April 1999an amount equal to 50% of the annual fixed revenue requirement (the “AnnualRequirement”) of those plants. The amounts the Mirant Americas Generationsubsidiaries collect from the CAISO are subject to refund pending final reviewand approval by the FERC. While the CAISO is the party to the RMR Agreementswith the Mirant Americas Generation subsidiaries, the CAISO’s obligations underthose agreements are funded by PG&E and PG&E is the real party in interestwith respect to any refunds owed by the Mirant Americas Generation subsidiariesfor sales made previously under those agreements. In June 2000, the ALJissued a decision finding that the amount the Mirant Americas Generationsubsidiaries should be allowed to charge the CAISO for such plants wasapproximately 31⁄2% on average of the Annual Requirement. In July 2000, theMirant Americas Generation subsidiaries sought review by the FERC of the ALJdecision, and a decision is pending at the FERC.

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The Mirant Americas Generation subsidiaries recognizerevenue related to these agreements based on the rates ruled to be reasonableby the ALJ. If the Mirant Americas Generation subsidiaries are unsuccessful inseeking modification of the ALJ’s decision by the FERC, they will be requiredto refund amounts collected in excess of those rates for the period from June 1,1999. For the Potrero plant and Pittsburg Units 1 through 4 the period forwhich such refunds would be owed would run through December 31, 2001, forMirant America Generation’s other California plants except PittsburgUnit 5 the refund period would run through December 31, 2002, and forPittsburg Unit 5 the refund period would run through December 31,2003. Amounts collected in excess of thoserates and other significantly smaller amounts collected under the RMRAgreements that are also subject to refund due to other issues pending at theFERC totaled $293 million, of which $288 million is included inliabilities subject to compromise and $5 million is deferred and includedin revenues subject to refund as of December 31, 2004 and December 31,2003. In addition, Mirant Americas Generation records accrued interest on suchamounts, which amounted to $42 million and is included in liabilitiessubject to compromise as of December 31, 2004 and December 31, 2003,respectively.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in PG&Ereleasing the Mirant Americas Generation subsidiaries from any potential refundliability under the RMR Agreements for the period prior to September 30,2004 in return for certain consideration as described below. In addition, theCAISO has separately agreed with Mirant to release its claims for refunds withrespect to the RMR Agreements for the period through September 30, 2004upon the California Settlement becoming effective.

*California Attorney General Litigation.  *OnMarch 11, 2002, the California Attorney General filed a civil suit againstMirant, Mirant Americas, Inc., Mirant Americas Energy Marketing andseveral Mirant Americas Generation subsidiaries (the “Mirant Defendants”). Thelawsuit alleges that, between 1998 and 2001, the Mirant Defendants effectivelydouble-sold capacity by selling both ancillary services and energy from thesame generating units in violation of the CAISO tariff and the CaliforniaUnfair Competition Act. The suit seeks both restitution and penalties inunspecified amounts. The Mirant Defendants removed this suit from the statecourt in which it was originally filed to the United States District Court forthe Northern District of California. The district court, on March 25,2003, granted the Mirant Defendants’ motion seeking dismissal of this suit. TheCalifornia Attorney General appealed that dismissal to the Ninth Circuit. On July 6,2004, the Ninth Circuit affirmed the dismissal of the suit by the districtcourt. On July 27, 2004, the California Attorney General filed a petitionwith the Ninth Circuit seeking rehearing of the July 6, 2004 decision, andthe Ninth Circuit denied that request on October 29, 2004. On January 27,2005, the California Attorney General filed a petition for writ of certiorariwith the United States Supreme Court seeking to appeal the Ninth Circuit’sdecision.

On March 20, 2002, the California AttorneyGeneral filed a complaint with the FERC against certain power marketers andtheir affiliates, including Mirant Americas Energy Marketing and subsidiariesof Mirant Americas Generation, alleging that market based sales of energy madeby such generators to the CAISO and the Cal PX and in bilateral transactionswith the DWR were in violation of the Federal Power Act in part because suchtransactions were not filed appropriately with the FERC. The complaint requests, among other things,refunds for any prior short-term sales of energy that are found not to be justand reasonable along with interest on any such refunded amounts. TheFERC dismissed the California Attorney General’s complaint and denied theCalifornia Attorney General’s request for rehearing. On September 9, 2004,the Ninth Circuit reversed the FERC’s dismissal of the California AttorneyGeneral’s complaint and remanded the case back to the FERC for furtherproceedings. The Ninth Circuit found thatwhile the FERC has the authority to allow market based rates, the allegedfailure of certain entities selling electric energy at market-based rates,including the Mirant parties, to comply with reporting regulations establishedby the FERC for entities with authority to sell at market-based rates was morethan a technical compliance issue as the FERC had found. Mirant AmericasEnergy Marketing and other parties have filed 

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a petition with the NinthCircuit seeking rehearing of the September 9, 2004 ruling. This ruling couldresult in the expansion of the Refund Period to include dates from January 1,2000 through June 20, 2001, and could result in refunds being ordered fortransactions outside the CAISO and Cal PX markets.

On April 9, 2002, the California Attorney Generalfiled a second civil suit against the Mirant Defendants. That lawsuit allegesthat the Mirant Defendants violated the California Unfair Competition Act byfailing to properly file their rates, prices, and charges with the FERC asrequired by the Federal Power Act, and by charging unjust and unreasonableprices in violation of the Federal Power Act. Thecomplaint seeks unspecified penalties, costs and attorney fees. TheMirant Defendants removed this suit from the state court in which it wasoriginally filed to the United States District Court for the Northern Districtof California. The district court, on March 25, 2003, granted the MirantDefendant’s motion seeking dismissal of this suit. On October 12, 2004,the Ninth Circuit affirmed the district court’s dismissal of the suit.

On April 15, 2002, the California AttorneyGeneral filed a third civil lawsuit against the Mirant Defendants in the UnitedStates District Court for the Northern District of California. The lawsuitalleges that the acquisition and possession of the Potrero and Delta powerplants by subsidiaries of Mirant Americas Generation has substantially lessened, and will continue to substantially lessen,competition in violation of the Clayton Act of 1914, as amended (the “ClaytonAct”) and the California Unfair Competition Act. The lawsuit seeks equitable remedies in the form of divestiture of theplants and injunctive relief, as well as monetary damages in unspecifiedamounts to include disgorgement of profits, restitution, treble damages, statutorycivil penalties and attorney fees. On March 25, 2003, the courtdismissed the California Attorney General’s state law claims and his claim fordamages under the Clayton Act, but did not dismiss the California AttorneyGeneral’s claims for divestiture. On December 3, 2003, the district courtstayed the suit during the pendency of the Company’s bankruptcy proceedings.The California Attorney General appealed that ruling to the Ninth Circuit, andon February 10, 2005, the Ninth Circuit vacated the stay and remanded theproceeding to the district court.

On August 18, 2004, the California AttorneyGeneral filed a fourth civil suit in the Superior Court of California, SanFrancisco County, against the Mirant Defendants. The suit asserts claims underthe California Unfair Competition Act and the California Commodity Law of 1990.The California Attorney General allegesthat beginning in 1999 and continuing through 2001, the Mirant Defendantsengaged in manipulative and fraudulent schemes in the California wholesaleelectricity markets, including allegedly obtaining congestion relief paymentsfor actions that did not relieve any congestion, receiving payment forexcessive generation through the submission of false schedules, circumventingprice caps by falsely representing the source of energy, receiving payment forancillary services they did not and could not provide, and falsely reportinggenerating units as unavailable to produce electricity when they were available.The suit seeks damages, restitution, disgorgement of profits, civil penaltiesand injunctive relief. The Mirant Defendants have removed the suit tothe United States District Court for the Northern District of California andhave filed a motion seeking dismissal of the claims asserted on the groundsthat they are barred by the doctrine of preemption and the filed rate doctrine.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, the California Attorney Generalwill dismiss with prejudice the four civil suits described above and willrelease all claims against Mirant entities asserted in the complaint filed withthe FERC on March 20, 2002 described above.

*California-Related Claims in the BankruptcyProceedings*.   Various entities have filed proofs ofclaim in bankruptcy proceedings in undetermined amounts against Mirant, MirantAmericas Energy Marketing, Mirant Americas Generation and other Mirantsubsidiaries on account of the various proceedings described above. Thoseentities include the California Attorney General, the DWR, the CPUC, PG&E,SCE, San Diego Gas & Electric Company, the Cal PX and the CAISO. Inaddition, the FERC has filed 

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proofs of claim concerningthe FERC Refund Proceedings, the proceedings related to the RMR Agreements andthe proceedings and investigations described above in “General FERCInvestigation,” “FERC Bidding Investigation” and “FERC Show Cause ProceedingRelated to Trading Practices.” Some of these claims also assert a right to setoff the amount of any refunds owed by Mirant Americas Energy Marketing to theclaimant against any amounts owed by such claimant to Mirant Americas EnergyMarketing.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the withdrawalwith prejudice of the claims filed in the bankruptcy proceedings by theCalifornia Attorney General, the DWR, the CPUC, PG&E, SCE and San Diego Gas &Electric Company in return for the specific allowed claims and otherconsideration provided for in the California Settlement. Also, although theCalifornia Settlement will not result in the withdrawal of the claims filed bythe CAISO or the Cal PX, under its terms the FERC’s approval of the settlementwill constitute its direction to the CAISO and Cal PX to conform their booksand records to the terms of the California Settlement and to withdraw withprejudice all claims filed by them in the bankruptcy proceedings that seek torecover amounts or otherwise obtain relief on behalf of or for the benefit ofany of the California Parties. In addition, the CAISO has separately agreedwith Mirant to release its claims upon the California Settlement becomingeffective.

*CaliforniaSettlement.  *On January 14, 2005,**Mirant and certain of its subsidiaries entered into theCalifornia Settlement with the California Parties and the Office of MarketOversight and Investigations of the FERC settling a variety of disputed mattersdescribed above. The Mirant entities that are parties to the CaliforniaSettlement are Mirant, Mirant Americas Inc., Mirant Americas Energy Marketing,Mirant Americas Generation, Mirant California Investments, Inc., MirantCalifornia, LLC, Mirant Delta, LLC, Mirant Potrero, LLC, Mirant SpecialProcurement, Inc., Mirant Services, LLC and Mirant Americas Development, Inc.(collectively, the “Mirant Settling Parties”). The California Parties arePG&E, Southern California Edison Company, San Diego Gas and ElectricCompany, the CPUC, the DWR, the EOB and the Attorney General of the State ofCalifornia. The effectiveness of the California Settlement is conditioned uponits approval by the CPUC, the Bankruptcy Court, the bankruptcy court havingjurisdiction over PG&E’s bankruptcy proceedings initiated in 2001, and theFERC. While CPUC has approved the California Settlement, as signified by itsexecution of the California Settlement, the other approvals have not yet beenobtained.

Ifthe California Settlement becomes effective, (1) Mirant Americas EnergyMarketing and the other Mirant Settling Parties will assign to the CaliforniaParties all receivables owed to Mirant Americas Energy Marketing fortransactions in the markets administered by the Cal PX or the CAISO for theperiod January 1, 2000 through June 20, 2001, which are currentlyestimated by the parties to the California Settlement to be approximately $283million, and (2) the California Parties will receive an allowed, unsecuredclaim against Mirant Americas Energy Marketing in its Chapter 11 case for $175million and the DWR will receive an additional allowed, unsecured claim againstMirant Americas Energy Marketing of $2.25 million. In return, the CaliforniaParties will release all claims they may have against the Mirant SettlingParties related to sales of electricity or natural gas at wholesale in westernmarkets in the period from January 1, 1998 through July 14, 2003,including all such claims filed by the California Parties in the Mirant Debtors’Chapter 11 cases, in proceedings currently pending before the FERC, or in thefour pending suits filed by the California Attorney General. Mirant estimatesthat, excluding duplicative claims, this settlement will compromise the bulk ofthe California energy market claims at issue in the FERC Refund Proceedings. Also,the California Parties will assume Mirant Americas Energy Marketing’sobligation to pay any refunds determined by the FERC to be owed by MirantAmericas Energy Marketing to other parties for transactions in the CAISO and CalPX markets during the Refund Period. Subject to applicable bankruptcy law,Mirant Americas Energy Marketing will continue to be liable for any refundsthat the FERC determines it to owe to (1) participants in the Cal PX orCAISO markets other than the 

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California Parties for periods outside the RefundPeriod or (2) parties with which Mirant Americas Energy Marketing engagedin bilateral electricity or natural gas transactions other than the CaliforniaParties.

Someof the consideration to be received by the California Parties under theCalifornia Settlement will be available to other market participants thatchoose to opt into the California Settlement. Any market participant thatelects to opt into the California Settlement will give releases of liability tothe Mirant Settling Parties that are the same as those given by the CaliforniaParties. In addition to the claims filed by the California Parties seeking torecover refunds from Mirant Americas Energy Marketing and other Mirant entitiesfor sales of electricity made by Mirant Americas Energy Marketing into theCAISO and Cal PX markets in 2000 and 2001, the CAISO and the Cal PX have filedclaims against Mirant Americas Energy Marketing and other Mirant SettlingParties seeking to recover refunds on behalf of participants in the markets forwhich they were responsible. While the California Settlement will not result inthe withdrawal of the claims filed in the Chapter 11 cases by the CAISO or theCal PX, the FERC’s approval of the California Settlement (if obtained) will,upon the California Settlement becoming effective, constitute the FERC’sdirection to the CAISO and the Cal PX to conform their books and records to theterms of the settlement and to withdraw with prejudice all claims filed by themin the Chapter 11 cases that seek to recover amounts or otherwise obtain reliefon behalf of, or for the benefit of, any of the California Parties or any othermarket participants that opt into the California Settlement. In addition, theCAISO has separately agreed with Mirant to release its claims upon theCalifornia Settlement becoming effective. The California Parties also releasethe Mirant Settling Parties from any liability or refund claims related to theDWR Contract, including claims asserted in complaints filed by CPUC and EOBwith the FERC in February 2002. The FERC’s approval of the CaliforniaSettlement, under its terms, will also have the effect, once the CaliforniaSettlement becomes effective, of terminating any pending investigations by theFERC of the conduct of the Mirant Settling Parties in the western energymarkets in 2000 and 2001, including pending investigations pursuant to theBidding Order or the FERC Withholding Investigation.

TheCalifornia Settlement will also resolve all claims asserted by PG&E againstMirant Delta, Mirant Potrero, and the other Mirant Settling Parties in theChapter 11 cases or in proceedings before the FERC that relate to refundspotentially owed as described under “Reliability-Must-Run Agreements Proceeding”above. Under the California Settlement, PG&E will release Mirant Delta andMirant Potrero from any potential refund liability under the RMR Agreements forthe period prior to September 30, 2004, and the claims filed by PG&Ein the Chapter 11 cases seeking to recover refunds from Mirant Delta and MirantPotrero for sales made under the RMR Agreements will be withdrawn withprejudice. Although the California Settlement will not result in the withdrawalof the claims filed in the Chapter 11 cases by the CAISO, under the terms ofthe California Settlement, the FERC’s approval of the California Settlementwill constitute its direction to CAISO to conform its books and records to theterms of the California Settlement and to withdraw with prejudice all claimsfiled by it in the Chapter 11 cases that seek to recover amounts related tosales made under the RMR Agreements in the period prior to September 30,2004. In addition, the CAISO has separately agreed with Mirant to release itsclaims upon the California Settlement becoming effective.

Inreturn for the releases it grants to the Mirant Settling Parties described inthe previous paragraph, PG&E will receive allowed, unsecured claims againstMirant Delta that will receive a distribution of proceeds of $63 million, andeither (1) the partially constructed Contra Costa 8 project, which is aplanned 530 MW combined cycle generating facility, and related equipment(collectively, the “CC8 Assets”) will be transferred to PG&E or (2) PG&Ewill receive additional alternative consideration in an amount of as much as$85 million (the “CC8 Alternative Consideration”). If the Mirant SettlingParties and PG&E are unable by April 30, 2005 to agree upon definitiveagreements for the transfer of the CC8 Assets to PG&E, or if any approvalof the Bankruptcy Court required for the transfer of the CC8 Assets to PG&Eis not obtained, the CC8 Alternative Consideration is to be $85 million. Oncesuch definitive agreements have been executed and any such required approval bythe Bankruptcy Court of the transfer of the CC8 Assets has been obtained, theCC8 Alternative Consideration is reduced to $70 million.

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To fund the CC8 Alternative Consideration, PG&Ewill receive an allowed, unsecured claim against Mirant Delta that will receivea distribution of either $85 million or $70 million depending on the maximumCC8 Alternative Consideration at the time of such distribution. PG&E willliquidate any securities received as part of such distribution and place thenet resulting amount plus any cash received into an escrow account. To theextent that the net amount resulting from the liquidation of the securitiesreceived by PG&E plus any cash received by it is less than the CC8Alternative Consideration, the difference will be made up by PG&Ewithholding and paying into the escrow account amounts it owes to Mirant Deltaover a three month period under the power purchase agreement described below orby payments from Mirant Delta or Mirant Americas Generation. If the transfer ofthe CC8 Assets to PG&E does not occur on or before June 30, 2008, orif certain specified events occur prior to that date, such as the failure ofthe Mirant Settling Parties and PG&E to execute definitive agreements forthe transfer of the CC8 Assets or the CPUC fails to approve PG&E’sacquisition of the CC8 Assets, then the CC8 Alternative Consideration is to bepaid to PG&E and the Mirant Settling Parties will retain the CC8 Assets. IfPG&E closes on its acquisition of the CC8 Assets, the funds in the escrowaccount will be paid to Mirant Delta.

PG&E also has entered into two power purchaseagreements with Mirant Delta and Mirant Potrero that will allow PG&E todispatch and purchase the power output of all units of the generating plantsowned by those entities that have been designated by the CAISO as RMR unitsunder the RMR Agreements. The first agreement is for 2005 and will be effectiveregardless of whether the California Settlement becomes effective. The secondagreement will be for 2006 through 2012 and will become effective only if theCalifornia Settlement becomes effective. If the California Settlement has notbecome effective by January 1, 2006 and has not been terminated, the firstpower purchase agreement will be extended through December 31, 2006 andthe second agreement will start January 1, 2007 if the settlement becomeseffective.

Under the California Settlement, PG&E and MirantDelta also are to negotiate by April 30, 2005 an agreement (the “OptionAgreement”) under which PG&E would have separate options to purchase eachof Mirant Delta’s existing Contra Costa generating plant and its existingPittsburg generating plant, in both cases once no unit at the plant hasoperated for a certain period of years. The price at which each plant could bepurchased pursuant to the option would be equal to the amount of certaincapital costs not recovered by Mirant Delta under the terms of the RMR Agreementapplicable to that plant at the time of the exercise of the option. If MirantDelta and PG&E do not reach agreement on the Option Agreement by April 30,2005, or if PG&E cannot obtain CPUC approval of the Option Agreement or itsexercise of its rights thereunder, Mirant Delta and the other Mirant SettlingParties will have no further obligations to PG&E with respect to the OptionAgreement or the rights it was to provide to PG&E.

*Rate PayerLitigation*

*California Rate Payer Litigation.  *Variouslawsuits are pending that assert claims under California law based onallegations that certain owners of electric generation facilities in Californiaand energy marketers, including Mirant, Mirant Americas Energy Marketing andseveral Mirant Americas Generation subsidiaries, engaged in various unlawfuland anti-competitive acts that served to manipulate wholesale power markets andinflate wholesale electricity prices in California.

Sixsuch suits were filed between November 27, 2000 and May 2, 2001 invarious California Superior Courts. Three of these suits seek class actionstatus, while two of the suits are brought on behalf of all citizens ofCalifornia. One lawsuit alleges that, as a result of the defendants’ conduct,customers paid approximately $4 billion more for electricity than theyotherwise would have and seeks an award of treble damages as well as otherinjunctive and equitable relief. One lawsuit also names certain of Mirant’sofficers individually as defendants and alleges that the state had to spend morethan $6 billion purchasing 

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electricity. The other suits likewise seek trebledamages and equitable relief. One such suit names Mirant itself as a defendant.A listing of these six cases is as follows:
| Caption                                               | ** ** | ** **             | ** ** | **Date Filed**                                    | ** ** | **Court of Original Filing** |
|-------------------------------------------------------|------------|------------------------|------------|--------------------------------------------------------|------------|------------------------------|
| People of the State of  California v.                 |       |                   |       |                                                   |
| Dynegy, et al.                                        |       | January 18, 2001  |       | Superior Court of California—San Francisco County |
| Gordon v. Reliant Energy, Inc., et al.           |       | November 27, 2000 |       | Superior Court of  California—San Diego County    |
| Hendricks v. Dynegy Power                             |       |                   |       |                                                   |
| Marketing, Inc., et al.                          |       | November 29, 2000 |       | Superior Court of California—San Diego County     |
| Sweetwater Authority, et al. v.                       |       |                   |       |                                                   |
| Dynegy, Inc., et al.                             |       | January 16, 2001  |       | Superior Court of California—San Diego County     |
| Pier 23 Restaurant v.  PG&E Energy                |       |                   |       |                                                   |
| Trading, et al.                                       |       | January 24, 2001  |       | Superior Court of California—San Francisco County |
| Bustamante, et  al. v. Dynegy, Inc., et al. |       | May 2, 2001       |       | Superior Court of California—Los Angeles County   |

 

These six suits (the “SixCoordinated Suits”) were coordinated for purposes of pretrial proceedingsbefore the Superior Court for San Diego County. In the spring of 2002, two ofthe defendants filed crossclaims against other market participants who were notparties to the actions. Some of those crossclaim defendants then removed theSix Coordinated Suits to the United States District Court for the SouthernDistrict of California. The plaintiffs filed a motion seeking to have theactions remanded to the California state court, and the defendants filedmotions seeking to have the claims dismissed. On December 13, 2002, theUnited States District Court for the Southern District of California grantedthe plaintiffs’ motion seeking to have the six cases remanded to the Californiastate court. The defendants that filed the crossclaims appealed that decisionremanding the Six Coordinated Suits to the California state courts to the NinthCircuit. On December 8, 2004, the Ninth Circuit affirmed the districtcourt’s remand decision. These actions are stayed with respect to the Mirantentities that are defendants by the filing of the Chapter 11 proceedings ofthose entities, but are proceeding with respect to the other defendants.

Two plaintiffs in the SixCoordinated Suits, Oscar’s Photo Lab and Mary L. Davis (the “Claimants”), filedproofs of claim (the “Oscar Claims”) in the bankruptcy proceedings againstMirant, Mirant Americas Energy Marketing, Mirant Americas Generation and othersubsidiaries of Mirant on behalf of themselves and a purported class of allpersons or entities in California who purchased electricity or natural gas forpurposes other than resale or distribution at any time since January 1,1999. Claimants alleged that various misconduct by Mirant and several of itssubsidiaries caused inflated prices in the California wholesale power markets. Claimantslisted the damage amount of their claims as “unliquidated.” On October 18,2004, the Mirant Debtors filed an objection to the Oscar Claims. On November 5,2004, the Mirant Debtors filed a motion requesting that the Bankruptcy Courtstrike the portions of the Oscar Claims that purported to have been filed onbehalf of unnamed absent members of a purported class. On January 26,2005, the Bankruptcy Court issued an order embodying a ruling made orally on December 1,2004 granting this motion and disallowing the Oscar Claims with prejudice tothe extent they sought to recover on account of any claims other than theclaims of Oscar Photo Labs and Mary L. Davis in their individual capacities. TheClaimants have filed a motion to amend their claims to add allegations ofimproper conduct by Mirant entities with respect to the reporting ofinformation about natural gas transactions to trade publications that publishprice indices, and the Mirant Debtors have also filed a motion to disallow theOscar Claims. The Bankruptcy Court has not acted upon either motion.

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The Mirant Debtors haveentered into a stipulation with the Claimants entitling each plaintiff toreceive an allowed, general, prepetition unsecured claim against MirantAmericas Energy Marketing in the amount of $1,000 without the Mirant Debtors’admission of the validity of the Oscar Claims or any of the factual or legalassertions of these Claimants and with a full reservation of any rights, claimsand defenses any of the Mirant Debtors may have against any person assertingthe same or similar factual or legal assertions as those contained in the OscarClaims. On March 9, 2005, the Bankruptcy Court entered the order and approvedthe stipulation.

Eightadditional rate payer lawsuits were filed between April 23, 2002 and October 18,2002 alleging that certain owners of electric generation facilities inCalifornia, as well as certain energy marketers, including Mirant, MirantAmericas Energy Marketing and several Mirant Americas Generation subsidiaries,engaged in various unlawful and fraudulent business acts that served tomanipulate wholesale markets and inflate wholesale electricity prices inCalifornia during 1999 through 2002. Each of the complaints alleges violationof California’s Unfair Competition Act. One complaint also alleges violation ofCalifornia’s antitrust statute. Each of the plaintiffs seeks class actionstatus for their respective case. Some of these suits also allege thatcontracts between the DWR and certain marketers of electricity, including anineteen month power sales agreement entered into by Mirant Americas EnergyMarketing with the DWR in May 2001 that terminated in December 2002,contain terms that were unjust and unreasonable. The actions seek, among otherthings, restitution, compensatory and general damages, and to enjoin thedefendants from engaging in illegal conduct. The captions of each of theseeight cases follow:
| Caption                                                  | ** ** | ** **            | ** ** | **Date Filed**                                    | ** ** | **Court of Original Filing** |
|----------------------------------------------------------|------------|-----------------------|------------|--------------------------------------------------------|------------|------------------------------|
| T&E Pastorino Nursery, et al. V.  Duke Energy        |       |                  |       |                                                   |
| Trading and Marketing, LLC, et al.                       |       | April 23, 2002   |       | Superior Court of California—San Mateo County     |
| RDJ Farms, Inc., et al. v. Allegheny Energy  Supply |       |                  |       |                                                   |
| Company, LLC, et al.                                     |       | May 10, 2002     |       | Superior Court of California—San Joaquin County   |
| Century Theatres, Inc., et al. v.  Allegheny Energy |       |                  |       |                                                   |
| Supply Company, LLC, et al.                              |       | May 14, 2002     |       | Superior Court of California—San Francisco County |
| El Super Burrito, Inc., et al. v. Allegheny  Energy |       |                  |       |                                                   |
| Supply Company, LLC, et al.                              |       | May 15, 2002     |       | Superior Court of California—San Mateo County     |
| Leo’s Day and Night Pharmacy, et al. v.  Duke       |       |                  |       |                                                   |
| Energy Trading and Marketing, LLC, et al.                |       | May 21, 2002     |       | Superior Court of California—Alameda County       |
| J&M Karsant Family Limited Partnership, et al. v.    |       |                  |       |                                                   |
| Duke Energy Trading and Marketing, LLC, et al.           |       | May 21, 2002     |       | Superior Court of California—Alameda County       |
| Bronco Don Holdings, LLP, et al. v. Duke  Energy         |       |                  |       |                                                   |
| Trading and Marketing, LLC, et al.                       |       | May 24, 2002     |       | Superior Court of California—San Francisco County |
| Kurtz v. Duke  Energy Trading et al.                     |       | October 18, 2002 |       | Superior Court of California—Los Angeles County   |

 

These suits were initiallyfiled in California state courts by the plaintiffs and removed to United Statesdistrict courts. These eight cases were consolidated for purposes of pretrialproceedings with the Six Coordinated Suits described above. These actions arestayed with respect to the Mirant defendants by the filing of the Chapter 11proceedings of those entities, but are proceeding with respect to the otherdefendants. On August 28, 2003, the district court granted the motions todismiss filed by the defendants in the Pastorino, RDJ Farms, Century Theatres,El Super Burrito, Leo’s Day and Night Pharmacy, J&M Karsant and Bronco DonHoldings suits, finding that the plaintiffs’ claims were barred by the filedrate 

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doctrineand federal preemption. The plaintiffs have appealed that dismissal to theNinth Circuit. The plaintiff in the Kurtz suit voluntarily dismissed his casewithout prejudice on February 18, 2004. None of the plaintiffs in theseeight cases have filed proofs of claim in the bankruptcy proceedings.

On July 15, 2002, anadditional rate payer lawsuit, Public Utility District No. 1 of SnohomishCo. v. Dynegy Power Marketing, et al., was filed in the United StatesDistrict Court for the Central District of California against various owners ofelectric generation facilities in California, including Mirant, by PublicUtility District No. 1 of Snohomish County, which is a municipal corporationin the state of Washington that provides electric and water utility service.The plaintiff public utility district alleges that defendants violatedCalifornia’s antitrust statute by conspiring to raise wholesale power prices,injuring plaintiff through higher power purchase costs. The plaintiff alsoalleges that defendants acted both unfairly and unlawfully in violation ofCalifornia’s Unfair Competition Act through various unlawful andanticompetitive acts, including the purportedly wrongful acquisition of plants,engagement in “Enron-style” trading and withholding power from themarket. The plaintiff seeks restitution, disgorgement of profits, injunctiverelief, treble damages and attorney’s fees. The Snohomish suit was consolidatedfor purposes of pretrial proceedings with the other rate payer suits pendingbefore the United States District Court for the Southern District ofCalifornia. On January 6, 2003, the district court granted a motion todismiss filed by the defendants. On September 10,2004, the United States Court of Appeals for the Ninth Circuit upheldthe dismissal of the suit by the district court. The court of appeals ruledthat the plaintiff’s claims under California’s antitrust statute and UnfairCompetition Act are barred by the doctrine of preemption and the filed ratedoctrine, concluding that if prices in the California wholesale electricitymarkets were not just and reasonable or if the defendants sold electricity inviolation of the applicable tariffs, the plaintiff’s only option was to seek aremedy before the FERC under the Federal Power Act. On November 5, 2004,the plaintiff filed a petition for writ of certiorari with the United StatesSupreme Court seeking to appeal the Ninth Circuit’s decision. The plaintiff inthe Snohomish suit has not filed a claim in the bankruptcy proceedings.

On November 20,2002, a class action suit, Bustamante v. The McGraw-Hill Companies, Inc.,et al., was filed in the Superior Court for the County of Los Angeles againstcertain publishers of index prices for natural gas, gas distribution ormarketing companies, owners of electric generation facilities in California andenergy marketers, including Mirant, Mirant Americas Energy Marketing andsubsidiaries of Mirant Americas Generation. The plaintiff in the Bustamantesuit alleged that the defendants violated California Penal Code sections 182and 395 and California’s Unfair Competition Act by reporting false informationabout natural gas transactions to the defendants that published index pricesfor natural gas causing the prices paid by Californians for natural gas and forelectricity to be artificially inflated. The suit sought, among other things,disgorgement of profits, restitution, and compensatory and punitive damages. OnJuly 8, 2003, the Superior Court for the County of Los Angeles dismissedthe suit, finding that the plaintiffs had failed to allege facts sufficient towarrant relief. The court granted the plaintiffs leave to file an amendedcomplaint, and on August 13, 2003, the plaintiff filed an amendedcomplaint asserting claims under California’s Unfair Competition Act and stateantitrust statute against gas distribution or marketing companies,owners of electric generation facilities in California and energy marketers,including the Company and various of its subsidiaries. The amended complaint alleged that the defendants engaged in ascheme to report false gas prices and volumes to companies that published indexprices for natural gas in order to manipulate the price indices to benefit themselves.This conduct, the plaintiff asserted, violated California Penal Code section395 and caused the prices paid by Californians for natural gas to beartificially inflated. The suit was brought as a representative action onbehalf of all similarly situated persons, the general public and all taxpayers.The suit sought, among other things, disgorgement of profits, restitution,treble damages and injunctive relief. In November 2003, the plaintiffdismissed the Mirant entities identified as defendants in the amended complaint filed in August 2003.

On December 15, 2003,the plaintiff in the Bustamante suit filed proofs of claim in the bankruptcyproceedings on behalf of a putative class (the “Bustamante Claims”) listing thetotal amount claimed as 

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$500 millionand attaching the original and first amended complaints. On October 18,2004, the Debtors filed an objection to the Bustamante Claims. On November 19,2004, the Debtors filed a motion requesting that the Bankruptcy Court strikethe portions of the Bustamante Claims that purported to have been filed onbehalf of unnamed absent members of a purported class. On January 26,2005, the Bankruptcy Court entered an order embodying a ruling made orally on December 1,2004 granting the motion and striking the Bustamante Claims to the extent theysought to recover on account of any claims other than the claim of Bustamante,in his individual capacity. The Mirant Debtors have also filed a motion todisallow the remaining Bustamante Claims.

On April 28,2003, a purported class action suit, Egger et al. v. Dynegy, Inc. et al.,was filed in the Superior Court for the County of San Diego, California,against various owners of electric generation facilities in California andmarketers of electricity and natural gas, including Mirant and various ofsubsidiaries of Mirant Americas Generation, on behalf of all persons whopurchased electricity in Oregon, Washington, Utah, Nevada, Idaho, New Mexico,Arizona and Montana from January 1, 1999. The plaintiffs allege that thedefendants engaged in unlawful, unfair, and deceptive practices in theCalifornia and western wholesale electricity markets, including withholdingenergy from the market to create artificial shortages, creating artificialcongestion over transmission lines, selling electricity bought in California toout of state affiliates to create artificial shortages and then selling theelectricity back into the state at higher prices. The plaintiffs contend thatthe defendants conspired among themselves and with subsidiaries of EnronCorporation to withhold electricity from the Cal PX and CAISO markets and tomanipulate the price of electricity sold at wholesale in the California andwestern markets. The defendants’ unlawful manipulation of the wholesale energymarket, the plaintiffs allege, resulted in supply shortages and skyrocketingenergy prices in the western United States, which in turn caused drastic rateincreases for retail consumers. The plaintiffs assert claims under California’santitrust statute and its Unfair Competition Act. The plaintiffs contend thatthe defendants’ alleged wrongful conduct has caused damages in excess of onebillion dollars and seek treble damages, injunctive relief, restitution, and anaccounting of the wholesale energy transactions entered into by the defendantsfrom 1998. The defendants removed the suit to the United States District Courtfor the Southern District of California. The plaintiffs filed an amendedcomplaint in October 2003 that did not include any Mirant entities asdefendants due to the stay of litigation resulting from the filing of theMirant Chapter 11 proceedings, but identified them as “relevant actors.”

Five plaintiffs in theEgger suit (the “Proposed Representatives”) filed proofs of claim (the “EggerClaims”) in the bankruptcy proceedings purportedly on behalf of a class of “allpersons and businesses residing in Oregon, Washington, Utah, Nevada, Idaho, NewMexico, Arizona and Montana who were purchasers of electrical energy during theperiod beginning January 1, 1999 to the present.” Claimants allegedthat various misconduct by Mirant and several of its subsidiaries causedinflated prices in wholesale power markets. Claimants listed the damage amountof their claims as “TBD/in excess of $100 million.” Claimants attached thefirst amended complaint to their proofs of claims. On October 18,2004, the Debtors filed an objection to the Egger Claims. On November 10,2004, the parties jointly presented to the Bankruptcy Court a scheduling orderin which they agreed that the Egger Claims were sufficiently similar to theOscar Claims so that the Bankruptcy Court’s ruling on Mirant’s motion to strikethe Oscar Claims would also be dispositive as to the Egger Claims. Thus, theEgger Claims were disallowed with prejudice to the extent they sought torecover on account of any claims other than those of the ProposedRepresentatives in their individual capacities. On January 19, 2005, theBankruptcy Court approved a settlement agreement with the ProposedRepresentatives pursuant to which each of the Proposed Representatives will beentitled to receive an allowed, general unsecured claim against Mirant AmericasEnergy Marketing in the amount of $1,000 in full and final satisfaction of theEgger Claims.

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*Montana Attorney General Suit*

On June 30, 2003, the Montana Attorney Generaland Flathead Electric Cooperative, Inc. filed a suit in the First JudicialDistrict of Montana, County of Lewis and Clark, against various owners ofgenerating facilities and marketers of electricity and natural gas in westernstates, including Mirant, alleging that the defendants had engaged in unlawfuland unfair business practices in 2000 and 2001 involving the sale of wholesaleelectricity and natural gas and had manipulated the markets for wholesaleelectricity and natural gas. The plaintiffs alleged, among other things, thatthe defendants fixed prices and restricted supply into the markets operated bythe Cal PX and CAISO, gamed the power market, provided false information totrade publications to inflate natural gas price indices published by suchpublications, and engaged in other manipulative practices, includingwithholding generation, selling generation at inflated prices, submitting falseload schedules in order to increase electricity scarcity, creating fictitiouscongestion and counterflows, and double-selling the same generation tothe CAISO. The plaintiffs contended that the defendants conspired with eachother and acted in concert with each other in engaging in the conduct alleged.The plaintiffs asserted claims for violation of Montana’s Unfair TradePractices and Consumer Protection Act and fraud. They seek treble damages,injunctive relief, and attorneys’ fees. The suit was removed to the UnitedStates District Court for the District of Montana on July 23, 2003, and onDecember 5, 2003 the district court remanded the proceeding to the statecourt. The Montana Attorney General has not filed any proof of claim in thebankruptcy proceedings.

On February 12, 2004, theMontana Public Service Commission initiated an investigation of the Montanaretail electricity market affected by transactions involving the westernelectricity grid. The purpose of the investigation is to determine whetherthere is evidence of unlawful manipulation of that market related to the highprices for electricity in the western wholesale markets that occurred in 2000and 2001. The Commission ordered this investigation in response to petitionsfiled by the Montana Attorney General and Flathead Electric Cooperative, Inc.making allegations similar to those asserted in their suit described above.Mirant and its subsidiaries are not engaged in the generation of electricity orthe sale of electricity at retail in Montana and, therefore, do not believethey are subject to the regulatory jurisdiction of the Montana Public ServiceCommission.

*Shareholder-Bondholder Litigation*

*Mirant Securities ConsolidatedAction*.   Twenty lawsuits have been filed since May 29,2002 against Mirant and four of its officers alleging, among other things, thatthe defendants violated Sections 10(b) and 20(a) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5promulgated thereunder by making material misrepresentations and omissions tothe investing public regarding Mirant’s business operations and futureprospects during the period from January 19, 2001 through May 6,2002. The suits have each been filed in the United States District Court forthe Northern District of Georgia, with the exception of three suits filed inthe United States District Court for the Northern District of California. Thethree suits filed in California have been transferred by the court to theUnited States District Court for the Northern District of Georgia andconsolidated with the seventeen consolidated suits already pending before thatcourt. The complaints seek unspecified damages, including compensatory damagesand the recovery of reasonable attorneys’ fees and costs. The captions of eachof the cases follow:

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| **Caption**                        | ** ** | ** **           | ** ** | **Date Filed** | ** ** |
|------------------------------------|------------|----------------------|------------|---------------------|------------|
| Kornfeld v. Mirant Corp.,  et al.  |       | May 29, 2002    |       |
| Holzer v. Mirant Corp.,  et al.    |       | May 31, 2002    |       |
| Abrams v. Mirant Corp.,  et al.    |       | June 3, 2002    |       |
| Froelich v. Mirant Corp.,  et al.  |       | June 4, 2002    |       |
| Rand v. Mirant Corp., et  al.      |       | June 5, 2002    |       |
| Purowitz v. Mirant Corp.,  et al.  |       | June 10, 2002   |       |
| Kellner v. Mirant Corp.,  et al.   |       | June 14, 2002   |       |
| Sved v. Mirant Corp., et  al.      |       | June 14, 2002   |       |
| Teaford v. Mirant Corp.,  et al.   |       | June 14, 2002   |       |
| Woff v. Mirant Corp., et  al.      |       | June 14, 2002   |       |
| Peruche v. Mirant Corp.,  et al.   |       | June 14, 2002   |       |
| Thomas v. Mirant Corp.,  et al.    |       | June 18, 2002   |       |
| Urgenson v. Mirant Corp.,  et al.  |       | June 18, 2002   |       |
| Orlofsky v. Mirant Corp.,  et al.  |       | June 24, 2002   |       |
| Jannett v. Mirant Corp.            |       | June 28, 2002   |       |
| Green v. Mirant Corp., et  al.     |       | July 9, 2002    |       |
| Greenberg v. Mirant  Corp., et al. |       | July 16, 2002   |       |
| Law v. Mirant Corp., et  al.       |       | July 17, 2002   |       |
| Russo v. Mirant Corp., et  al.     |       | July 18, 2002   |       |
| Delgado v. Mirant Corp., et al.    |       | October 4, 2002 |       |

 

In November 2002, the plaintiffs in theconsolidated suits in the United States District Court for the NorthernDistrict of Georgia filed an amended complaint that added additional defendantsand claims. The plaintiffs added as defendants Southern Company (“Southern”),the directors of Mirant immediately prior to its initial public offering ofstock, and various firms that were underwriters for the initial public offeringby the Company. In addition to the claims set out in the original complaint,the amended complaint asserts claims under Sections 11 and 15 of the SecuritiesAct of 1933, alleging that the registration statement and prospectus for theinitial public offering of Mirant’s stock misrepresented and omitted materialfacts. In the amended complaint, the plaintiffs expand their claims undersections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5promulgated thereunder to include statements made to the investing publicregarding Mirant’s business operations and future prospects during the periodfrom September 26, 2000 through September 5, 2002. The amendedcomplaint alleges, among other things, that Mirant’s stock price wasartificially inflated because the Company failed to disclose in variousfilings, public statements, and registration statements: (1) that Mirantallegedly reaped illegal profits in California by manipulating energy pricesthrough a variety of alleged improper tactics; (2) that Mirant allegedlyfailed to take a timely charge to earnings through a write off of its interestin Western Power Distribution; and (3) the accounting errors and internalcontrols issues that were disclosed in July and November of 2002. On July 14,2003, the district court dismissed the claims asserted by the plaintiffs basedon the Company’s California business activities but allowed the case to proceedon the plaintiffs’ other claims.

This action is stayed as to Mirant by the filing ofits Chapter 11 proceeding. On November 19, 2003, the Bankruptcy Courtentered an order staying this action also with respect to the other defendantsto avoid the suit impeding the ability of Mirant to reorganize or having anegative effect upon Mirant’s assets. The Bankruptcy Court has modified thestay to allow the plaintiffs to proceed with discovery of documentary materialsfrom Mirant and the other defendants. On December 11, 2003, the plaintiffsfiled a proof of claim against the estate of Mirant, which was subsequentlywithdrawn on or about October 10, 2004. Because of the stay applicable tothe litigation, Mirant has not yet been released as a defendant in theconsolidated lawsuits.

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Under a master separation agreement between Mirant andSouthern, Southern is entitled to be indemnified by Mirant for any lossesarising out of any acts or omissions by Mirant and its subsidiaries in theconduct of the business of Mirant and its subsidiaries. The underwritingagreements between Mirant and the various firms added as defendants that wereunderwriters for the initial public offering by the Company also provide forMirant to indemnify such firms against any losses arising out of any acts oromissions by Mirant and its subsidiaries.

*Mirant Americas Generation Bondholder Suit.  *OnJune 10, 2003, certain holders of senior notes of Mirant AmericasGeneration maturing after 2006 filed a complaint in the Court of Chancery ofthe State of Delaware, *California PublicEmployees’ Retirement System, et al. v. Mirant Corporation, et al.*,that named as defendants Mirant, Mirant Americas Inc., Mirant AmericasGeneration, certain past and present Mirant directors, and certain past andpresent Mirant Americas Generation managers. Among other claims, the plaintiffsassert that a restructuring plan pursued by the Company prior to its filing apetition for reorganization under Chapter 11 was in breach of fiduciary dutiesallegedly owed to them by Mirant, Mirant Americas Inc., and Mirant AmericasGeneration managers. In addition, the plaintiffs challenge certain dividendsand distributions made by Mirant Americas Generation. The plaintiffs seekdamages in excess of one billion dollars. Mirant has removed this suit to theUnited States District Court for the District of Delaware. This action isstayed with respect to the Mirant entities that are defendants by the filing ofthe Chapter 11 cases. On November 19, 2003, the Bankruptcy Court enteredan order staying this action also with respect to the individual defendants toavoid the suit impeding the ability of the Mirant Debtors to reorganize orhaving a negative effect upon the assets of the Mirant Debtors. The MirantAmericas Generation Creditor Committee filed a motion in Mirant’s bankruptcyproceedings seeking to pursue claims against Mirant, Mirant Americas Inc.,certain past and present Mirant directors, and certain past and present MirantAmericas Generation managers similar to those asserted in this suit. The BankruptcyCourt ruled that while the Mirant Americas Generation Creditor Committee hasstanding to assert claims on behalf of the estate of Mirant AmericasGeneration, no such claims could be filed without the Bankruptcy Court’sapproval and no motions seeking such approval could be filed at least through April 2004.No such motion has been filed with the Bankruptcy Court since April 2004,and the Bankruptcy Court has not authorized any such litigation at this time.

On December 15, 2003, Lehman Commercial PaperInc. (“Lehman”), as agent for various lenders under certain pre-petition creditagreements, filed a claim against Mirant Americas Generation in the bankruptcyproceedings. On December 15, 2003, Wells Fargo Bank, N.A. (“Wells Fargo”)also filed claims in the bankruptcy proceedings as successor indenture trusteefor bond indebtedness under a certain indenture against Mirant AmericasGeneration. In addition to their original claims, on that same date, Lehman andWells Fargo filed supplemental claims against Mirant Americas Generation,Mirant and a number of other subsidiaries of Mirant (the “Supplemental Claims”)seeking recovery of principal, interest, fees, and costs under the MirantAmericas Generation loan documents and bond documents, respectively. In theirSupplemental Claims, Lehman and Wells Fargo essentially seek to preserve forthemselves the claims previously sought to be asserted by the Mirant AmericasGeneration Creditor Committee.

On November 3, 2004, the Mirant Debtors objectedto the Supplemental Claims against Mirant Americas Generation and the otherMirant entities on the grounds that: (1) Lehman and Wells Fargo lackstanding to pursue the Supplemental Claims, which are derivative claimsbelonging to each respective Mirant Debtor’s estate; (2) there is nofactual basis for any of the “potential” causes of action against MirantAmericas Generation and no basis whatsoever for the claims against any otherMirant entities; and (3) the Supplemental Claims are duplicative andcontingent. In addition to the objection, the Mirant Debtors also filed amotion to dismiss the Supplemental Claims on the basis that the SupplementalClaims do not allege any independent harm to Lehman and Wells Fargo and assertnothing more than derivative claims belonging to the Mirant Debtors’ estatesthat cannot be asserted by Lehman and Wells Fargo.

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On January 24, 2005, the Mirant Debtors filed anexpedited motion requesting entry of an order specifying procedures to resolvethe Supplemental Claims. The Bankruptcy Court held, on February 15, 2005, that(1) the Supplemental Claims will be withdrawn; (2) the withdrawal of theSupplemental Claims, to the extent that they are not property of the estates ofor derivative of a Debtor (“Withdrawn Claims”), will be without prejudice, andthe Bar Date will not apply to such claims; and (3) the Withdrawn Claims willnot be barred until confirmation of a Plan addresses or extinguishes them andLehman or Wells Fargo can only raise these claims as issues in the confirmationprocess.

*ShareholderDerivative Litigation.  *Four purported shareholders’derivative suits have been filed against Mirant, its directors and certainofficers of Mirant. These lawsuits allege that the directors breached theirfiduciary duties by allowing the Company to engage in alleged unlawful orimproper practices in the California energy market during 2000 and 2001. Thepractices complained of in the purported derivative lawsuits largely mirrorthose alleged in the shareholder litigation, the rate payer litigation, and theCalifornia Attorney General lawsuits described above. One suit also allegesthat the defendant officers engaged in insider trading. The complaints seekunspecified damages on behalf of Mirant, including attorneys’ fees, costs andexpenses and punitive damages. The captions of each of the cases follow:
| **Caption**                   | ** ** | ** **            | ** ** | **Date Filed** | ** ** |
|-------------------------------|------------|-----------------------|------------|---------------------|------------|
| Kester v.  Correll, et al.    |       | June 26,  2002   |       |
| Pettingill v.  Fuller, et al. |       | July 30,  2002   |       |
| White v. Correll,  et al.     |       | August 9,  2002  |       |
| Cichocki v. Correll, et  al.  |       | November 7, 2002 |       |

 

The Kester and White suits were filed in the SuperiorCourt of Fulton County, Georgia, and were consolidated on March 13, 2003under the name In re Mirant Corporation Derivative Litigation. The consolidatedaction has been removed by Mirant to the United States District Court for theNorthern District of Georgia. The Pettingill suit was filed in the Court ofChancery for New Castle County, Delaware and was removed by Mirant to theUnited States District Court for the District of Delaware. The Cichocki suitwas filed in the United States District Court for the Northern District ofGeorgia. These actions are stayed as to Mirant by the filing of its Chapter 11proceeding. On November 19, 2003, the Bankruptcy Court entered an orderstaying these actions also with respect to the individual defendants to avoidthe suit impeding the ability of Mirant to reorganize or having a negativeeffect upon Mirant’s assets. On December 8, 2003, the court in theCichocki suit took notice of the Bankruptcy Court’s Order dated November 19,2003 staying the litigation and administratively closed the action. No proofsof claims were filed in the Chapter 11 proceedings with respect to theshareholder derivative suits.

*ERISA Litigation.  *On April 17,2003 and June 3, 2003, two purported class action lawsuits allegingviolations of the Employee Retirement Income Security Act (“ERISA”) were filedin the United States District Court for the Northern District of Georgia, underthe captions *James Brown v. Mirant Corporation, et al.*and *Greg Waller, Sr. v. Mirant Corporation et al.*(the “ERISA Litigation”). The ERISA Litigation names as defendants Mirant,certain of its current and former officers and directors, and Southern. Theplaintiffs, who seek to represent a putative class of participants andbeneficiaries of Mirant’s 401(k) plans (the “Plans”), allege thatdefendants breached their duties under ERISA by, among other things, (i) concealinginformation from the Plans’ participants and beneficiaries; (ii) failingto ensure that the Plans’ assets were invested prudently; (iii) failing tomonitor the Plans’ fiduciaries; and (iv) failing to engage independentfiduciaries to make judgments about the Plans’ investments. The factualallegations underlying these lawsuits are substantially similar to thosedescribed with respect to the shareholder litigation, the rate payerlitigation, and the California Attorney General lawsuits described above. Theplaintiffs seek unspecified damages, injunctive relief, attorneys’ fees andcosts. On September 2, 2003, the district court issued an orderconsolidating the two suits. On September 23, 2003, the plaintiffs filedan 

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amended and consolidatedcomplaint. The amended and consolidated complaint asserted similar factualallegations as the previously filed lawsuits and added as defendants T. RowePrice Trust Company and certain additional current and former officers ofMirant. The consolidated action is stayed as to Mirant by the filing of itsChapter 11 proceeding. On November 19, 2003, the Bankruptcy Court enteredan order staying this action also with respect to the other defendants to avoidthe suit impeding the ability of Mirant to reorganize or having a negativeeffect upon Mirant’s assets. By agreement, however, the suit has been allowedto proceed through the filing of, and ruling by the district court upon,motions to dismiss. On January 9, 2004, T. Rowe Price Trust Companyanswered the amended and consolidated complaint. All other defendants filedmotions on that date seeking dismissal of the plaintiffs’ claims for failure tostate a claim upon which relief can be granted. On February 19, 2004, theplaintiffs dismissed their claims against Southern without prejudice. On June 14,2004, the plaintiffs filed a motion seeking to amend their consolidatedcomplaint to add as defendants Mirant Services, LLC and its board of managers.

On August 4, 2004, the United States DistrictCourt for the Northern District of Georgia entered an order staying the ERISALitigation until the Bankruptcy Court lifts the stays resulting from the filingof Mirant’s bankruptcy proceedings and the order entered by the BankruptcyCourt on November 19, 2003 staying the action with respect to the otherdefendants. In the order issued August 4, 2004, the district court alsodenied the motions to dismiss filed by various defendants, including Mirant,and the motion filed by the plaintiffs seeking to amend their consolidatedcomplaint to add as defendants Mirant Services and its board of managers. Withrespect to both motions, the district court granted the party filing the motionleave to refile the motion once the stays have been lifted by the BankruptcyCourt.

In December 2003, attorneys purporting to act onbehalf of the plaintiffs in the ERISA Litigation filed proofs of claim againstthe Mirant Debtors’ estates, totaling approximately $50 million (the “Brown & WallerClaims”). On October 18, 2004, the Mirant Debtors objected to the Brown &Waller Claims. The parties recently announced to the Bankruptcy Court that theyhave settled the Brown & Waller Claims, subject to Bankruptcy Courtapproval. Under the proposed settlement agreement, the claimants agreed tolimit their recovery against the Mirant Debtors and any related defendants inthe ERISA Litigation to the proceeds paid or payable under certain insurancepolicies issued to Southern Company and Mirant. The Brown & WallerClaims in the bankruptcy proceedings will be amended to be for a zero dollaramount, and the parties agreed that the Brown & Waller claims will notbe further amended.

*Mirant Americas Generation Securities Class Action.  *OnJune 11, 2003, a purported class action lawsuit alleging violations ofSections 11 and 15 of the Securities Act of 1933 was filed in the Superior Courtof Fulton County, Georgia, entitled Wisniak v. Mirant Americas Generation, LLC,et al. The lawsuit names as defendants Mirant Americas Generation and certaincurrent and former officers and managers of Mirant Americas Generation. Theplaintiff seeks to represent a putative class of all persons who purchased debtsecurities of Mirant Americas Generation pursuant to or traceable to anexchange offer completed by Mirant Americas Generation in May 2002 inwhich $750 million of bonds registered under the Securities Act wereexchanged for $750 million of previously issued senior notes of MirantAmericas Generation. The plaintiff alleges, among other things, that MirantAmericas Generation ‘s restatement in April 2003 of prior financialstatements rendered the registration statement filed for the May 2002exchange offer materially false. The complaint seeks damages, interest andattorneys’ fees. The defendants have removed the suit to the United StatesDistrict Court for the Northern District of Georgia. This action is stayed asto Mirant Americas Generation by the filing of its Chapter 11 proceeding. On November 19,2003, the Bankruptcy Court entered an order staying these actions also withrespect to the individual defendants to avoid the suit impeding the ability ofMirant Americas Generation to reorganize or having a negative effect upon itsassets. On December 8, 2003, the court took notice of the Bankruptcy Court’sOrder dated November 19, 2003 staying the litigation and administrativelyclosed the action. On December 16, 2003, the plaintiff dismissed MirantAmericas Generation as a defendant, without prejudice, 

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and filed a proof of claimagainst Mirant Americas Generation in the bankruptcy proceedings asserting thesame claims set forth in the lawsuit.

Mirant Americas Generationand the plaintiff have entered into a stipulation of settlement of the Wisniaksuit and the claim filed against Mirant Americas Generation that was approvedby the Bankruptcy Court on January 19, 2005. Under the terms of thestipulation of settlement, the plaintiff will seek certification of a class bythe district court that will receive $2.25 million to be paid by insurers for MirantAmericas Generation, and an allowed, unsecured claim of $2 million againstMirant subordinated to the claims of its other unsecured creditors. Members ofthe plaintiff class will have the opportunity to opt out of the settlement, andif class members who choose to opt out own in the aggregate more than 1% of theMirant Americas Generation bonds that are the subject of the suit, then theMirant defendants have the option to withdraw from the settlement. Thestipulation of settlement must also be approved by the district court to becomeeffective.

*PEPCO Litigation*

In 2000, Mirant purchased certain power generatingassets and certain other assets from PEPCO, including certain power purchaseagreements (“PPAs”). Under the terms of the Asset Purchase and Sale Agreement(the “APSA”) Mirant and PEPCO entered into acontractual arrangement (the “Back-to-Back Agreement”) with respect to certainPPAs, including PEPCO’s long-term PPAs with Ohio Edison Company (“Ohio Edison”)and Panda-Brandywine L.P. (“Panda”) under which (1) PEPCO agreed toresell to Mirant all “capacity, energy, ancillary services and other benefits”to which it is entitled under those agreements; and (2) Mirant agreed topay PEPCO each month all amounts due from PEPCO to Panda or Ohio Edison for theimmediately preceding month associated with such capacity, energy, ancillaryservices and other benefits. The Panda and Ohio Edison PPAs run until2021 and 2005 respectively. Under the Back-to-Back Agreement, Mirant isobligated to purchase power from PEPCO at prices that are significantly higherthan existing market prices for power.

*Back-to-Back Agreement Litigation.  *OnAugust 28, 2003, the Mirant Debtors filed a motion in the bankruptcyproceedings to reject the Back-to-Back Agreement (the “Rejection Motion”),along with an adversary proceeding to enjoin PEPCO and the FERC from takingcertain actions against the Mirant Debtors (the “Injunction Litigation”). On October 9,2003, the United States District Court for the Northern District of Texasentered an order that had the effect of transferring to that court from theBankruptcy Court the motion filed by the Mirant Debtors seeking to reject theBack-to-Back Agreement and the Injunction Litigation. In December 2003,the district court denied the Rejection Motion and, thereafter, dismissed theInjunction Litigation. The district court ruled that the Federal Power Act preemptsthe Bankruptcy Code and that a bankruptcy court cannot affect a matter withinthe FERC’s jurisdiction under the Federal Power Act, including the rejection ofa wholesale power purchase agreement regulated by the FERC.

The Mirant Debtors appealed the district court’sorders to the United States Court of Appeals for the Fifth Circuit (the “FifthCircuit”). The Fifth Circuit reversed the district court’s decision, holdingthat the Bankruptcy Code authorizes a district court (or bankruptcy court) toreject a contract for the sale of electricity that is subject to the FERC’sregulation under the Federal Power Act as part of a bankruptcy proceeding andthat the Federal Power Act does not preempt that authority. The Fifth Circuitremanded the proceeding to the district court for further action on that motion.The Fifth Circuit indicated that on remand the district court could considerapplying a more rigorous standard than the business judgment standard typicallyapplicable to contract rejection decisions by debtors in bankruptcy, which morerigorous standard would take into account the public interest in thetransmission and sale of electricity.

On December 9, 2004, the district court held thatthe Back-to-Back Agreement was a part of and not severable from, and thereforecould not be rejected apart from, the APSA. The district court also noted 

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that if the Fifth Circuitoverturned the district court’s ruling with respect to severability, theBack-to-Back Agreement should be rejected only if Mirant can prove that theBack-to-Back Agreement burdens the bankrupt estates; that, after scrutiny andgiving significant weight to the comments of the FERC relative to the effect ofrejection on the public interest, the equities balance in favor of rejectingthe Back-to-Back Agreement; and that rejection of the Back-to-Back Agreementwould further the Chapter 11 goal of permitting the successful rehabilitationof the Mirant Debtors. The Mirant Debtors have appealed the district court’s December 9,2004, decision to the Fifth Circuit and requested that the Fifth Circuit hearthis appeal on an expedited basis. On March 8, 2005, the Fifth Circuit deniedMirant’s request to have the appeal expedited.

On January 21, 2005, the Mirant Debtors filed amotion in the bankruptcy proceedings to reject the APSA, including theBack-to-Back Agreement but not including other agreements entered into betweenMirant and its subsidiaries and PEPCO under the terms of the APSA (the “SecondRejection Motion”). On February 10, 2005, PEPCO filed a motion requestingthe district court to assert jurisdiction over and rule upon the SecondRejection Motion rather than having the Bankruptcy Court rule on thatmotion, arguing that the motion required the consideration of laws other thanthe Bankruptcy Code. On March 1, 2005, the district court ruled that it wouldwithdraw the reference to the Bankruptcy Court of the Mirant Debtors’ January21, 2005 motion seeking to reject the APSA and would itself hear that motion.

*Suspension of PEPCO Back-to-Back Payments.  *OnDecember 9, 2004, in an effort to halt excessive out-of-market paymentsunder the Back-to-Back Agreement while awaiting resolution of issues related tothe potential rejection of the Back-to-Back Agreement (but prior to notice ofentry of the district court’s order of December 9, 2004), Mirant filed anotice in the Bankruptcy Court that Mirant was suspending further payments toPEPCO under the Back-to-Back Agreement absent further order of the court (the “SuspensionNotice”). On December 10, 2004, in response to the Suspension Notice,PEPCO filed a motion in the district court seeking a temporary restrainingorder and injunctive relief to require Mirant to perform under the Back-to-BackAgreement (the “Injunctive Relief Motion”). On December 13, 2004, thedistrict court issued an order referring the Injunctive Relief Motion to theBankruptcy Court. On December 21, 2004, the Bankruptcy Court issued anorder denying the temporary restraining order sought by PEPCO.

On December 14, 2004, PEPCO filed the followingadditional litigation: (i) a motion seeking relief from the automatic stayprovision of Bankruptcy Code section 362(a) to permit PEPCO to terminateperformance under the APSA (the “Lift Stay Motion”); (ii) a motion tocompel the Mirant Debtors to pay, as administrative expenses, payments that hadbeen suspended under the Back-to-Back Agreement (the “Administrative ExpenseMotion”); and (iii) an adversary proceeding seeking to compel the MirantDebtors to make payments under the Back-to-Back Agreement (the “PEPCO Lawsuit”).On December 16, 2004, PEPCO filed a motion requesting the district courtto withdraw the reference to the Bankruptcy Court with respect to thelitigation filed by PEPCO on December 14, 2004, as well as the InjunctiveRelief Motion (the “Second Withdrawal Motion”). On January 4, 2005, thedistrict court denied the Second Withdrawal Motion in its entirety. On January 19,2005, the Bankruptcy Court entered an order embodying a ruling made orally bythe Court on January 14, 2005, in which it denied the Lift Stay Motion and theAdministrative Expense Motion, but required the Mirant Debtors to pay amountsdue under the Back-to-Back Agreement in January 2005 and thereafter until (i)the Mirant Debtors filed a motion to reject the APSA, (ii) the Fifth Circuitissued an order reversing the district court’s order of December 9, 2004denying the motion to reject the Back-to-Back Agreement, or (iii) the MirantDebtors were successful in having the obligations under the Back-to-BackAgreement recharacterized as debt obligations. PEPCO filed an appeal of theBankruptcy Court’s January 19 order. On March 1, 2005, the district courtordered the Mirant Debtors to pay PEPCO all past-due, unpaid obligations underthe Back-to-Back Agreement by March 10, 2005, withdrew the reference to theBankruptcy Court of the Administrative Expense Motion, and dismissed PEPCO’sappeal of the January 19 order denying the 

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Administrative ExpenseMotion as moot. The Mirant Debtors on March 4, 2005 filed a motion requestingthe district court to reconsider its order of March 1, 2004 or alternatively tostay that order while the Mirant Debtors appeal it to the Fifth Circuit. OnMarch 7, 2005, the district court modified the March 1 order to require PEPCOto file a response to the Mirant Debtors’ motion for reconsideration by March14 and to delay until March 18, 2005, the date by which the Mirant Debtors areto pay past-due, unpaid obligations under the Back-to-Back Agreement.

*Potential Adjustment Related toPanda Power Purchase Agreement.  *At the time of theacquisition of the Mirant Mid-Atlantic assets from PEPCO, Mirant also enteredinto an agreement with PEPCO that, as subsequently modified, provided that theprice paid by Mirant for its December 2000 acquisition of PEPCO assetswould be adjusted if by March 19, 2005 a binding court order has beenentered finding that the Back-to-Back Agreement violates PEPCO’s power purchaseagreement with Panda (“Panda PPA”) as a prohibited assignment, transfer ordelegation of the Panda PPA or because it effects a prohibited delegation ortransfer of rights, duties or obligations under the Panda PPA that is notseverable from the rest of the Back-to-Back Agreement. If a court order isentered that triggers the purchase price adjustment, the amount of theadjustment is to be negotiated in good faith by the parties or determined bybinding arbitration so as to compensate PEPCO for the termination of thebenefit of the Back-to-Back Agreement while also holding Mirant economicallyindifferent from such court order. Panda initiated legal proceedings in 2000asserting that the Back-to-Back Agreement violated provisions in the Panda PPAprohibiting PEPCO from assigning the Panda PPA or delegating its duties underthe Panda PPA to a third party without Panda’s prior written consent. On June 10,2003, the Maryland Court of Appeals, Maryland’s highest court, ruled that theassignment of certain rights and delegation of certain duties by PEPCO toMirant did violate the non-assignment provision of the Panda PPA and wasunenforceable. The court, however, left open the issues whether the provisionsfound to violate the Panda PPA could be severed and the rest of theBack-to-Back Agreement enforced and whether Panda’s refusal to consent to theassignment of the Panda PPA by PEPCO to Mirant was unreasonable and violatedthe Panda PPA. If the June 10, 2003 decision by the Maryland Court ofAppeals or a subsequent decision addressing the Back-to-Back Agreement isdetermined to have triggered the adjustment to the purchase price paid byMirant to PEPCO, such adjustment would not be expected to have a materialadverse effect on our financial position or results of operations.

*City of AlexandriaZoning Action*

On December 18, 2004, the City Council for theCity of Alexandria, Virginia (the “City Council”) adopted certain zoningordinance amendments recommended by the City Planning Commission that result inthe zoning status of Mirant Potomac River, LLC’s (“Mirant Potomac”) generatingplant being changed from “noncomplying use” to “nonconforming use subject toabatement.” Under the nonconforming use status, unless Mirant Potomac appliesfor and is granted a special use permit for the plant during the seven-yearabatement period, the operation of the plant must be terminated within aseven-year period, and no alterations that directly prolong the life of theplant will be permitted during the seven-year period.   Typically, the City Council grantsspecial use permits with various conditions and stipulations as to the permitteduse.

At its December 18, 2004, meeting, the CityCouncil also approved revocation of two special use permits issued in 1989 (the“1989 SUPs”), one applicable to the administrative office space at MirantPotomac’s plant and the other for the plant’s transportation management plan. Underthe terms of the approved action, the revocation of the 1989 SUPs will takeeffect 120 days after the City Council revocation, provided, however, that ifMirant Potomac files an application for a special use permit for the entireplant operations within such 120-day period, the effective date of therevocation of the 1989 SUPs will be stayed until final decision by the CityCouncil on such applications. The approved action further provides that if suchspecial use permit application is approved by the City Council, revocation ofthe 1989 

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SUPs will be dismissed asmoot, and if the City Council does not approve the application, the revocationof the 1989 SUPs will become effective and the plant will be considered anillegal use.

On January 18, 2005,Mirant Potomac and Mirant Mid-Atlantic, LLC filed a complaint against the Cityof Alexandria and the City Council in the Circuit Court for the City ofAlexandria. The complaint seeks to overturn the actions taken by the CityCouncil on December 18, 2004 changing the zoning status of Mirant Potomac’sgenerating plant and approving revocation of the 1989 SUPs, on the grounds thatthose actions violated federal, state and city laws. The complaint asserts,among other things, that the actions taken by the City Council constitutedunlawful spot zoning, were arbitrary and capricious, constituted an unlawfulattempt by the City Council to regulate emissions from the plant, and violatedMirant Potomac’s due process rights. Mirant Potomac and Mirant Mid-Atlanticrequest the court to enjoin the City of Alexandria and the City Council fromtaking any enforcement action against Mirant Potomac or from requiring it toobtain a special use permit for the continued operation of its generatingplant.

*Utility Choice Suit*

On February 18, 2005,two providers of electricity at retail in Texas, Utility Choice, L.P. and CirroGroup, Inc., filed a suit in the United States District Court for theSouthern District of Texas, entitled Utility Choice, L.P., et al. v. TXU Corp.,et al., against numerous owners of generating facilities and power marketers inTexas, including Mirant Americas Energy Marketing, Mirant Americas Development, Inc.,and two subsidiaries of Mirant Americas Generation owning generating facilitiesin Texas. The plaintiffs allege that the defendants, including the Mirantdefendants, acting individually and in collusion with each other, engaged invarious types of unlawful manipulation of the short term and bilateralwholesale power markets in the Electric Reliability Council of Texas regionbeginning in 2001 and continuing to the period immediately prior to the filingof the suit that caused the plaintiffs to pay significantly higher prices forpower they purchased and to incur other significant costs. The types of conductthat the plaintiffs allege were engaged in by the defendants, including theMirant defendants, include submitting false schedules and bids, “hockey stick”bidding, withholding generation resources from the market and bidding generationresources at artificially high prices, in each case with the intent to createartificially high market prices. The complaint asserts various causes ofaction, including without limitation claims under the federal and Texasantitrust acts and the federal Racketeer Influenced and Corrupt Organizations(RICO) Act, as well as state law claims for fraud, negligent misrepresentation,and promissory estoppel. The plaintiffs seek lost profits and othercompensatory damages of an unspecified amount, treble damages, exemplarydamages and attorneys’ fees.

*EnvironmentalProceedings*

*EPA Information Request.  *InJanuary 2001, the Environmental Protection Agency (“EPA”) issued a requestfor information to Mirant concerning the air permitting and air emissioncontrol implications under the EPA’s new source review regulations promulgatedunder the Clean Air Act of past repair and maintenance activities at MirantPotomac’s plant in Virginia and Mirant Americas Generation’s Chalk Point,Dickerson and Morgantown plants in Maryland. The requested information concernsthe period of operations that predates Mirant’s ownership and lease of theplants. Mirant has responded fully to this request. Under the sales agreementwith PEPCO for those plants, PEPCO is responsible for fines and penaltiesarising from any violation associated with historical operations prior to Mirant’sacquisition of the plants. If a violation is determined to have occurred at anyof the plants, the Mirant entity owning the plant may be responsible for thecost of purchasing and installing emission control equipment, the cost of whichmay be material. If such violation is determined to have occurred after Mirantacquired the plants or, if occurring prior to the acquisition, is determined toconstitute a continuing violation, the Mirant entity owning the plant at issuewould also be subject to fines and penalties by the state or federal governmentfor the period subsequent to its acquisition of the plant, the cost of whichmay be material.

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*California Department of Toxic Substances ControlClaim.  *On January 7, 2004, the CaliforniaDepartment of Toxic Substances Control filed a proof of claim in the MirantDebtors’ bankruptcy proceedings based on civil penalties for allegednon-compliance with state hazardous waste laws and regulations requiring properdocumentation of financial assurance for the ultimate closure and post-closurecosts, and third-party liability coverage, related to the power plant inPittsburg, California owned by Mirant America Generation’s subsidiary, MirantDelta. On December 2, 2004, a settlement was reached that allows theCalifornia Department of Toxic Substances Control a general unsecured claim of approximately$50,000 against Mirant Delta in the bankruptcy proceedings.

*New York Opacity.  *On October 20,2004, the New York State Department of Environmental Affairs Region 3 Stafffiled a complaint against Mirant Bowline, Mirant Lovett and Mirant New Yorkwith the New York Department of Environmental Conservation. The complaintalleges that the generating facilities owned by Mirant Bowline and MirantLovett violated Article 19 of New York’s Environmental Conservation Lawand regulations promulgated pursuant to that law by violating opacity standardsset for smoke emissions on more than one hundred occasions between the secondquarter of 2002 and the first quarter of 2004. The complaint seeks a cease anddesist order and fines of $1.96 million against the Mirant defendants.

*Potomac River Notice of Violation.  *OnSeptember 10, 2003, the Virginia Department of Environmental Qualityissued a Notice of Violation (“NOV”) to Mirant Potomac alleging that itviolated its Virginia Stationary Source Permit to Operate by emitting nitrogenoxide (“NOx”) in excess of the “cap” established by the permit for the 2003summer ozone season. Mirant Potomac responded to the NOV, asserting that thecap is unenforceable, that it can comply through the purchase of emissionscredits and raising other equitable defenses. Virginia’s civil enforcementstatute provides for injunctive relief and penalties. On January 22, 2004,the EPA issued a NOV to Mirant Potomac alleging the same violation of itsVirginia Stationary Source Permit to Operate as set out in the NOV issued bythe Virginia Department of Environmental Quality.

On September 27, 2004, Mirant Potomac, MirantMid-Atlantic, the Virginia Department of Environmental Quality, the MarylandDepartment of the Environment, the DOJ and the EPA entered into, and filed forapproval with the United States District Court for the Eastern District ofVirginia, a consent decree that, if approved, will resolve Mirant Potomac’spotential liability for matters addressed in the NOVs previously issued by theVirginia Department of Environmental Quality and the EPA. The consent decreerequires Mirant Potomac and Mirant Mid-Atlantic to install pollution controlequipment at Mirant Potomac’s Potomac River plant and at the Morgantown plantleased by Mirant Mid-Atlantic in Maryland; to comply with declining system-wideozone season NOx emissions caps from 2004 through 2010; to comply withsystem-wide annual NOx emissions caps starting in 2004; to meet seasonal systemaverage emissions rate targets in 2008; and to pay civil penalties and performsupplemental environmental projects in and around the Potomac River plantexpected to achieve additional environmental benefits. Except for the installationof the controls planned for the Potomac River units and the installation ofselective catalytic reduction (“SCR”) or equivalent technology at MirantMid-Atlantic’s Morgantown Units 1 and 2 in 2007 and 2008, the consent decreedoes not obligate the Mirant entities to install specifically designatedtechnology, but rather simply to reduce emissions sufficiently to meet thevarious NOx caps. Moreover, as to the required installations of SCRs atMorgantown, Mirant Mid-Atlantic may choose not to install the technology by theapplicable deadlines and leave the units off either permanently or until suchtime as the SCRs are installed. The aggregate amount of the civil penalties tobe paid and costs to be incurred by Mirant Potomac for the supplemental environmentalprojects is $1.5 million. The consent decree is subject to the approval of thedistrict court and the Bankruptcy Court.

*New York Lovett CAMF.  *TheNew York State Department of Environmental Affairs issued a notice of violationfor the improper closure techniques used on the closure of the coal ashmanagement facility at 

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Mirant Lovett. This issueis being resolved with the State of New York and may require repair work to beundertaken on the cover.

*New York Dissolved Oxygen.  *MirantNew York is working with the New York State Department of Environment Affairsto settle a consent order that would require us to install equipment to enableus to comply with dissolved oxygen level requirements at the New York Hydrofacilities.

*Other GovernmentalProceedings*

*Department of Justice Inquiries.  *In2002, we were contacted by the DOJ regarding our disclosure of accountingissues, energy trading matters and allegations contained in an amendedcomplaint filed in securities litigation pending against us that we improperlydestroyed certain electronic records related to its activities in California.We have been asked to provide copies of the same documents requested by the SECin their investigation described below in “Securities and Exchange CommissionInvestigation,” and we have been, and intend to continue, cooperating fully.The DOJ has advised us that it does not intend to take further action withrespect to the allegations of improper destruction of electronic records.

In November 2002, we received a subpoena from theDOJ, acting through the United States Attorney’s office for the NorthernDistrict of California, requesting information about our activities and thoseof its subsidiaries for the period since January 1, 1998. The subpoenarequested information related to the California energy markets and othertopics, including the reporting of inaccurate information to the trade pressthat publish natural gas or electricity spot price data. The subpoena wasissued as part of a grand jury investigation. We have continued to receiveadditional requests for information from the United States Attorney’s office,and we intend to continue to cooperate fully with the United States Attorney’soffice in this investigation.

*Securities and Exchange Commission Investigation.  *InAugust 2002, we received a notice from the Division of Enforcement of theSecurities and Exchange Commission (“SEC”) that it was conducting aninvestigation of us. The Division of Enforcement has asked for information anddocuments relating to various topics such as accounting issues (includingaccounting issues we announced on July 30, 2002 and August 14, 2002),energy trading matters (including round trip trades), our accounting fortransactions involving special purpose entities, and information related toshareholder litigation. In late June 2003, the Division of Enforcementadvised us that its investigation of Mirant had become a formal investigationin February 2003. We intend to continue to cooperate fully with the SEC.

*Department of Labor Inquiries.  *OnAugust 21, 2003, we received a notice from the Department of Labor (the “DOL”)that it was commencing an investigation pursuant to which it was undertaking toreview various documents and records relating to our 401(k) Plans. The DOLalso has interviewed our personnel regarding those plans. We will continue tocooperate fully with the DOL.

*CFTC Inquiry.  *In 2002,the Commodity Futures Trading Commission (“CFTC”) asked Mirant Americas EnergyMarketing for information about certain buy and sell transactions occurringduring the period from January 1, 1999 through June 17, 2002. MirantAmericas Energy Marketing provided information regarding such trades to theCFTC, none of which it considers to be wash trades. In March 2003, MirantAmericas Energy Marketing received a subpoena from the CFTC requesting avariety of documents and information related to Mirant Americas EnergyMarketing’s trading of electricity and natural gas and its reporting oftransactional information to energy industry publications that prepare priceindices for electricity and natural gas in the period from January 1, 1999through the date of the subpoena. In December 2004, Mirant and MirantAmericas Energy Marketing entered into a settlement with the CFTC that resolvesthe CFTC’s inquiry into whether Mirant Americas Energy Marketing misrepresentednatural gas trading information in 2000 and 2001. Pursuant to the settlement,Mirant and Mirant Americas Energy Marketing consented to the entry of an orderby the CTFC in which it makes findings, which are neither admitted or denied byMirant and Mirant Americas Energy Marketing, that (1) from January 2000

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through December 2001,certain Mirant Americas Energy Marketing natural gas traders (i) knowinglyreported inaccurate price, volume, and/or counterparty information regardingnatural gas cash transactions to publishers of natural gas indices; and (ii) inaccuratelyreported to index publishers transactions observed in the market as MirantAmericas Energy Marketing transactions and (2) from January to October 2000,certain Mirant Americas Energy Marketing west region traders knowinglydelivered the false reports in an attempt to manipulate the price of naturalgas. Under the settlement, the CFTC received a subordinated allowed, unsecuredclaim against Mirant Americas Energy Marketing of $12.5 million in the Chapter11 proceedings.

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

None.

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**PART II**

**Item 5.**                        *Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities*

**Common Stock**

Ourcommon stock is presently being quoted, and has been quoted since July 16,2003, on the Pink Sheets Electronic Quotation Service (“Pink Sheets”)maintained by Pink Sheets LLC for the National Quotation Bureau, Inc.Certain restrictions in trading are imposed under a Bankruptcy Court order thatrequires certain direct and indirect holders of claims, preferred securitiesand common stock to provide at least ten days advance notice of their intent tobuy or sell claims against the Mirant Debtors or shares in Mirant Corporation.The ticker symbol MIRKQ has been assigned to our common stock forover-the-counter quotations. As of February 25, 2005, we had143,308 holders of record. Prior to July 15, 2003, our common stockwas listed under, and traded on, the New York Stock Exchange (“NYSE”). As aresult of our filing on July 14, 2003 of a voluntary petition for reliefunder Chapter 11 of the U.S. Bankruptcy Code, on July 15, 2003, ourcommon stock was suspended from trading by the NYSE and, thereafter, delistedby the NYSE. The following table sets forth (1) the high and low salesprices for our common stock as reported on the NYSE for the first and secondquarters of 2003, and (2) the quarterly high and low bid quotations forour common stock as reported on the Pink Sheets for the third and fourthquarter of 2003 and all quarters of 2004. These quotations reflect inter-dealerprices, without retail markup, markdown or commissions, and may not necessarilyrepresent actual transactions.
| ** **     | ** ** | **Market**   | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|--------------|------------|----------|------------|---------|------------|
| **2003**       |       |         |       |     |       |    |       |
| First Quarter  |       | NYSE         |       | $        | 2.90       |    | $          | 1.13 |   |
| Second Quarter |       | NYSE         |       | $        | 3.90       |    | $          | 1.48 |   |
| Third Quarter  |       | Pink  Sheets |       | $        | 0.75       |    | $          | 0.19 |   |
| Fourth Quarter |       | Pink  Sheets |       | $        | 0.63       |    | $          | 0.26 |   |
| **2004**       |       |         |       |     |       |    |       |
| First Quarter  |       | Pink  Sheets |       | $        | 0.75       |    | $          | 0.40 |   |
| Second Quarter |       | Pink  Sheets |       | $        | 0.40       |    | $          | 0.26 |   |
| Third Quarter  |       | Pink  Sheets |       | $        | 0.48       |    | $          | 0.30 |   |
| Fourth Quarter |       | Pink Sheets  |       | $        | 0.41       |    | $          | 0.31 |   |

 

**Dividends**

We will retain any future earnings to fund ouroperations and meet our cash and liquidity needs. Therefore, we do notanticipate paying any cash dividends on our common stock in the foreseeablefuture.

Under the proposed Plan, our existing common stockwould be cancelled upon our emergence from bankruptcy and our current equityholders would then receive any surplus value after creditors are paid in fulland junior interests in the trust formed under the proposed Plan plus the rightto a pro rata share of warrants issued by the new company (“New Mirant”) ifthey vote to accept the proposed Plan (warrants would give each holder theright to purchase New Mirant shares at a set price within a certain period oftime). The amount equity holders will receive, if anything, will be determinedby the Bankruptcy Court in a valuation hearing to commence in mid-April 2005.Accordingly, we urge that appropriatecaution be exercised with respect to existing and future investments in oursecurities.

The Mirant Trust I trustpreferred stock is presently being quoted on the Pink Sheets under the tickersymbol MIRPQ. These trust preferred securities are obligations of the MirantTrust I and, as such, are not direct obligations of Mirant Corporation. As aresult, they are not addressed specifically as part of the proposed Plan.Mirant Trust I holds $356 million in aggregate principal amount of juniorunsecured 

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convertibledebentures of Mirant Corporation, the principal and interest on which arepledged to the payment of the trust preferred securities. Mirant Trust I hasagreed that these debentures are subordinated to certain “senior indebtedness”of Mirant Corporation, including indebtedness under the respective creditfacilities and debt securities of Mirant Corporation. If all seniorindebtedness is paid in full, the holders of the subordinated debentures wouldreceive payments up to their aggregate principal amount, if available.

**Item 6.**                        *Selected Financial Data*

The following discussion should be read in conjunctionwith our consolidated financial statements and the notes thereto, which areincluded elsewhere in this Form 10-K. The following table presents ourselected consolidated financial information, which is derived from ourconsolidated financial statements. The financial information for the periodsprior to our separation from Southern Company on April 2, 2001 does notnecessarily reflect what our financial position and results of operations wouldhave been had we operated as a separate, stand-alone entity during thoseperiods.

Thefollowing selected financial information should also be read considering thatuntil August 10, 2000, the date of our acquisition of VastarResources Inc.’s 40% interest in Mirant Americas Energy Marketing, weaccounted for this joint venture under the equity method of accounting.Effective August 10, 2000, Mirant Americas Energy Marketing became awholly-owned consolidated subsidiary of Mirant.
| ** **                                                   | ** ** | **Years Ended December 31,**                      | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                                                         | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                   | ** ** | **(In millions except per share data)** | ** ** |
| Statement of Operations  Data:                               |       |                                                             |       |   |   |   |   |   |   |   |   |
| Operating  revenues                                          | ** ** | $                                                                | 4,572      |   | $ | 5,162 |   | $ | 4,703 |   | $ | 7,208 |   | $ | 3,951 |   |
| (Loss) income  from continuing operations                    |       | (410                                                             | )          | (3,632 | ) | (2,340 | ) | 465 |   | 300 |   |
| (Loss) income  from discontinued operations                  |       | (66                                                              | )          | (174 | ) | (98 | ) | (56 | ) | 30 |   |
| Cumulative effect  of changes in accounting principles  |       | —                                                           |       | (29 | ) | — |   | — |   | — |   |
| Net (loss) income                                            |       | (476                                                             | )          | (3,835 | ) | (2,438 | ) | 409 |   | 330 |   |
| (Loss) earnings per  share:                                  |       |                                                             |       |   |   |   |   |   |   |   |   |
| From continuing operations                                   |       | $                                                                | (1.01      | ) | $ | (8.97 | ) | $ | (5.82 | ) | $ | 1.36 |   | $ | 1.03 |   |
| From discontinued operations                                 |       | (0.16                                                            | )          | (0.43 | ) | (0.24 | ) | (0.16 | ) | 0.11 |   |
| From cumulative effect of changes in  accounting principles  |       | —                                                           |       | (0.07 | ) | — |   | — |   | — |   |
| Net (loss) income                                            |       | $                                                                | (1.17      | ) | $ | (9.47 | ) | $ | (6.06 | ) | $ | 1.20 |   | $ | 1.14 |   |

 
| ** **                                                                                                     | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                     | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Balance Sheet Data:                                                                                            |       |                        |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                                   | ** ** | $                           | 11,424     |   | $ | 12,333 |   | $ | 19,423 |   | $ | 22,043 |   | $ | 24,136 |   |
| Total long-term  debt                                                                                          |       | 1,375                       |       | 1,538 |   | 8,822 |   | 8,435 |   | 5,596 |   |
| Liabilities  subject to compromise                                                                             |       | 9,211                       |       | 9,077 |   | — |   | — |   | — |   |
| Subsidiary  obligated mandatorily redeemable preferred securities                                              |       | —                      |       | — |   | — |   | — |   | 950 |   |
| Company obligated  mandatorily redeemable securities of a subsidiary holding solely parent  company debentures |       | —                      |       | — |   | 345 |   | 345 |   | 345 |   |
| Stockholders’ (deficit)  equity                                                                           |       | (1,318                      | )          | (823 | ) | 2,955 |   | 5,258 |   | 4,164 |   |
|                                                                                                                |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item7.**         *Management’sDiscussion and Analysis of Financial Condition and Results of Operations*

**Executive Summary**

*Overview*

Weoperate as a debtor-in-possession under the jurisdiction of the BankruptcyCourt in accordance with Chapter 11 of the Bankruptcy Code. As a result, ourfinancial statements include the results of Bankruptcy Court actions, probableclaims against our estate and professional and administrative costs related tothe bankruptcy process.

In2004, we allocated a substantial amount of resources to bankruptcyrestructuring, which includes resolving claims disputes and contingencies,determining enterprise value and capital structure and negotiating a plan ofreorganization with the Statutory Committees. In addition to financialrestructuring activities, we are preparing to operate after our emergence fromChapter 11 protection. We currently plan to emerge from Chapter 11 in mid-2005.On January 19, 2005, we filed our proposed Plan with the Bankruptcy Court.

Ingeneral, it is our current view that the U.S. electricity markets have excessgeneration capacity. Additionally, generation capacity is expected to exceedcombined demand levels and reserve generation targets through 2008 to 2010 formost major markets. This market situation has the potential to result incontinued narrow fuel to electricity conversion spreads. In this environment,customers typically transact over shorter durations and rely more heavily onspot markets to meet their energy needs, thus making it more difficult for usto sell our power for longer-term durations and at prices that provide areasonable return, most notably on our gas fired units.

Forour U.S.-based generation business, changing commodity prices can result involatile financial results as these forward power contracts and otherderivative instruments do not currently receive cash flow hedge accountingtreatment in our financial statements. Instead, these contracts are reflectedin our financial statements at fair value, resulting in volatility in our grossmargin. Our unrealized gains and losses for each period reflect changes in fairvalue of commodity contracts not yet settled and the reversal of unrealizedgains and losses recognized in previous periods that settled in the currentreporting period. We plan to implement cash flow hedge accounting during 2005,which will reduce volatility from these transactions in the income statement.

Ourpower generation businesses and our integrated utilities in the Philippines andCaribbean continue to provide consistent, stable gross margin and operatingcash flows. In general, we expect increased demand levels in the countries inwhich these businesses operate.

Forthe years ended December 31, 2004, 2003 and 2002, our gross marginincluded the following (in millions):
| ** **                                                                        | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Realized gross margin(1)                                                          |       | $                                           | 1,460      |   | $ | 1,678 |   | $ | 1,663 |   |
| TPA amortization                                                                  |       | 344                                         |       | 426 |   | 423 |   |
| Unrealized gains  (losses) on PPAs                                                |       | 168                                         |       | 171 |   | 35 |   |
| Net unrealized losses on  asset management, optimization and legacy portfolios(1) |       | (20                                         | )          | (297 | ) | 100 |   |
| Net unrealized gross  margin                                                      |       | 148                                         |       | (126 | ) | 135 |   |
| Total gross margin                                                                |       | $                                           | 1,952      |   | $ | 1,978 |   | $ | 2,221 |   |

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(1)          Gross margin for the year ended December 31,2003 reflects $188 million of unrealized losses offset by $188 million ofrealized gross margin related to energy contracts terminated by counterpartiesas a result of our Chapter 11 filings. As a result of the terminations, theunrealized gains on these contracts became realized in the third quarter of2003.

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*FinancialPerformance*

Wereported an operating loss of $18 million for the year ended December 31,2004 compared to an operating loss of $2,864 in 2003. The $2,846 million changein operating loss is detailed as follows (in millions):
| ** **                                         | ** ** | **Favorable/  (Unfavorable)** | ** ** |
|----------------------------------------------------|------------|-------------------------------|------------|
| Gross margin(1)                                    |       |                          | $          | (26 | ) |   |
| Operations and  maintenance(2)                     |       |                          | 81         |   |   |
| Depreciation and  amortization                     |       |                          | 32         |   |   |
| Goodwill  impairment losses(3)                     |       |                          | 1,485      |   |   |
| Long-lived  asset impairment losses(4)             |       |                          | 1,339      |   |   |
| Other impairment  losses and restructuring charges |       |                          | 34         |   |   |
| (Loss) gain on  sales of assets, net(5)            |       |                          | (99        | ) |   |
| Change in  operating loss                          |       |                          | $          | 2,846 |   |   |

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(1)          Grossmargin decreased $26 million in 2004 compared to 2003 primarily due to lowertransition power agreement amortization and unrealized losses stemming from anincrease in electricity prices partially offset by new rates in Jamaica in 2004and higher realized margins from increased prices in 2004. The lower transitionpower agreement amortization is due to the revisions to the contracts as partof a late 2003 settlement and expiration of one of the contracts in 2004.

(2)          Operationsand maintenance expense decreased by $81 million primarily due to cost cuttingefforts, lower bad debt expenses, favorable property tax settlements and writeback of a receivable stemming from bankruptcy court actions of one of ourcustomers.

(3)          Goodwillimpairment losses decreased by $1,485 million in 2004 compared to 2003. In 2003we wrote off all goodwill related to our North America business of $2,067million due to lower cash flow prospects of the business. In 2004, we wrote offthe remaining goodwill amounts related to our Asia business of $582 million. See“Critical Accounting Policies and Estimates” and Note 8 to our consolidatedfinancial statements contained elsewhere in this report.

(4)          Long-livedasset impairment losses decreased by $1,339 million in 2004 compared to 2003. Thischange is due to the $1,339 million impairment charge in 2003 related to lowercash flow prospects for the North America business. This asset impairment alsocaused depreciation and amortization expense to decrease in 2004 compared to2003.

(5)          In 2004 we completed the sale of our remaining Canadian naturalgas transportation contracts and certain natural gas marketing agreements. Aspart of the sale agreements, we paid approximately $12 million to a thirdparty to assume approximately $28 million of net liabilities. Werecognized a gain of approximately $16 million in connection with the saleof these agreements. In 2004 we recorded a loss on sale of assets ofapproximately $65 million related to the planned sale of three natural gascombustion turbines that is reflected in the loss (gain) on sales of assets,net in the consolidated statements of operations. In 2003, we had a gain onsale of assets of $46 million primarily related to the sale of gas storagecontracts in our Canadian trading operations.

***Bankruptcy Considerations***

Through the bankruptcy process, we intend torestructure the Company and establish a capital structure that is consistentwith the effects of overcapacity and resulting lower margins and reduced cashflow in the competitive power generation business. While in bankruptcy, weexpect our financial results to continue to be volatile as asset impairments,asset dispositions, restructuring activities, contract 

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terminations andrejections, and claims assessments will significantly impact our consolidatedfinancial statements. As a result, our historical financial performance is likelynot indicative of our financial performance post-bankruptcy.

In addition, upon emergence from Chapter 11, theamounts reported in subsequent consolidated financial statements may materiallychange relative to historical consolidated financial statements as a result ofrevisions to our operating plans set forth in the proposed Plan and, ifrequired, the impact of revaluing our assets and liabilities by applying freshstart accounting in accordance with Statement of Position 90-7, “FinancialReporting by Entities in Reorganization under the Bankruptcy Code.”

As part of the bankruptcy process, claims are filedwith the Bankruptcy Court related to amounts that claimants believe the MirantDebtors owe them. These claims, except for claims by certain governmentalagencies, were required to be filed with the Court by December 16, 2003 (March 12,2004 for claims against the Chapter 11 estates of Mirant Americas EnergyCapital and Mirant Americas Energy Capital Assets). In the absence of aspecific Bankruptcy Court order providing otherwise, all governmental agencieswere required to file claims with the Bankruptcy Court by January 12, 2004(May 17, 2004 for claims against the Chapter 11 estates of MirantAmericas Energy Capital and Mirant Americas Energy Capital Assets). See “CriticalAccounting Policies and Estimates” for additional information.

On January 19, 2005,we filed a proposed Plan and Disclosure Statement in the Bankruptcy Court. Forfurther discussion, see Item 1 contained elsewhere in this report.

***Business Review and Market Environment***

*North America*

Given our current view of the market, certain of ourU.S. generating assets will need to overcome several hurdles to remainoperational. The following is a summary of our key strategic initiatives.

In the Northeast region, certain power plants that areadversely impacted by overcapacity in the region and significant environmentalcapital expenditure requirements may be permanently shutdown or mothballed ifcurrent conditions persist or we are unsuccessful in reaching an agreement on aregulatory solution. Another significant issue in the Northeast region is ourNew York property tax disputes at Lovett and Bowline power plants. See Note 15to our consolidated financial statements for additional information. At ourcurrent tax rates, these New York power plants are forecast to have negativeoperating cash flows. Without substantial tax relief, we will likely sell,permanently shutdown or abandon these plants. In addition, our New York powerplants face a challenging operating environment due to poor supply/demandfundamentals.

In the Mid-Atlantic region, our historical financialresults include significant non-cash revenue from the amortization of thethen-fair values of the TPA liabilities assumed as part of our acquisition ofgeneration assets from PEPCO. This non-cash revenue comprised approximately29%, 35% and 29% of the gross margin of our North America segment for the yearsended December 31, 2004, 2003 and 2002, respectively. One of the TPAsexpired in June 2004 and the remaining TPA expired in January 2005. Sincethe expiration of the TPA, Mirant Americas Energy Marketing has beeneconomically hedging the output of the Mid- Atlantic portfolio, extending into2006, in the bilateral market and by entering into structured transactions.

In the West region, litigation related to our RMRcontract in California represents a significant contingency that could resultin sale or other disposition of some or all of our RMR units. On January 19,2004, we entered into a settlement agreement related to these contracts that isdiscussed under “California Settlement” in Note 15. The settlement is subjectto the approval of the FERC and the Bankruptcy Court.

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In the Mid-Continent region, we are working to eitherextend our current contracts or enter into new contracts after their expirationdates between May 2004 and May 2014 at our generating facilities inFlorida and Georgia. We are also working to open new channels to realize valuefrom our plants in Michigan and Indiana through contracts with other utilities.

We currently expect to permanently or temporarilyshutdown generating plants with a total capacity of 1,592 MW over the nextfive years. Additionally, we do not expect to independently complete our foursuspended construction projects that consist of 2,188 MW of generatingcapacity and will either pursue partnerships to complete these projects or to,sell or abandon them. During 2004, we mothballed the Wrightsville generatingfacility. In February 2005, we entered in an agreement to sell theWrightsville facility to Arkansas Electric Cooperative Corporation, subject toBankruptcy Court approval and certain other regulatory and third-party consentsand approvals. We expect the sale of the Wrightsville facility to close in 2005.

In response to the currentmarket conditions, we instituted two cost reduction programs, the CorporateOverhead Initiative (“COI”) and the Operations Performance Initiative (“OPI”)that were completed in 2004. These reductions are included in the forecastscontained in the proposed Plan. COI, aninitiative undertaken by the Company to find efficiencies and cut costs wherereasonable to do so, is intended to result in forecasted Company-wide savingsof $35 million in 2005 and $52 million in 2006 and beyond for both theCorporate and North America segments. OPI is an initiative undertaken by theCompany to reduce costs and enhance gross margins in the United States andJamaica. For North America, the forecasts incorporate expected operationalimprovements of approximately $176 million per year through 2011. For Jamaica,the forecasts assume savings of approximately $2 million in 2005 andapproximately $4 million per year from 2006 through 2009.

*International*

Our internationaloperations include integrated utilities and generating companies with long-termcontracts in cooperation with local governments, which provide more stableearnings and cash flow than our North America business. Our core initiativesfor our international businesses include the following:

·       continue to perform on ourNPC contracts in the Philippines;

·       manage regulatory,political and customer relationships;

·       reduce the systemelectricity losses at JPS as part of our continuous improvement efforts;

·       add additional generationcapacity; and

·       expandour energy supply business in the Philippines from available, but uncontracted,generation capacity.

**Results of Operations**

The following discussionof our performance is organized by reportable operating segment, which isconsistent with the way we manage our business. Beginning January 1, 2004,we changed our allocation methodology related to our corporate overheadexpenses. As a result, substantially all of our corporate operating expensesare allocated to our North America and International segments. The newmethodology allocates costs using several methods but is primarily based ongross margin, property, plant and equipment balances and labor costs. Ourallocation methodology may be subject to further change during the Chapter 11process.

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***North America***

OurNorth America segment consists primarily of electricity generation(approximately 14,000 MW of generating capacity) and energy trading andmarketing activities managed as a combined business. The following tablesummarizes the operations of our North America segment for the years ended December 31,2004, 2003, and 2002 (in millions):
| ** **                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **2003** | ** ** | **2002** | ** ** | **Increase/  (Decrease)** | ** ** |
| Operating Revenues:                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Generation                                        |       | $                                           | 3,486      |   | $ | 4,138 |   |   | $ | (652 | ) |   | $ | 4,138 |   | $ | 3,352 |   |   | $ | 786 |   |   |
| Net trading revenues                              |       | 36                                          |       | (1 | ) |   | 37 |   |   | (1 | ) | 341 |   |   | (342 | ) |   |
| Total operating  revenues                         |       | 3,522                                       |       | 4,137 |   |   | (615 | ) |   | 4,137 |   | 3,693 |   |   | 444 |   |   |
| Cost of fuel, electricity and other products      |       | 2,326                                       |       | 2,904 |   |   | (578 | ) |   | 2,904 |   | 2,254 |   |   | 650 |   |   |
| Gross margin                                      |       | 1,196                                       |       | 1,233 |   |   | (37 | ) |   | 1,233 |   | 1,439 |   |   | (206 | ) |   |
| Operating Expenses:                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance                        |       | 730                                         |       | 701 |   |   | 29 |   |   | 701 |   | 770 |   |   | (69 | ) |   |
| Depreciation and amortization                     |       | 165                                         |       | 200 |   |   | (35 | ) |   | 200 |   | 149 |   |   | 51 |   |   |
| Goodwill impairment losses                        |       | —                                      |       | 2,067 |   |   | (2,067 | ) |   | 2,067 |   | — |   |   | 2,067 |   |   |
| Long-lived asset impairment losses           |       | —                                      |       | 1,338 |   |   | (1,338 | ) |   | 1,338 |   | 509 |   |   | 829 |   |   |
| Other impairment losses and restructuring charges |       | 9                                           |       | 19 |   |   | (10 | ) |   | 19 |   | 270 |   |   | (251 | ) |   |
| Loss (gain)on sales of assets, net                |       | 50                                          |       | (38 | ) |   | 88 |   |   | (38 | ) | (5 | ) |   | (33 | ) |   |
| Total operating  expenses                         |       | 954                                         |       | 4,287 |   |   | (3,333 | ) |   | 4,287 |   | 1,693 |   |   | 2,594 |   |   |
| Operating (loss) income                           |       | $                                           | 242        |   | $ | (3,054 | ) |   | $ | 3,296 |   |   | $ | (3,054 | ) | $ | (254 | ) |   | $ | (2,800 | ) |   |

 

Thefollowing table summarizes gross margin by region for our North America segmentfor the years ended December 31, 2004, 2003 and 2002 (in millions):
| ** **                           | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **2003** | ** ** | **2002** | ** ** | **Increase/  (Decrease)** | ** ** |
| Mirant Americas  Generation:         |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Northeast                            |       | $                                           | 242        |   | $ | 143 |   |   | $ | 99 |   |   | $ | 143 |   | $ | 163 |   |   | $ | (20 | ) |   |
| Mid-Atlantic                         |       | 424                                         |       | 352 |   |   | 72 |   |   | 352 |   | 469 |   |   | (117 | ) |   |
| West                                 |       | 164                                         |       | 183 |   |   | (19 | ) |   | 183 |   | 334 |   |   | (151 | ) |   |
| Other North  America generation      |       | 170                                         |       | 179 |   |   | (9 | ) |   | 179 |   | 151 |   |   | 28 |   |   |
| TPA amortization                     |       | 344                                         |       | 426 |   |   | (82 | ) |   | 426 |   | 423 |   |   | 3 |   |   |
| Other, including  TPA and PPA losses |       | (148                                        | )          | (50 | ) |   | (98 | ) |   | (50 | ) | (101 | ) |   | 51 |   |   |
| Total                                |       | $                                           | 1,196      |   | $ | 1,233 |   |   | $ | (37 | ) |   | $ | 1,233 |   | $ | 1,439 |   |   | $ | (206 | ) |   |

 

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Thefollowing table summarizes capacity factor (average percentage of full capacityused over a year) by region for our North America segment for the years ended December 31,2004 and 2003:
| ** **                      | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** |
| Mirant Americas  Generation     |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Northeast                       |       |                                        | 33         | % |   |   | 31 | % |   |   | 2 | % |   |
| Mid-Atlantic                    |       |                                        | 44         | % |   |   | 45 | % |   |   | (1 | )% |   |
| West                            |       |                                        | 19         | % |   |   | 9 | % |   |   | 10 | % |   |
| Other North  America generation |       |                                        | 13         | % |   |   | 14 | % |   |   | (1 | )% |   |
| Total North America             |       |                                        | 28         | % |   |   | 23 | % |   |   | 5 | % |   |

 

The following tablesummarizes power generation volumes by region for our North America segment forthe years ended December 31, 2004 and 2003 (in gigawatt hours):
| ** **                      | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** |
| Mirant Americas  Generation     |       |                                        |       |   |   |   |   |   |   |
| Northeast                       |       | 8,797                                       |       | 8,492 |   |   | 305 |   |   |
| Mid-Atlantic                    |       | 16,461                                      |       | 16,884 |   |   | (423 | ) |   |
| West                            |       | 4,880                                       |       | 4,062 |   |   | 818 |   |   |
| Other North  America generation |       | 5,093                                       |       | 5,637 |   |   | (544 | ) |   |
| Total                           |       | 35,231                                      |       | 35,075 |   |   | 156 |   |   |

 

*2004 versus 2003*

*GrossMargin.  **G*ross margin decreased by $37million primarily due to the following:

·       Northeast operations gross margin increased $99million primarily due to the following:

·        An increase of $36 million related to net unrealized gains on derivativeinstruments of approximately $24 million in 2004 compared to $12 million in netunrealized losses in 2003;

·        An increase of $27 million due to certain events that occurred in thefirst half of 2003, such as certain forced outages and transmission lineproblems that did not recur in 2004;

·        An increase of $22 million in our realized economic hedging margin due tothe impact of 2003 short positions on power in a market where prices for powerwere rising; and

·        An increase of $6 million due to the sale of surplus emission allowances.

·         Mid-Atlanticoperations gross margin increased $72 million primarily due to thetermination in April 2003 of an intercompany capacity and energy agreementwith our Mirant Americas Energy Marketing subsidiary. As a result of theintercompany agreement, approximately $94 million of Mid-Atlantic grossmargin for the year ended December 31, 2003 is included in other grossmargin. This agreement ended May 1, 2003. Excluding the impact of this agreement, Mid-Atlantic operations grossmargin would have been $22 million lower in 2004 than in 2003, primarily due tothe following:

·        An increase ofapproximately $46 million driven by higher market prices for power;

·        An increase of $46 millionrelated to an increase in prices for capacity and ancillary services;

·        A decrease ofapproximately $68 million related to net unrealized losses on derivativecontracts for future periods. Of these contracts, $58 million related to powerand $10 million related to 

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oil and gas, and wereentered into to economically hedge a portion of the energy price risk relatedto future Mid-Atlantic operations. The decrease in value of these energyderivative contracts is due to an increase in forward power prices;

·        A decrease of $20 millionrelated to a higher emissions expense due mainly to higher prices for SO2emissions allowances;

·        A decrease of $14 millionrelated to a reduction in realized gains on economic fuel hedges; and

·        A decrease of $11 millionrelated to the termination of contracts in 2004.

·       West operations reflectlower gross margin for our generation units in California and Texas. InCalifornia, gross margin decreased by approximately $3 million primarily due toa decrease in gains on realized economic hedges of $22 million as a result ofreduced economic hedging activity offset by $18 million of savings on gasreservation charges following a contract rejection. In Texas, gross margindecreased by $16 million primarily due to lower energy prices and a new tollingagreement that began in August 2004 with a third party that is at lowerprices than what these units received under a prior agreement with MirantAmericas Energy Marketing.

·       Non-cash revenue related tothe amortization of the TPAs decreased by $82 million primarily due to theexpiration of one of the two TPAs in June 2004 and the impact of a latecontract change in 2003. The second TPA expired in January 2005.

·       Other gross margindecreased by $98 million primarily resulting from $94 million of grossmargin in 2003 received from the market for power at higher prices than thefixed prices paid under an intercompany capacity and energy agreement withMirant Mid-Atlantic. As a result, approximately $94 million ofMid-Atlantic gross margin for the year ended December 31, 2003 is includedin other gross margin. This agreement ended May 1, 2003. Other gross margin also includes our realizedlosses under the TPAs and the realized and unrealized gains and losses underthe power purchase agreements with PEPCO.

*Operating Expenses.  *Operatingexpenses decreased by $3,333 million due to the following factors:

·       A decrease of $2,067million for goodwill impairment charges is related to the impairment ofgoodwill in 2003 associated with our North America operations. For furtherdiscussion, see “Critical Accounting Policies and Estimates” and Note 8 to ourconsolidated financial statements contained elsewhere in this report;

·       A decrease of $1,338million for long-lived asset impairment losses is due to an impairment recordedin 2003 for our turbines, power islands and other project costs. For furtherdiscussion, see “Critical Accounting Policies and Estimates” and Note 7 to ourconsolidated financial statements contained elsewhere in this report;

·       A decrease of $10 millionin other impairment losses and restructuring charges is primarily due toadditional cost reductions in 2003 related to costs to cancel equipment ordersand service agreements along with workforce reduction and other employeetermination-related charges;

·       An increase of $29 millionin operations and maintenance expense is primarily due to the following:

·        An increase of$87 million in corporate costs allocated to the North America segment inthe 2004 period. Corporate expenses allocated were $176 million for theyear ended December 31, 2004 compared to $89 million for the same periodin 2003. In 2004, we began allocating all costs to business units while in 2003a fixed charge methodology was used and a significant amount of corporate costswere retained at Corporate;

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·        An increase ofapproximately $13 million related to the Commodity Futures Trading Commissionsettlement in December 2004. See Note 15 to our consolidated financialstatements contained elsewhere in this report;

·        An increase of $7 millionrelated to the additional rent expense for our Morgantown and Dickersonbaseload units as a result of the Bankruptcy Court’s granting the motioncompelling Mirant Mid-Atlantic to pay incremental rent. See Note 16 to ourconsolidated financial statements contained elsewhere in this report forfurther discussion;

·        A decrease of $18 millionin operations and maintenance related to a reduction in the allowance relatedto receivables from Enron of $10 million and $8 million lower property taxesdue to settlements related to certain California and New York generationassets;

·        A decrease of$32 million related to an energy marketing customer bad debt expensereflected in 2003. In 2003, we recorded a $32 million allowance on a singlecustomer that was not able to pay its receivable balance. We are pursuingvarious legal remedies for collection, but substantial doubt exists as torecovery; and

·        A remaining decrease of$28 million, of which approximately $23 million is primarily related toreduced scope and scale of our energy marketing operations. This reduction isprimarily attributable to labor costs due to workforce reductions that occurredin the last quarter of 2003;

·       A decrease of $35 millionin depreciation and amortization expense was primarily due to lowerdepreciation expense related to our property, plant and equipment after our$1,338 million impairment of long-lived assets in the fourth quarter of2003; and

·       An increase of $88 millionin loss on sales of assets, net primarily relates to a loss of approximately$65 million on the planned sale of three natural gas combustion turbines,offset by a gain of $16 million related to the sale of the remaining Canadiannatural gas transportation and certain natural gas marketing contracts. In 2003the gain on sales of assets of $38 million primarily related to the saleof gas storage contracts in our Canadian trading operations.

*2003 versus 2002*

*Gross Margin.  *Grossmargin decreased by $206 million primarily due to the following:

·       Our generation volumesdecreased approximately 8% from 38.3 million MWh in 2002 to35.1 million MWh in 2003. The decrease in generated MWh in 2003 is dueprimarily to an increase in available capacity in the market relative todemand. As a result of overcapacity of power and increased prices for fuel,spark spreads were narrower in 2003 compared to 2002. These factors negativelyimpacted our gross margin from generation activities in 2003.

·       Northeast operations grossmargin decreased $20 million primarily due to an unsuccessful economic hedgingstrategy related to a short position for power as power prices increased in2003.

     Mid-Atlantic operations gross margin decreased$117 million primarily due to the following:

·        A decrease of $79 millionin revenues due to the May 1, 2003 termination of an intercompanyagreement with Mirant Americas Energy Marketing. During 2002, these operationsreceived fixed prices for power paid under the intercompany agreement andrevenues were $179 million higher than what would have been received from themarket. From January 1, 2003 to May 1, 2003 the revenue receivedunder the agreement was $94 million less than what would have been receivedfrom the market. For the remainder of 2003, Mid-Atlantic received market pricesfor power;

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·        A decrease of $41 millionrelated primarily to higher fuel prices of approximately $30 million andemission allowances of $11 million; and

·        An increase of $6 millionrelated to $38 million of realized margin on economic fuel hedges offset by $32million in net unrealized losses on contracts for future periods.

·       Gross margin in our West operations decreased $151 million primarilyrelated to reduced profitability from our California operations dueprimarily to the expiration of our power sales agreement with DWR in December 2002.In 2003, we converted the units that were contracted under the DWR agreement toRMR Contract Condition 2 of approximately 1,700 MW out of 2,000 MW. Revenuesunder the DWR agreement were based on the market prices at the time we enteredinto the agreement of approximately $150/MWh. Under the RMR Contract Condition2 contracts, revenues are based on a fixed rate of return and the units’operating costs of operating the unit.

·       Gross margin from other North Americageneration assets increased $28 million primarily resulting from new generationof approximately 1,000 MW put in service during 2003 that earned approximately$36 million in margin and incurred net unrealized losses of $32 millionreflected in 2002 offset by decreased generation of existing generationfacilities of approximately $44 million.

·       Non-cash revenue related tothe amortization of the TPAs increased $3 million and is a significant portionof the North America segment operating revenue, gross margin and operatingincome. One of these contracts expired in June 2004 and the other expiredin January 2005.

·       Other gross margin increased$51 million primarily due to the following:

·        A decrease of$342 million in net trading revenues due to lower trading volumes and thefact that there were fewer counterparties participating in the market orwilling to do business with us. Through mid-2003, we reduced our tradingactivity to limit potential collateral exposure. Subsequent to filing forbankruptcy, we have concentrated on protecting total portfolio value, resizingour business and adjusting our optimization trading activities to comply withour amended Risk Management Policy which limits the commodities we can tradeand significantly reduced our VaR limits;

·        An increaseof $273 million resulting from the intercompany capacity and energy agreementwith Mirant Mid-Atlantic. In 2003, $94 million of Mid-Atlantic grossmargin was received from the market for power at higher prices than the fixedprices paid compared to $179 million of gross margin paid to the market forpower prices lower than the fixed prices paid. This agreement ended May 1,2003;

·        An increaseof $136 million in unrealized gains under the power purchase agreements withPEPCO due to an increase in power prices in the PJM market; and

·        Other gross margin alsoincludes our realized losses under the TPAs and the realized and unrealizedgains and losses under the power purchase agreements with PEPCO.

*Operating Expenses:  *Operatingexpenses increased by $2,594 million and the following factors wereresponsible for the change:

·       An increase of $2,067million for goodwill impairment charges is related to the impairment ofgoodwill associated with our North America operations;

·       An increase of $829 millionfor long-lived asset impairment losses is due to an impairment of approximately$1,338 million recorded in 2003 compared to $509 in 2002 for theimpairment of our turbines, power islands and other project costs;

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·       A decrease of $251 millionin other impairment losses and restructuring charges is primarily due to$270 million recorded in 2002 compared to $19 million in 2003 related tocosts to cancel equipment orders, service agreements, severance costs and otheremployee termination-related charges;

·       A decrease of $69 millionin operations and maintenance expense is due primarily to cost reductioninitiatives as part of our effort to downsize our organization. This decreaseis partially offset by increased operations and maintenance expense as a resultof our net generation capacity additions in Indiana, Michigan, Florida, Oregonand Nevada in 2003. Operations and maintenance expense includes such costs asplant operations and maintenance, administrative expenses, such as consulting,accounting and legal fees, and property taxes;

·       An increase of $51 millionin depreciation and amortization expense was primarily a result of additionaldepreciation from generation capacity additions in 2003 and the recognition ofa full year of depreciation in 2003 for those new units that were completedduring 2002; and

·       Anincrease of $33 million in gain on sale of assets, net is primarily related tothe sale of gas storage in our Canadian trading operations in 2003.

***International***

OurInternational segment consists of our ownership interest in power generatingoperations in the Philippines, Curacao and Trinidad and Tobago and ourownership interest in integrated utilities in Jamaica and the Bahamas. Thefollowing table summarizes the operations of our International businesses forthe years ended December 31, 2004, 2003 and 2002 (in millions):
| ** **                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **2003** | ** ** | **2002** | ** ** | **Increase/  (Decrease)** | ** ** |
| Operating Revenues:                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Generation                                        |       | $                                           | 477        |   | $ | 502 |   |   | $ | (25 | ) |   | $ | 502 |   | $ | 525 |   |   | $ | (23 | ) |   |
| Integrated utilities and distribution             |       | 573                                         |       | 523 |   |   | 50 |   |   | 523 |   | 485 |   |   | 38 |   |   |
| Total operating  revenues                         |       | 1,050                                       |       | 1,025 |   |   | 25 |   |   | 1,025 |   | 1,010 |   |   | 15 |   |   |
| Cost of fuel, electricity and other products |       | 294                                         |       | 280 |   |   | 14 |   |   | 280 |   | 228 |   |   | 52 |   |   |
| Gross margin                                      |       | 756                                         |       | 745 |   |   | 11 |   |   | 745 |   | 782 |   |   | (37 | ) |   |
| Operating Expenses:                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance                        |       | 295                                         |       | 257 |   |   | 38 |   |   | 257 |   | 322 |   |   | (65 | ) |   |
| Depreciation and amortization                     |       | 122                                         |       | 116 |   |   | 6 |   |   | 116 |   | 116 |   |   | — |   |   |
| Goodwill impairment losses                        |       | 582                                         |       | — |   |   | 582 |   |   | — |   | 697 |   |   | (697 | ) |   |
| Long-lived asset impairment losses                |       | —                                      |       | 1 |   |   | (1 | ) |   | 1 |   | 101 |   |   | (100 | ) |   |
| Other impairment losses and restructuring charges |       | 1                                           |       | 13 |   |   | (12 | ) |   | 13 |   | 65 |   |   | (52 | ) |   |
| Loss (gain) on sales of assets, net               |       | 2                                           |       | 1 |   |   | 1 |   |   | 1 |   | (36 | ) |   | 37 |   |   |
| Total operating  expenses                         |       | 1,002                                       |       | 388 |   |   | 614 |   |   | 388 |   | 1,265 |   |   | (877 | ) |   |
| Operating (loss) income                           |       | $                                           | (246       | ) | $ | 357 |   |   | $ | (603 | ) |   | $ | 357 |   | $ | (483 | ) |   | $ | 840 |   |   |

 

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Thefollowing table summarizes capacity factor (average percentage of full capacityused over a year) by operations for our International segment for the yearsended December 31, 2004 and 2003:
| ** **    | ** ** | **Years Ended December 31,** | ** ** |
|---------------|------------|---------------------------------------------|------------|
| ** **    | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** |
| International |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Philippines   |       |                                        | 44         | % |   |   | 43 | % |   |   | 1 | % |   |
| Caribbean     |       |                                        | 50         | % |   |   | 49 | % |   |   | 1 | % |   |

 

Thefollowing table summarizes power generation volumes by operations for ourInternational segment for the years ended December 31, 2004 and 2003 (in gigawatthours):
| ** **     | ** ** | **Years Ended December 31,** | ** ** |
|----------------|------------|---------------------------------------------|------------|
| ** **     | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** |
| International: |       |                                        |       |   |   |   |   |   |   |
| Philippines    |       | 7,021                                       |       | 6,973 |   |   | 48 |   |   |
| Caribbean      |       | 8,250                                       |       | 8,021 |   |   | 229 |   |   |

 

*2004 versus 2003*

*GrossMargin.  *Our gross margin increased $11 millionprimarily due to the following:

·       An increase of $50 million in integrated utilities anddistribution primarily due to higher energy sales and fuel-related revenues,and regulatory approved rate increases in non-fuel tariffs at our Jamaicaintegrated utility in 2004;

·       A decrease of $25 millionin generation revenue primarily due to a reduction of $16 million related toassets that were no longer owned, operated or consolidated in 2004 that wereincluded in 2003 results and lower nominated capacity from Pagbilao as a resultof the implementation of the General Framework Agreement (“GFA”) of $3 million;and

·       A decrease of $14 millionprimarily driven by higher commodity fuel prices in 2004 for our Caribbeanintegrated utilities compared to 2003 offset by a decrease of $9 million infuel costs related to assets that were no longer owned, operated orconsolidated by us in 2004 that were included in 2003 results.

*Operating Expenses:  *Ouroperating expenses increased by $614 million primarily due to thefollowing factors:

·       An increase of $582 millionin goodwill impairment represents the impairment of the remaining goodwillrelated to our Asia operations. See Note 8 to our consolidated financialstatements contained elsewhere in this report for further discussion.

·       Operations and maintenanceexpense increased by $38 million primarily as a result of the following:

·        An increase of $25 millionin corporate costs allocated to the International segment in the 2004 period.Corporate expenses allocated were $37 million for the year ended December 31,2004 compared to $12 million for the same period in 2003. In 2004, we beganallocating all costs to business units while in 2003 a fixed charge methodologywas used and a significant amount of corporate costs were retained atCorporate;

·        An increase of $9 millionrelated to the estimated hurricane expense at our Caribbean operations;

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·        An increase of $5 millionin operating and maintenance expenses primarily related to our Caribbeanoperating expenses associated with new vehicle leases, increased bad debtexpense and fees associated with the Jamaica rate case filing;

·        An increase of $9 millionrelated to an expired and unfulfilled contract obligation provision in 2003;and

·        Adecrease of $6 million related to assets in Asia that were no longerowned, operated, or consolidated by us in 2004 that were included in the 2003results;

·       A decrease of $12 millionin other impairment losses and restructuring charges were related to theseverance of employees and other employee termination-related charges.

*2003 versus 2002*

*Gross Margin.  *Ourgross margin decreased by $37 million primarily due to a $10 milliondecrease resulting from the discontinuance of supplying energy to a majorenergy supply customer in November 2002 and a $8 million decrease inoperating revenue as a result of lower capacity fees under our long-term energyconversion agreement with NPC from our Pagbilao plant in the Philippines.Additionally, our gross margin from our Caribbean operations decreased byapproximately $10 million primarily as a result of higher fuel oil costsand increased use of gas turbines in our Jamaica operations.

*OperatingExpenses:  *Our operating expenses decreased by$877 million and the following factors were responsible for the change:

·       A decrease of $697 millionin goodwill impairment in 2002 that was related to our Asia operations;

·       A decrease of $100 millionin long-lived asset impairment that is related to turbines, power islands andother project costs recorded in 2002;

·       A decrease of $52 millionin other impairment losses and restructuring charges that is primarily due torestructuring charges of $16 million related to our severance of employeesand other employee termination related expenses and $49 million related tocosts to cancel equipment orders and service agreements recorded in 2002;

·       A decrease of $65 millionin operations and maintenance expense that is primarily due to lowercompensation expense as a result of our cost cutting efforts and restructuringour business in 2003; and

·       Adecrease of $37 million in gain on sale of assets, net that is primarily due toa $30 million gain on the sale of our investments in Australia and$6 million of gains on the sale of our investments in Korea and the UnitedKingdom in 2002.

***Corporate***

Thefollowing table summarizes our corporate expenses for the years ended December 31,2004, 2003 and 2002 (in millions):
| ** **                                         | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                         | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **2003** | ** ** | **2002** | ** ** | **Increase/  (Decrease)** | ** ** |
| Operating Expenses:                                |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations and  maintenance                        |       | $                                           | (21        | ) | $ | 127 |   |   | $ | (148 | ) |   | $ | 127 |   | $ | 117 |   |   | $ | 10 |   |   |
| Depreciation and  amortization                     |       | 21                                          |       | 24 |   |   | (3 | ) |   | 24 |   | 17 |   |   | 7 |   |   |
| Other impairment losses  and restructuring charges |       | 13                                          |       | 25 |   |   | (12 | ) |   | 25 |   | 28 |   |   | (3 | ) |   |
| Gain on sales of assets,  net                      |       | 1                                           |       | (9 | ) |   | 10 |   |   | (9 | ) | — |   |   | (9 | ) |   |
| Operating loss                                     |       | $                                           | 14         |   | $ | 167 |   |   | $ | (153 | ) |   | $ | 167 |   | $ | 162 |   |   | $ | 5 |   |   |

 

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*2004 versus 2003*

The corporate operating expenses for the year ended December 31,2004 represent the amount of costs incurred in excess of billings tosubsidiaries during this period. This is a result of two factors. First, we usebudgeted costs to determine cost allocations to the operating segments and aone-month lag in allocations to the segment. This creates a timing differencethat will be resolved through adjustments to the cost allocation amount in thefollowing period. Second, all cost allocations are reflected in operations andmaintenance expense, regardless of the statement of operations classificationof the expense incurred by the corporate segment. As a result, depreciation andamortization and other expense items are reflected as reductions of operationsand maintenance expense when allocated. This contributes to the negativeoperations and maintenance expense for the corporate segment but has no impacton the consolidated statements of operations. Before allocations to operatingsegments, our corporate expenses in total are $44 million lower through December 31,2004 compared to 2003. This 16% decrease is primarily due to a headcountreduction of approximately 10% as a result of a workforce reduction program in October 2003.

In 2003, certain corporatecosts were not allocated to a reporting segment. Beginning January 1,2004, we changed our allocation methodology related to corporate overheadexpenses to better reflect our operating structure. As a result, substantiallyall of our operating expenses are now allocated to our North America andInternational segments. The new methodology allocates costs using severalmethods but is primarily based on gross margin, property, plant and equipmentbalances, and labor costs.

*2003 versus 2002*

Operations and maintenance expense increased by$10 million primarily due to increased legal, consulting and accountingfees. Expenses incurred in 2003 included $15 million related topre-bankruptcy refinancing efforts and $10 million associated with thesettlement of certain non-tax qualified pension obligations by purchasingindividual annuity contracts in the first quarter of 2003. The increases weresomewhat offset by lower compensation expense as a result of our cost cuttingand restructuring efforts in 2003.

Other impairment lossesand restructuring charges decreased as a result of the severance of 133employees and other employee termination-related expenses in 2002.

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***Other Significant Consolidated Statements ofOperations Movements***

Thefollowing table summarizes our consolidated other income and expenses for theyears ended December 31, 2004, 2003 and 2002 (in millions):
| ** **                                                       | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                       | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **Increase/  (Decrease)** | ** ** | **2003** | ** ** | **2002** | ** ** | **Increase/  (Decrease)** | ** ** |
| Other (Expense) Income,  net:                                    |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                 |       | $                                           | (130       | ) | $ | (379 | ) |   | $ | 249 |   |   | $ | (379 | ) | $ | (495 | ) |   | $ | 116 |   |   |
| Interest rate hedging losses                                     |       | —                                      |       | (110 | ) |   | 110 |   |   | (110 | ) | — |   |   | (110 | ) |   |
| Gain on sales of investments, net                                |       | —                                      |       | 67 |   |   | (67 | ) |   | 67 |   | 329 |   |   | (262 | ) |   |
| Equity in income of affiliates                                   |       | 26                                          |       | 33 |   |   | (7 | ) |   | 33 |   | 168 |   |   | (135 | ) |   |
| Impairment losses on minority owned affiliates                   |       | —                                      |       | — |   |   | — |   |   | — |   | (467 | ) |   | 467 |   |   |
| Interest income                                                  |       | 11                                          |       | 24 |   |   | (13 | ) |   | 24 |   | 38 |   |   | (14 | ) |   |
| Other, net                                                       |       | 68                                          |       | 48 |   |   | 20 |   |   | 48 |   | 10 |   |   | 38 |   |   |
| Total other (expense) income, net                                |       | $                                           | (25        | ) | $ | (317 | ) |   | $ | 292 |   |   | $ | (317 | ) | $ | (417 | ) |   | $ | 100 |   |   |
| Reorganization items, net                                        |       | $                                           | 259        |   | $ | 290 |   |   | $ | (31 | ) |   | $ | 290 |   | $ | — |   |   | $ | 290 |   |   |
| Provision for  income tax                                        |       | 87                                          |       | 126 |   |   | (39 | ) |   | 126 |   | 949 |   |   | (823 | ) |   |
| Minority interest                                                |       | 21                                          |       | 35 |   |   | (14 | ) |   | 35 |   | 75 |   |   | (40 | ) |   |
| Loss from  discontinued operations, net                          |       | (66                                         | )          | (174 | ) |   | 108 |   |   | (174 | ) | (98 | ) |   | (76 | ) |   |
| Cumulative effect of  changes in accounting principles, net |       | —                                      |       | (29 | ) |   | 29 |   |   | (29 | ) | — |   |   | (29 | ) |   |

 

*2004 versus 2003*

*Interest expense.  *Interestexpense decreased by $249 million due to the Chapter 11 filings. Theaccrual of interest expense associated with the debt of the Mirant Debtors,with the exception of West Georgia, was suspended. Therefore, subsequent to thePetition Date, no interest expense related to those obligations was recorded.Contractual interest on liabilities subject to compromise in excess of reportedinterest was approximately $535 million and $239 for the years ended December 31,2004 and 2003, respectively.

*Interest rate-hedging losses.  *Interestrate hedging losses of $110 million in 2003 represents thereclassification of interest rate hedging losses from other comprehensiveincome to interest expense. The reclassification resulted primarily from thesuspension of interest payments on the debt associated with the interest rateswaps, pursuant to the Chapter 11 filings.

*Other, net.  *Theconsolidated statements of operations for the year ended December 31, 2004reflect a gain of $37 million related to the extinguishment of$83 million of 2.5% convertible debentures due 2021 that were included inliabilities subject to compromise. During 2003, we recorded income of $11million related to the sale of certain energy marketing contracts.

*Reorganization items, net.  *Reorganizationitems, net represents expense or income amounts that were recorded in thefinancial statements as a result of the bankruptcy proceedings.

·       For the year ended December 31,2004, this amount includes:

·        $171 million related toestimated damage claims on rejected and amended contracts;

·        $110 million inprofessional and administrative fees;

·        $15 million of interestincome; and

·        $7 million gain related tothe emergence of the Mirant Canadian Subsidiaries from creditor protection.

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·       For the year ended December 31,2003, this amount includes:

·        $241 million related toestimated damage claims on rejected and amended contracts;

·        $48 million inprofessional and administrative fees; and

·        $1 million of interestincome, net.

*Provision for IncomeTaxes.  *The consolidated statements of operationsfor the year ended December 31, 2004 reflect an income tax provision of$87 million. We provide a valuation allowance, where appropriate, forfederal, state and foreign income tax purposes. See “Critical AccountingPolicies” contained elsewhere in this report for further discussion.

*Discontinued Operations.  *The $66 million loss from discontinuedoperations for the year ended December 31, 2004 includes Coyote Springsand Wrightsville that were disposed of or are expected to be disposed of in2005. The $174 million loss fromdiscontinued operations for the year ended December 31, 2003 reflects thegenerating facilities that were disposed of in 2003. See Note 4 to ourconsolidated financial statements contained elsewhere in this report forfurther discussion.

*Cumulative Effect ofChanges in Accounting Principles.  *As a result ofthe consensus on EITF Issue 02-03, all non-derivative energytrading contracts as of January 1, 2003 that existed on October 25,2002 have been adjusted to historical cost resulting in a cumulative effectadjustment of $26 million, after tax, which was recorded in the firstquarter of 2003. Certain of these contracts were reclassified from price riskmanagement liabilities to transition power agreements and other obligations onour consolidated balance sheets. We also adopted SFAS No. 143 effective January 1,2003 and recognized an after-tax charge of $3 million associated with itsimplementation.

*2003 versus 2002*

*Interest expense.  *Interestexpense decreased by $116 million due to the Chapter 11 filings. Theaccrual of interest expense associated with the debt of the Mirant Debtors,with the exception of West Georgia, was suspended. Therefore, subsequent to thePetition Date, no interest expense related to those obligations was recorded.Contractual interest on liabilities subject to compromise in excess of reportedinterest was approximately $239 million for the year ended December 31,2003.

*Interest rate hedging losses.  *Interestrate hedging losses of $110 million in 2003 represent the reclassificationof realized interest rate hedging losses from Other Comprehensive Income (“OCI”)to interest expense. The reclassification resulted primarily from thesuspension of interest payments on the debt associated with the interest ratehedges, pursuant to the Chapter 11 filings.

*Gain on sales of investments, net.  *Thegain on sales of investments of $67 million for 2003 resulted from the October 2003sale of substantially all of our investment in Birchwood. The gain on sales ofinvestments of $329 million for 2002 resulted primarily from the sale ofour interest in Bewag in February 2002 and our interest in Shajiao C powerproject in December 2002. These divestitures are discussed further inNote 10 to our consolidated financial statements contained elsewhere inthis report.

*Reorganization items, net.  *Reorganizationitems, net represents expense or income amounts that were recorded in thefinancial statements as a result of the bankruptcy proceedings.

Forthe year ended December 31, 2003, this amount includes:

·       $241 million related toestimated damage claims on rejected and amended contracts;

·       $48 million inprofessional and administrative fees; and

·       $1 million of interestincome, net.

*Provision for Income Taxes.  *Theconsolidated statements of operations for the year ended December 31, 2003reflect an income tax provision of $126 million. We currently record a taxprovision for foreign income taxes as appropriate but record no tax benefit forlosses for federal and state income tax 

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purposes. In 2003and 2002, we recorded valuation allowances of $943 million and$1,088 million, respectively, against our net deferred tax assets.

*DiscontinuedOperations.  *The financial statements for prior periodshave been restated to report the revenues and expenses of the components of theCompany that were disposed of separately as discontinued operations.

·       Loss from discontinuedoperations in 2003 and 2002 includes the following components of the Companythat were disposed of in 2003: Mirant Europe B.V., the Neenah generatingfacility in Wisconsin, the Tanguisson power plant in Guam and investments heldby Mirant Americas Energy Capital and Mirant Canada Energy Capital. Amountsrelating to the sale of Coyote Springs 2 and the pending sale of Wrightsvillehave been reclassified to be reflected in this category.

·       Loss from discontinuedoperations for the year ended December 31, 2002 also includes theoperations of Mirant Americas Production Company in Louisiana, MAP FuelsLimited in Queensland, Australia and the State Line generating facility inIndiana which were disposed of in 2002.

*Cumulative Effect of Changes inAccounting Principles.  *As described in Note 2 toour consolidated financial statements contained elsewhere in this report, wereflected the adoption of EITF Issue 02-03 effective January 1, 2003as a cumulative effect of a change in accounting principle. The net impact wasan after-tax charge of $26 million. We also adopted SFAS No. 143effective January 1, 2003 and recognized an after-tax charge of$3 million associated with its implementation.

**Financial Condition**

***Liquidity andCapital Resources***

The matters described inthis section relate to future events or expectations and may be significantlyaffected by the Chapter 11 filings. The Chapter 11 filings have, or may resultin, various restrictions on our activities, limitations on financing, the needto obtain Bankruptcy Court approval for various matters and uncertainty as torelationships with vendors, suppliers, customers and others with whom we mayconduct or seek to conduct business.

During the pendency of theChapter 11 proceedings, we and certain of our subsidiaries, including MirantAmericas Generation and Mirant Mid-Atlantic, are participating in anintercompany cash management program approved by the Bankruptcy Court pursuantto which cash balances at Mirant and the participating subsidiaries aretransferred to central concentration accounts and, if necessary, lent to Mirantor any participating subsidiary to fund working capital and other needs,subject to the intercompany borrowing limits approved by the Bankruptcy Court.Under the intercompany cash management program, the Bankruptcy Court imposedborrowing limits for intercompany loans among the respective subsidiarysub-groups. In December 2004, the Bankruptcy Court amended theintercompany cash management program to exclude from the intercompany borrowinglimits amounts borrowed by Mirant Americas Energy Marketing from the non-MirantAmericas Energy Marketing sub-groups to fund cash collateral posted and cashprepayments made to third parties on account of transactions entered into byMirant Americas Energy Marketing for the benefit of the members of thenon-Mirant Americas Energy Marketing sub-groups. All intercompany transfers bysuch Mirant entities are recorded as intercompany loans on a juniorsuperpriority administrative basis and are secured by junior liens on theassets of the relevant borrowing group. Upon entering into thedebtor-in-possession credit facility described below, the cash balances of theparticipating Mirant Debtors became subject to security interests in favor ofthe debtor-in-possession lenders and, upon certain conditions, such cashbalances are swept into concentration accounts controlled by thedebtor-in-possession lenders.

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On November 5, 2003, certain of the MirantDebtors (the “DIP Borrowers”) entered into a two-year debtor-in-possessioncredit facility (the “DIP Facility”) providing for borrowings or the issuanceof letters of credit in an amount not to exceed the lesser of $500 millionor the then-existing “borrowing base.” The borrowing base is the aggregatevalue assigned to specified power generation assets of the DIP Borrowers thatserve as collateral for the DIP Facility. However, upon the occurrence ofcertain triggering events, including the sale of borrowing base assets or anevent that has a material adverse effect on the business, operations or valueof a power generation facility, the borrowing base may be revalued or reservesagainst the borrowing base may be imposed, thus lowering the borrowing baseamount. The borrowing base as of December 31, 2004 was $724 million.The borrowing base decreased $48 million in January 2005 following thesale of Coyote Springs and will decrease another $37 million following the proposedsale of Wrightsville. The orders entered by the Bankruptcy Court approving theDIP Facility permit up to $300 million of borrowings, which amount may beincreased to $500 million upon written approval of each of the StatutoryCommittees or further order of the Bankruptcy Court. The DIP Facility alsocontains an option, exercisable by Mirant or Mirant Americas Generation, toremove Mirant Americas Generation and its subsidiaries as borrowers andobligors under the DIP Facility and reduce the DIP Facility commitment to amaximum of $200 million of borrowings. Borrowings under the DIP Facilityare secured by substantially all of the assets of the DIP Borrowers.

Pursuant to the DIP Facility, the DIP Borrowers aresubject to a number of affirmative and restrictive covenants, reportingrequirements, and, subject to usage, financial covenants. The Company was incompliance with the DIP Facility covenants, or had received affirmative waiversof compliance where compliance was not attained, as of December 31, 2004.

JPS has approximately $131million of indebtedness maturing in 2006, which amounts are expected to berepayed through a combination of cash flows from its business and the proceedsof additional indebtedness. Mirant Trinidad has approximately $73 million ofindebtedness maturing in January 2006, which amounts are expected to berepaid through the proceeds of additional indebtedness. It is anticipated thatany refinancing of the indebtedness of Mirant Trinidad will be subject to anextension of the long-term power purchase agreement between PowerGen, in whichMirant Trinidad owns 39%, and Trinidad and Tobago Electricity Commission thatextends beyond the term of any new indebtedness.

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***Total Cash, Cash Equivalents and DIP FacilityAvailability***

Thetable below sets forth total cash, cash equivalents and availability under theDIP Facility and other credit facilities of Mirant Corporation and itssubsidiaries as of December 31, 2004 and 2003, respectively (in millions):
| ** **                                                                                                                    | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Cash and Cash  Equivalents:                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Debtors:                                                                                                                      |       |                        |       |                        |       |   |   |   |   |
| Mirant Corporation                                                                                                            |       |                        | $          | 276                         |       |   |   | $ | 467 |   |   |
| Mirant Americas Generation(1)                                                                                                 |       |                        | 167        |                        |       |   | 115 |   |   |
| Mirant Mid-Atlantic(1)                                                                                                        |       |                        | 247        |                        |       |   | 209 |   |   |
| Mirant Americas Energy Marketing                                                                                              |       |                        | 207        |                        |       |   | 161 |   |   |
| Other subsidiaries                                                                                                            |       |                        | 56         |                        |       |   | 124 |   |   |
| Total debtors’  cash and cash equivalents                                                                                |       |                        | 953        |                        |       |   | 1,076 |   |   |
| Non-debtors                                                                                                                   |       |                        | 532        |                        |       |   | 511 |   |   |
| Total cash and  cash equivalents                                                                                              |       |                        | 1,485      |                        |       |   | 1,587 |   |   |
| Less: Cash  required for operating, working capital or other purposes or restricted by  subsidiaries’ debt agreements(2) |       |                        | 274        |                        |       |   | 351 |   |   |
| Total available cash and cash equivalents                                                                                     |       |                        | 1,211      |                        |       |   | 1,236 |   |   |
| Available under  DIP Facility                                                                                                 |       |                        | 263        |                        |       |   | 279 |   |   |
| Total cash, cash  equivalents and credit facilities availability                                                              |       |                        | $          | 1,474                       |       |   |   | $ | 1,515 |   |   |

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(1)          Sincefiling for protection under Chapter 11, none of the Mirant Debtors have paiddividends nor made capital contributions. As discussed above, Mirant andcertain of its subsidiaries, including Mirant Americas Generation and MirantMid-Atlantic, are participating in an intercompany cash management programapproved by the Bankruptcy Court.

(2)          Amountsdesignated as “Cash required for operating, working capital or other purposesor restricted by subsidiaries’ debt agreements” are estimated amounts. Inaddition, as of December 31, 2003, such amounts include $92 millionheld by the Mirant Canadian Subsidiaries that were subject to protection underthe CCAA in Canada at that time.

Maintaining sufficient liquidity in our business iscrucial in order to mitigate the risk of future financial distress to theCompany.

Accordingly, weplan on a prospective basis for the expected liquidity requirements of ourbusiness considering the factors listed below.

·       Expectedcollateral posted in support of our business

·       Effectsof market price volatility on collateral posted for economic hedge transactionsand risk management transactions

·       Effectsof market price volatility on fuel pre-payment requirements

·       Seasonaland intra-month working capital requirements

·       Otherunforeseen events

These expected liquidity requirements will affect,among other things, our proposed Plan and any exit financing necessary toemerge from bankruptcy that we may pursue. Under the proposed Plan, it is acondition to consummation of the proposed Plan that we secure a $750 millionrevolving credit facility.

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We expect to incur capital expenditures ofapproximately $285 million in 2005. Based on expected requirements, weestimate capital expenditures to be approximately $1.6 billion over the nextfive years. This forecast does not assume any construction of new generatingunits in the United States during the forecast period. Instead, the currentcapital expenditure program, which is expected to be funded by operating cashflow, focuses on efficiency, safety, reliability, environmental compliance andcontract obligations. In the Philippines, the forecast assumes that thePhilippine subsidiaries will make capital expenditures for the purpose of buildingand upgrading substations and transmission lines in order to support the energysupply business. These capital expenditures are expected to be funded primarilyby operating cash flow. Additional capital expenditures are expected for thePhilippines primarily for major maintenance and environmental projects atPagbilao and Sual. In the Caribbean operations, new construction of generatingfacilities will be necessary to meet the growing energy demands and areexpected to be funded by operating cash flow and project financings.

As discussed in “Item 1. Business,” we are subject toextensive environmental regulations. Based on expected requirements andtechnological advances, we estimate environmental expenditures to beapproximately $437 million over the next five years.

We anticipate that ourtotal cash and cash equivalents, together with our debtor-in-possessionfinancing and our exit financing upon emergence from bankruptcy, will besufficient to fund our operations during the bankruptcy proceedings and beyond.

***Debt Obligations, Off-Balance Sheet Arrangements andContractual Obligations***

We are in the process of evaluating the Mirant Debtors’executory contracts in order to determine which contracts will be assumed,assumed and assigned, or rejected. See “Item 1. Business—Overview—Proceedingsunder Chapter 11 of the Bankruptcy Code.” The table presented below doesnot include contracts that we have successfully rejected through the bankruptcyprocess.

Ourdebt obligations, off-balance sheet arrangements and contractual obligations asof December 31, 2004 are as follows (in millions):
| ** **                                                                          | ** ** | **Debt Obligations, Off-Balance Sheet  Arrangements   and Contractual Obligations by Year** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **Total**                                                                                   | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **More than  5 years** | ** ** |
| Long-term  debt not included in liabilities subject to compromise                   | ** ** | $                                                                                           | 1,375      |   | $ | 206 |   | $ | 387 |   | $ | 143 |   | $ | 98 |   | $ | 238 |   |   | $ | 303 |   |   |
| Operating leases                                                                    |       | 2,781                                                                                       |       | 147 |   | 145 |   | 144 |   | 150 |   | 166 |   |   | 2,029 |   |   |
| Purchase commitments:                                                               |       |                                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term service agreements                                                        |       | 610                                                                                         |       | 26 |   | 32 |   | 36 |   | 46 |   | 44 |   |   | 426 |   |   |
| Fuel and transportation commitments                                                 |       | 741                                                                                         |       | 335 |   | 252 |   | 111 |   | 4 |   | 4 |   |   | 35 |   |   |
| Power purchase agreements                                                           |       | 1,044                                                                                       |       | 211 |   | 52 |   | 52 |   | 52 |   | 52 |   |   | 625 |   |   |
| Key employee retention payments                                                     |       | 5                                                                                           |       | 5 |   | — |   | — |   | — |   | — |   |   | — |   |   |
| Other purchase commitments                                                          |       | 100                                                                                         |       | 100 |   | — |   | — |   | — |   | — |   |   | — |   |   |
| Total excluding pre-petition debt                                                   |       | 6,656                                                                                       |       | 1,030 |   | 868 |   | 486 |   | 350 |   | 504 |   |   | 3,418 |   |   |
| Liabilities subject to compromise                                                   |       | 9,211                                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total debt  obligations, off-balance sheet arrangements and contractual obligations |       | $                                                                                           | 15,867     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                     |            |                                                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Long-term debt not included in liabilitiessubject to compromise includes the current portion of long-term debt andlong-term debt on the consolidated balance sheets, which are discussed inNote 12 to our consolidated financial statements contained elsewhere in thisreport.

Operating leases are off-balance sheet arrangementsand are discussed in Note 16 to our consolidated financial statementscontained elsewhere in this report. These amounts primarily relate to ourminimum lease payments associated with our lease of the Morgantown andDickerson baseload units.

Long-term service agreements are discussed inNote 16 to our consolidated financial statements contained elsewhere inthis report. These amounts represent our total estimated commitments under ourlong-term service agreements associated with turbines installed or in storage.

Fuel and transportation commitments are discussed inNote 16 to our consolidated financial statements contained elsewhere inthis report. These amounts relate primarily to long-term coal agreements andother fuel purchase and transportation agreements. The table above does notinclude certain contracts which are accounted for as derivatives. The fairvalue of these contracts is included in price risk management assets or pricerisk management liabilities on our consolidated balance sheets.

PPAs are discussed in Note 17 to our consolidatedfinancial statements contained elsewhere in this report. These amountsrepresent the estimated commitments under the PPAs that Mirant assumed in theasset purchase and sale agreement for the PEPCO generating assets. Theestimated commitment is based on the total remaining MWh commitment atcontractual prices. These contracts are accounted for as derivatives. The fairvalue of these agreements as of December 31, 2004 is included inliabilities subject to compromise on our consolidated balance sheets. Asdiscussed in Note 3 to our consolidated financial statements containedelsewhere in this report. The Mirant Debtors’ motion to reject the Back-to-BackAgreement related to the PPAs was denied by the federal district court inTexas, as discussed in Note 15 contained elsewhere in this report. In December 2004,we notified PEPCO and the Bankruptcy Court that we are suspending all futurepayments under the Back-to-Back Agreement absent further order of theBankruptcy Court. For 2004, the suspended payment amount was $16 million.

On August 11, 2004, theBankruptcy Court approved the second portion of the Company’s Key EmployeeRetention Program (“KERP”) which provides for retention payments forapproximately 90 employees, both executive and non-executive. Expected paymentsunder this program total approximately $6 million; $1 million of which waspreviously paid and $5 million of which will be paid in 2005. These amounts arerecognized as operations and maintenance expense as earned. Executive paymentsare contingent upon achievement of certain milestones and include filing a planof reorganization with the Court, approval of the plan, and confirmation andconsummation of the plan.

Other purchase commitments represent the open purchaseorders less invoices received related to open purchase orders for generalprocurement products and services purchased in the ordinary course of business.These include construction, maintenance and labor activities at our generationfacilities. The estimated walk away cost related to our construction activitiesis approximately $7 million as of December 31, 2004.

Liabilities subject tocompromise represent liabilities incurred prior to the Petition Date. Asdiscussed in Note 3 to our consolidated financial statements containedelsewhere in this report, the amounts of liabilities subject to compromiserepresent our estimate of known or potential pre-petition claims that we expectwill be resolved in the bankruptcy process. Adjustments to liabilities subjectto compromise may result from negotiations with the respective creditors,actions of the Bankruptcy Court, rejection of executory contracts, and thedetermination as to the value of any such claim or the value of the respectiveobligor. Included in liabilities subject to compromise is a $189 millioncontractual obligation stemming from an indemnification agreement related to anasset sale transaction.

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***Cash Flows***

*OperatingActivities.  *Cash provided by operating activitiesincreased $90 million in 2004 compared to 2003. The change is detailed asfollows (in millions):
| ** **                                                                                         | ** ** | **Years Ended   December 31,** | ** ** | **Increase ** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------|------------|
| ** **                                                                                         | ** ** | **2004**                                      | ** ** | **2003**           | ** ** | **(Decrease)** | ** ** |
| Cash provided by  operating activities excluding working capital and other assets and  liabilities |       | $                                             | 277        |               | $          | 89 |   |   | $ | 188 |   |   |
| Cash provided  (used) for working capital and other assets and liabilities                         |       | (206                                          | )          | (108               | )          |   | (98 | ) |   |
| Net cash provided  by (used in) operating activities                                               |       | $                                             | 71         |               | $          | (19 | ) |   | $ | 90 |   |   |

 

Net cash provided by operating activities excludingthe effects of working capital was $277 million in 2004 compared to$89 million in 2003. This increase in cash is primarily due to thereduction in cash used to pay interest on Mirant Debtor debts of $255 millionrelated to the bankruptcy filing in July 2003 partially offset by highercash expenses related to the cost of bankruptcy of $51 million.

In 2004, workingcapital changes, which are reflected as changes in operating assets andliabilities, required $206 million in cash compared to $108 millionof cash required by changes in working capital in 2003. This was primarily dueto the following:

·       Favorable change in collateral used to support commercial operations in2004 compared to 2003. Net collateral uses were $121 million in 2004 comparedto $242 million in 2003. The $121 million favorable change is due to thedecrease in asset related fuel purchases in 2004 and favorable market movementsin power and economic fuel hedging in 2004 compared to 2003, and

·       Other working capitalrequirements of $85 million in 2004 compared to other working capital sourcesof $134 million in 2003. Other working capital requirements for 2004 relateprimarily to inventories that have increased due to rising commodity prices,primarily SO2 allowances used in our Mid-Atlantic power plants. Other workingcapital sources for 2003 relate primarily to receivables outstanding as of December 31,2003 on energy contracts terminated early by counterparties as a result of ourChapter 11 filings.

*Investing Activities.  *Netcash used in investing activities was $146 million in 2004 compared to$88 million of cash used in 2003. This was primarily due to the following:

·       In 2004, we had capitalexpenditures of $159 million compared to capital expenditures of$493 million in 2003, which included construction projects in Indiana,Nevada and Jamaica and $124 million related to the cancellation of turbinecontracts in Europe.

·       In 2004, we received $42million in proceeds from the disposal of three natural gas turbines related toa suspended construction project. In 2003, we received $398 million in proceedsfrom the sale of assets and minority-owned investments including the sale ofsubstantially all our investment in Birchwood, our Neenah generating facility,Mirant Americas Energy Capital investments, certain Canadian operations and theTanguisson power plant in Guam. See Note 9 to our consolidated financialstatements for more information.

·       In 2004, our Philippinebusiness paid $21 million to acquire an additional interest in the Sualproject after a minority shareholder exercised its put option. In 2003, we paid$60 million to acquire additional interest in the Pagbilao project afterminority shareholders exercised their put options.

·       We also paid$12 million to a third party to exit our Canadian natural gastransportation agreements and certain natural gas marketing contracts in 2004.

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·       Also in 2003 we were repaid$98 million and issued $29 million of notes receivable primarily related to ourenergy capital business. We had sold the remaining investments in our energycapital business in May and August of 2003.

*Financing Activities.  *Netcash used in financing activities was $27 million in 2004 compared to cash usedin financing activities of $18 million in 2003. This was primarily due tothe following:

·       Proceeds from issuance ofdebt were $376 million in 2004 compared to $355 million in 2003. Of the $376million, $318 million represented letters of credit being drawn upon bycounterparties and banks in 2004. The drawing of Mirant Debtor letters ofcredit creates a liability subject to compromise. The remaining amount of theincrease is offset by the increase in the debt service reserve described below.The remaining debt proceeds of $58 million in 2004 were related to our Caribbeanoperations.

·       Cash provided by financingactivities in 2004 reflects repayments of long-term debt of $218 millionprimarily related to our Philippine operations of $159 million and to ourCaribbean operations of $56 million.

·       In 2004, cash deposited inthe debt service reserves increased $154 million compared to a decrease of $9million in 2003. The increase in the cash deposited in debt service reserves isprimarily due to $161 million of letters of credit drawn upon in 2004 in ourPhilippine operations.

·       In 2004, we paid $17million of dividends to minority interest holders, and our Jamaica operations repaid$14 million of short-term debt.

·       In2003, we repaid long-term debt of $300 million, short-term debt of $36million, purchased $51 million of TIERS certificates and received $5million in other financing activities**.**

**CriticalAccounting Policies and Estimates**

The accounting policiesdescribed below are considered critical to obtaining an understanding of ourconsolidated financial statements because their application requiressignificant estimates and judgments by management in preparing our consolidatedfinancial statements. Management’s estimates and judgments are inherentlyuncertain and may differ significantly from actual results achieved. We believethat the following critical accounting policies and the underlying estimatesand judgments involve a higher degree of complexity than others do. Wediscussed the selection of and application of these accounting policies withthe Audit Committee of the Board of Directors and our independent auditors.

***Potential Applicability of Fresh Start Accounting***

We may be required, as part of our emergence frombankruptcy protection, to adopt fresh start accounting in a future period. Iffresh start accounting is applicable, our assets and liabilities will berecorded at fair value as of the fresh start reporting date. The fair value ofour assets and liabilities may differ materially from the recorded values ofassets and liabilities on our consolidated balance sheets. In addition, iffresh start accounting is required, the financial results of the Company afterthe application of fresh start accounting will be different than historicaltrends.

See Note 3 to ourconsolidated financial statements for further information on our accountingwhile in bankruptcy.

***Accounting for Energy Trading and Marketing Activities***

See Note 6 to our consolidated financial statementsfor further information on financial instruments related to energy trading andmarketing activities.

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Our North America businesses use derivatives and otherenergy contracts to economically hedge our electricity generation assets and toengage in optimization trading activities. We use a variety of derivativecontracts, such as futures, swaps and option contracts, in the management ofour business. Such derivative contracts have varying terms and durations, ortenors, which range from a few days to a number of years, depending on theinstrument.

Most of these activities are reflected in ourfinancial statements at fair value, with changes in fair value recognizedcurrently in earnings. The fair value of these contracts is included in pricerisk management assets and liabilities in our consolidated balance sheets. Alimited number of transactions do not meet the definition of a derivative orare considered normal purchases or normal sales and, therefore, qualify for theuse of accrual accounting.

The fair value amounts contained within ourconsolidated financial statements are estimates based largely on the mid-pointof quoted market prices. The mid-point may vary significantly from the bid orask price for some delivery points. If no active market exists, we estimate thefair value of certain derivative contracts using quantitative pricing models.Our modeling techniques include assumptions for market prices, correlation andvolatility, such as using the prices of one delivery point to calculate theprice of the contract’s delivery point. The degree of complexity of our pricingmodels increases for longer duration contracts, contracts with multiple pricingfeatures and off-hub delivery points.

The fair value of price risk management assets andliabilities in our consolidated balance sheets are also impacted by ourassumptions regarding interest rate and counterparty credit risk. The nominalvalue of the contracts is discounted using a forward interest rate curve basedon the London InterBank Offered Rate (“LIBOR”). In addition, the fair value ofour derivative contracts is reduced to reflect the estimated risk of default ofcounterparties on their contractual obligations to us.

The amounts recorded asrevenue change as estimates are revised to reflect actual results and changesin market conditions or other factors, many of which are beyond our control.Because we use derivatives that do not qualify for cash flow or fair valuehedge accounting under SFAS 133, our financial statements—including grossmargin, operating income, balance sheet ratios and cash flow—are, at times,volatile and subject to fluctuations in value primarily due to changes inenergy prices.

***Bankruptcy Claims Assessment***

See Note 3 to our consolidated financial statementsfor further information on liabilities subject to compromise and our bankruptcyproceedings.

Our consolidated financial statements include, asliabilities subject to compromise, our estimated pre-petition liabilities andsettlements approved by the Bankruptcy Court prior to December 31, 2004.In addition, we also reflect as liabilities subject to compromise the probableclaim amounts relating to liabilities for rejected contracts, litigation,accounts payable and accrued liabilities, debt and other liabilities (the “ProbableClaims Estimates”). These Probable Claims Estimates require management toestimate the likely claim amount that will be allowed by the Bankruptcy Courtprior to the Bankruptcy Court’s ruling on the individual claims. Theseestimates are based on assumptions of future commodity prices, reviews ofclaimants’ supporting material and assessments by management and outsideexperts. We expect that our estimates, although based on the best availableinformation, will change as the claims are resolved in the Bankruptcy Court.

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Thefollowing table summarizes the claims filed in our Chapter 11 case as of December 31,2004:
| ** **                       | ** ** | **Total Number   of Claims** | ** ** | **Total Claims   Exposure** | ** ** |
|----------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | ** **                                  | ** ** | **(in millions)**                | ** ** |
| Total claims  filed              |       |                                        | 8,246      |                                  |       |   | $ | 264,176 |   |   |
| Less:                            |       |                                        |       |                                  |       |   |   |   |   |
| Redundant claims                 |       |                                        | 169        |                                  |       |   | 2,250 |   |   |
| Claims with basis  for objection |       |                                        | 6,213      |                                  |       |   | 252,649 |   |   |
| Total claims                     |       |                                        | 1,864      |                                  |       |   | 9,277 |   |   |
| Additional scheduled liabilities |       |                                        |       |                                  |       |   | 35 |   |   |
| Total claims exposure            |       |                                        |       |                                  |       |   | $ | 9,312 |   |   |

 

The amount of the claims, net of redundancies andamounts for which we have identified a basis for objection, totalsapproximately $9 billion, as summarized above. This amount plus approximately$2 billion of estimated liabilities for which claims have not been filedrepresents the total estimate of current claims exposure against the MirantDebtors as of December 31, 2004. Of the $11 billion, we have recordedapproximately $9 billion as liabilities subject to compromise on ourconsolidated balance sheet as of December 31, 2004. The most significantcomponents of the $2 billion difference between the net claims exposureand the amount recorded as liabilities subject to compromise relate tolitigation and rejected contract claims.

Our estimates may be materially different than theamounts ultimately allowed in the Chapter 11 proceedings. The following is asummary of the procedures we performed to calculate the probable claim amountfor each type of claim.

*Contract Rejections:  *Werecorded an estimated damage claim amount for those contracts that we havesuccessfully rejected through the Bankruptcy Court process. We calculated theestimated claim amount as the fair value of the rejected contract based on whatwe believe a willing third party would require us to pay to step into thecontract. For certain contracts, these estimates involve long-range commodityprice assumptions that are difficult to predict. We estimated the fair value ofthese contracts using the same procedures used to value our price riskmanagement assets and liabilities in the normal course of business.

*Litigation:  *We assessed ourlegal exposures through discussions with applicable legal counsel and analysisof case law and legal precedents. We recorded our best estimate of a loss, orthe low end of our range if no estimate was better than another estimate withina range of estimates, when the loss was considered probable. For matters thatare not probable and/or estimable, we have recorded no liability.

*Accounts Payable-Trade:  *Forall invoiced claims for services performed but not reflected in ourpre-petition accounts payable on our consolidated balance sheet, we recorded aliability subject to compromise equal to the claim amount. For claims relatedto services that we cannot verify were performed or claims related to allegeddamages resulting from our bankruptcy proceedings, we have not recorded anyliability.

*Debt:  *We compared estimateddamage claim amounts for our debt and accrued interest obligations to ourrecords and accrued additional administrative and interest expenses forproperly supported claims.

*Other:  *Otherclaims include claims filed across multiple categories such as taxes andemployee claims. We recorded our best estimate of the probable allowed claimamount for these claims.

***Income Taxes***

See Note 13 to our consolidated financial statementsfor further information on income taxes.

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At December 31, 2004, we had a valuationallowance of approximately $2.4 billion primarily related to our U.S. netdeferred tax assets. In assessing the recoverability of our deferred taxassets, we consider whether it is likely that some portion or all of thedeferred tax assets will be realized. The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income during theperiods in which those temporary differences will be deductible.

As of December 31, 2004, we have approximately$2.8 billion of U.S. federal net operating loss (“NOL”) carryforwards forfinancial reporting purposes. Similarly, there are approximately$3.9 billion of state net operating loss carryforwards. The ultimateutilization of our NOLs will depend on several factors, such as the amount ofour debt that is cancelled through the bankruptcy proceedings and the financialplan contained in the proposed Plan. If a portion of our debt is cancelled inbankruptcy, the amount of the cancelled debt will reduce tax attributes such asour NOLs and tax basis on fixed assets which, depending on our proposed Planand certain tax elections, could partially or fully utilize the available NOLs.We intend to include an indication in a later amendment to our DisclosureStatement regarding whether NOLs will be available post-bankruptcy and theprojected timeframe for utilizing the available NOLs.

We have negotiated a settlement agreement with theInternal Revenue Service (“IRS”) for certain tax liabilities arising from theiraudit of our federal income tax returns for tax years when we were a subsidiaryof Southern Company. This agreement results in an assessment of $39 millionincluding interest. We have provided adequate tax provisions in prior years forthe recognition of this liability.

We continue to be underaudit for multiple years by taxing authorities in other jurisdictions.Considerable judgment is required to determine the tax treatment of aparticular item that involves interpretations of complex tax laws. A taxliability has been recorded for certain tax filing positions where ourinability to sustain the tax return position is probable and estimable. Suchliabilities are based on judgment and it can take many years between the timewhen a liability is recorded and when the related filing position is no longersubject to question. Management periodically reviews these matters and adjuststhe liabilities recorded as appropriate.

***Long-Lived Assets***

See Note 7 to our consolidated financial statementsfor further information on long-lived assets.

We evaluate our long-lived assets (property, plant andequipment) and definite-lived intangibles for impairment wheneverindicators of impairment exist or when we commit to sell the asset. Theaccounting standards require that if the sum of the undiscounted expectedfuture cash flows from a long-lived asset or definite-lived intangible isless than the carrying value of that asset, an asset impairment charge must berecognized. The amount of an impairment charge is calculated as the excess ofthe asset’s carrying value over its fair value, which generally represents thediscounted expected future cash flows from that asset or in the case of assetswe expect to sell, at fair value less costs to sell.

Our evaluations for impairment require us to applyjudgment in estimating future energy prices, environmental and othermaintenance expenditures and other cash flows. Our estimates of the fair valueof the assets require estimating useful lives and selecting a discount ratethat reflects the risk inherent in future cash flows.

If actual results are notconsistent with our assumptions used in estimating future cash flows and assetfair values, we may be exposed to additional losses that could be material toour results of operations.

***Goodwill and Indefinite-lived Intangible Assets***

See Note 8 to our consolidated financial statementsfor further information on goodwill and indefinite-lived intangible assets.

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We evaluate our goodwill and indefinite-livedintangible assets for impairment at least annually and periodically ifindicators of impairment are present. An impairment occurs when the fair valueof a reporting unit is less than its carrying value including goodwill (StepI). For this test our reporting units are North America, Asia and Caribbean.The amount of the impairment charge, if an impairment exists, is calculated asthe difference between the fair value of the reporting unit goodwill and itscarrying value (Step II). We perform our annual assessment of goodwill at October 31and whenever contrary evidence exists as to the recoverability of goodwill.

The accounting estimates related to determining thefair value of goodwill require management to make assumptions about cost ofcapital, future revenues, operating costs and forward commodity prices over thelife of the assets. Our assumptions about future revenues, costs and forwardprices require significant judgment because such factors have fluctuated in thepast and will continue to do so in the future.

The results of our 2003 analysis indicated thatgoodwill was impaired related to our North America reporting unit. Accordingly,in the second quarter of 2003, we recorded an impairment charge ofapproximately $2.1 billion, representing the entire balance of goodwillattributable to our North America reporting unit.

We performed our annual test for goodwill impairmenteffective October 31, 2004 for our Asia and Caribbean reporting units. Thetest was based upon the business plan completed in the third quarter of 2004.The combined subjectivity and sensitivity of our assumptions and estimates usedin our goodwill impairment analysis could result in a reasonable personreaching a different conclusion regarding those critical assumptions andestimates.

In our Caribbean reporting unit, the fair value of thereporting unit exceeded the carrying value including goodwill at October 31,2004 by $137 million. The cost of capital rate significantly impacts thefair value of our projected future cash flows in the Caribbean. We used a costof capital of 11% in determining the present value of our projected future cashflows. The sensitivity of the fair value of our projected future cash flows issuch that a 100 basis point change in the cost of capital rate would change thediscounted value of our projected future cash flows by approximately$35 million, which still would not indicate an impairment.

In our Asiareporting unit, the Step I analysis determined that the fair value of thereporting unit was less than the carrying value including goodwill at October 31,2004 by approximately $600 million. The critical assumptions used in ourAsia analysis are as follows:

·       A10-year financial plan consistent with the underlying forecast for Asiaused in the proposed Plan. For years beyond the financial plan through the BOTagreement dates, we used supplemental projections for gross margin and EBITDA. The10-year financial plan and the supplemental cash flow information usedthrough the BOT agreements are based on the contractual terms within thoseagreements.

·       Depreciation andamortization expenses were calculated based on the fair value of the underlyingassets and a 28-year depreciable life or 15-year intangibleamortization life.

·       The forecasted cash flowsassumed no U.S. taxes and an effective cash tax rate of approximately 42%including Philippine taxes as well as withholding taxes.

·       The cash flows from Asiawere discounted at 12% weighted average cost of capital. The sensitivity of thefair value of our projected future cash flows is such that a 100 basis pointchange in the cost of capital rate would change the discounted value of ourprojected future cash flows by approximately $110 million.

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·       The 10-yearforecasted balance sheet was used for periods through 2014. Certain ratiorelationships were used to extend the forecasted balance sheet through the lifeof the BOT agreements.

·       None of the intercompanybalances of the Asia reporting unit were assumed to have value or detriment toa third party acquirer. The total net intercompany liability of the Asiareporting unit was approximately $370 million.

The results of our 2004analysis indicated that goodwill was impaired related to our Asia reportingunit. Accordingly, in the fourth quarter of 2004, we recorded an impairmentcharge of approximately $582 million, representing the remaining balanceof goodwill attributable to our Asia reporting unit.

***Pension and Other Post-Retirement Benefits***

See Note 14 to our consolidated financial statementsfor further information on employee benefit plan obligations.

We have various definedbenefit plans. We use several statistical methods and other factors tocalculate the expenses and liabilities related to these plans. These factorsinclude our assumptions about the discount rate, expected return on plan assetsand rate of future compensation increases. In addition, assumptions related tomortality rates and other factors are made by our actuarial consultants toestimate our projected benefit obligation. Estimates used to calculate expensesand liabilities related to these plans may differ significantly from actualresults.

***Litigation***

See “Item 3. Legal Proceedings” and Note 15 toour consolidated financial statements for further information related to ourlegal proceedings.

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

***Factors that Could Affect Future Performance***

***Our revenues areunpredictable because many of our facilities operate without long-term powerpurchase agreements, and our revenues and results of operations depend in parton market and competitive forces that are beyond our control.***

We sell capacity,energy and ancillary services from many of our North America generatingfacilities into competitive power markets or on a short-term fixed price basisthrough power sales agreements. The market for wholesale electric energy andenergy services is largely based on prevailing market forces, subject toregulatory caps, and, therefore, we are not guaranteed any return on ourcapital investments through mandated rates. Except where we have entered intolonger term fixed price agreements for the output of our power plants, ourrevenues and results of operations are likely to depend upon prevailing marketprices, which are influenced by factors that are beyond our control, including:

·       prevailing market pricesfor fuel oil, coal, natural gas and emissions;

·       the extent of additionalsupplies of electric energy and energy services from our current competitors ornew market entrants, including the development of new generating facilitiesthat may be able to produce electricity less expensively than our generatingfacilities;

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·       the extended operation ofnuclear generating plants and other older power plants beyond their presentlyexpected dates of decommissioning;

·       prevailing regulations bythe FERC that affect our markets and regulations governing the independentsystem operators that oversee these markets, including any price limitationsand other mechanisms to address some of the volatility or illiquidity in thesemarkets or the physical stability of the system;

·       the failure of market rules todevelop mechanisms that provide for capacity compensation in markets where themechanisms do not currently exist;

·       actions by regulators, ISOsand other bodies that could prevent capacity and energy prices from rising tothe level sufficient for full recovery of long run marginal costs of newentrants when supply/demand equilibrium is reached;

·       weather conditions; and

·       changes in the rate ofgrowth in electricity usage as a result of such factors as regional economicconditions and implementation of conservation programs.

In addition, unlike mostother commodities, power can only be stored on a very limited basis andgenerally must be produced concurrently with its use. As a result, thewholesale power markets are subject to significant price fluctuations overrelatively short periods of time and can be unpredictable.

***Operation of ourgenerating facilities involves risks that may have a material adverse impact onour cash flows and results of operations.***

The operation ofour generating facilities involves various operating risks, including:

·       the output and efficiencylevels at which those generating facilities perform;

·       interruptions in fuelsupply;

·       disruptions in the deliveryof electricity;

·       breakdowns or equipmentfailures (whether due to age or otherwise) or processes;

·       violations of our permitrequirements or revocation of permits;

·       shortages of equipment orspare parts;

·       labor disputes;

·       operator errors;

·       curtailment of operationsdue to transmission constraints;

·       restrictions on emissions;

·       implementation of unproventechnologies in connection with environmental improvements; and

·       catastrophic events such asfires, explosions, floods, earthquakes or other similar occurrences.

A decrease or eliminationof revenues generated by our facilities or an increase in the costs ofoperating such facilities could materially impact our cash flows and results ofoperations, including cash flows available to us to make payments on our debtor our other obligations.

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***We may be unable togenerate sufficient liquidity to service our debt and to post required amountsof collateral necessary to economically hedge market risks effectively.***

Our ability to pay principal and interest on our debtdepends on our future operating performance. If our cash flows and capitalresources are insufficient to allow us to make scheduled payments on our debt,we may have to reduce or delay capital expenditures, sell assets, seekadditional capital, restructure or refinance the debt or sell equity. There canbe no assurance that the terms of the debt will allow these alternativemeasures, that the debt or equity will be available to us on acceptable termsor that such measures would satisfy our scheduled debt service obligations.

Furthermore, we seek tomanage market risks and exposure to fluctuating power and fuel prices byentering into forward and other contracts that economically hedge the amount ofexposure for our net transactions. As such, the effectiveness of our hedgingstrategy may be dependent on the amount of collateral available to enter intothese hedging contracts, and liquidity requirements may be greater than weanticipate or are able to meet.

***Changes incommodity prices may negatively impact our financial results by increasing thecost of producing power or lowering the price at which we are able to sell ourpower, and we may be unsuccessful at managing this risk.***

Our generation business is subject to changes in powerprices and fuel costs, which may impact our financial results and financialposition by increasing the cost of producing power and decreasing the amountswe receive from the sale of power. In addition, actual power prices and fuelcosts may differ from our expectations.

Mirant Americas Energy Marketing engages in price riskmanagement activities related to the sales of electricity and purchases of fueland our generation businesses receive the income and incur the losses fromthese activities. Mirant Americas Energy Marketing may use forward contractsand derivative financial instruments, such as futures contracts and options, tomanage market risks and exposure to fluctuating electricity, coal, natural gasand oil prices. We cannot provide assurance that these strategies will besuccessful in managing our price risks, or that they will not result in netlosses to us as a result of future volatility in electricity and fuel markets.

Many factors influence the level of commodity prices,including weather, market liquidity, transmission or transportationinefficiencies, availability of competitively priced alternative energysources, demand for energy commodities, natural gas, crude oil and coalproduction, natural disasters, wars, embargoes and other catastrophic events,and federal, state and foreign energy and environmental regulation andlegislation.

Additionally, we expect tohave an open position in the market, within our established guidelines,resulting from the management of our portfolio. To the extent open positionsexist, fluctuating commodity prices can impact financial results and financialposition, either favorably or unfavorably. Furthermore, the risk managementprocedures we have in place may not always be followed or may not always workas planned. As a result of these and other factors, we cannot predict withprecision the impact that risk management decisions may have on our businesses,operating results or financial position. Although management devotes aconsiderable amount of attention to these issues, their outcome is uncertain.

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***Some of ourgeneration facilities depend on only one or a few customers or suppliers. Theseparties, as well as other parties with whom we have contracts, may fail toperform their obligations, or may terminate their existing agreements, whichmay result in a default on project debt or a loss in revenues and may requireus to institute legal proceedings to enforce the relevant agreements.***

Several of our power production facilities depend on asingle customer or a few customers to purchase most or all of the facility’soutput or on a single supplier or a few suppliers to provide fuel, water andother services required for the operation of the facility. The sale andprocurement agreements for these facilities may also provide support for anyproject debt used to finance the related facilities. The failure of anysupplier or customer to fulfill its contractual obligations to the facilitycould have a material adverse effect on such facility’s financial results. Thefinancial performance of these facilities is dependent on the continuedperformance by customers and suppliers of their obligations under theirlong-term agreements.

Our facilities in the Philippines are exposed tosignificant risks, as a result of their reliance on their contracts with NPC,which purchases almost all of the power generated by those facilities. Theserisks include political instability, changes in governmental leadership,regulation of the electricity business and the credit quality of the Philippinegovernment. If NPC were to fail to perform its obligations under its energyconversion agreements with us, the resulting loss of cash flow and revenuewould have a material adverse affect on our financial condition and results ofoperations.

Revenue under some of ourpower sales agreements may be reduced significantly upon their expiration ortermination. Some of the electricity we generate from our existing portfolio issold under long-term power sales agreements that expire at various times. Whenthe terms of each of these power sales agreements expire, it is possible thatthe price paid to us for the generation of electricity may be reducedsignificantly, which would substantially reduce our revenue.

***We are exposed tothe risk of fuel and fuel transportation cost increases and volatility andinterruption in fuel supply because our facilities generally do not havelong-term natural gas, coal and oil fuel supply agreements.***

Most of our domestic powergeneration facilities purchase their fuel requirements under short-termcontracts or on the spot market. Although we attempt to purchase fuel based onour known fuel requirements, we still face the risks of supply interruptionsand fuel price volatility as fuel deliveries may not exactly match energy salesdue in part to our need to prepurchase inventories for reliability and dispatchrequirements. The price we can obtain for the sale of energy may not rise atthe same rate, or may not rise at all, to match a rise in fuel costs. This mayhave a material adverse effect on our financial performance. The volatility offuel prices could adversely affect our financial results and operations.

***Our credit ratings impact our ability to access thecapital markets for new borrowings on acceptable terms and our collateralrequirements with counterparties. If we are not able to achieve our anticipatedrating levels after emergence from Chapter 11 and maintain those levels, ourfinancial condition may be materially adversely affected.***

If we are not able toachieve our anticipated credit ratings after emergence from Chapter 11 orif our ratings are lowered significantly from these levels, our business couldbe materially adversely impacted. For example, significant downgrades couldincrease negative sentiment and reactions from our customers, regulators,investors, suppliers, lenders or other credit rating agencies, increasepressure on our liquidity and reduce our ability to raise capital on acceptableterms. These reactions could impair our ability to achieve our business plan.

***We are exposed to credit risk from third parties undercontracts and in market transactions.***

Our operations are exposed to the risk thatcounterparties that owe money as a result of market transactions will notperform their obligations. A facility’s financial results may be materiallyadversely affected if any one customer fails to fulfill its contractualobligations and we are unable to find other 

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customersto produce the same level of profitability. As a result of the failure of amajor customer to meet its contractual obligations, we may be unable to repayobligations under our debt agreements.

***Our operations andactivities are subject to extensive environmental regulation and permittingrequirements and could be adversely affected by future changes in environmentallaws and requirements.***

Our business is subject toextensive environmental regulation by federal, state and local authorities,which requires continuous compliance with conditions established by ouroperating permits. To comply with these legal requirements, we must spendsignificant sums on environmental monitoring, pollution control equipment andemission allowances. We may also be exposed to compliance risks from plants wehave acquired. Although we have budgeted for significant expenditures to complywith these requirements, actual expenditures may be greater than budgetedamounts. If we were to fail to comply with these requirements, we could besubject to civil or criminal liability and the imposition of liens or fines. Withthe trend toward stricter standards, greater regulation, more extensivepermitting requirements and an increase in the number and types of assetsoperated by us subject to environmental regulation, we expect our environmentalexpenditures to be substantial in the future. Our business, operations andfinancial condition could be adversely affected by this trend.

In general, environmentallaws, particularly with respect to air emissions, are becoming more stringent,which may require us to install expensive plant upgrades or restrict ouroperations to meet more stringent standards. We cannot always predict the levelof capital expenditures that will be required due to changing environmental andsafety laws and regulations, deteriorating facility conditions and unexpectedevents (such as natural disasters or terrorist attacks). The unexpectedrequirement of large capital expenditures could have a material adverse effecton our financial performance and condition.

We may not be able toobtain from time to time desired environmental regulatory approvals. Suchapprovals could be delayed or subject to onerous conditions. If there is adelay in obtaining any environmental regulatory approvals or if onerousconditions are imposed, the operation of our generating facilities or the saleof electricity to third parties could be prevented or become subject toadditional costs. We generally are responsible for all on-site environmentalliabilities. Unless our contracts with customers expressly permit us to passthrough increased costs attributable to new statutes, rules andregulations, we may not be able to recover capital costs of complying with newenvironmental regulations, which may adversely affect our profitability.

***Our business issubject to complex government regulations. Changes in these regulations, ortheir administration, by legislatures, state and federal regulatory agencies,or other bodies may affect the costs of operating our facilities or our abilityto operate our facilities. Such cost impacts, in turn, may negatively impactour financial condition and results of operations.***

Currently, our facilitiesare Exempt Wholesale Generators (EWGs) that sell electricity primarily into thewholesale market. Generally, we are subject to regulation by the FERC regardingthe terms and conditions of wholesale service and rates, as well as by stateagencies regarding physical aspects of the generating facilities. The majorityof our generation is sold at market prices under the market based rateauthority granted by the FERC. If certain conditions are not met, the FERC hasthe authority to withhold or rescind market based rate authority and requiresales to be made based on cost of service rates. Such cases are typicallysettled rather than litigated to completion, adding additional uncertainty tothe process. A loss of our market based rate authority could have a materiallynegative impact on our generation business.

Even where market basedrate authority has been granted, the FERC frequently imposes various forms ofprice and operating restrictions where it determines that market power existsand that the public interest requires such market power to be mitigated. Theserestrictions are frequently administered via bidding and scheduling rules administeredby Independent System Operators (ISOs) and Regional 

88

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TransmissionOperators (RTOs). In the fall of 2004, PJM completed its integration of AEP andDP&L into the PJM RTO, and AEP and DP&L were deemed to be capable ofproviding capacity to all areas of PJM. This has severely depressed forwardpricing for capacity.

Certain of our assets arelocated in the Electric Reliability Council of Texas (ERCOT). Such assets arenot generally subject to regulation by the FERC, but are subject to similartypes of regulation by agencies of the state of Texas. In addition to directregulation by the FERC and ERCOT, most of our assets are subject to rules andterms of participation imposed and administered by various RTOs and ISOs. Whilethese entities are themselves ultimately regulated by the FERC, they can imposerules, restrictions and terms of service that are quasi-regulatory in natureand can have a material adverse impact on our business.

To conduct our business,we must obtain licenses, permits and approvals for our plants. These licenses,permits and approvals can be in addition to any environmental permits required.No assurance can be provided that we will be able to obtain and comply with allnecessary licenses, permits and approvals for these plants. If we cannot complywith all applicable regulations, our business, results of operations andfinancial condition could be adversely affected.

Currently, the state ofCalifornia is asserting jurisdiction over EWGs to impose operating andmaintenance standards. Included in these standards are certain provisions thatwould restrict our ability to control economic decisions with regard to theuse, ownership transfer and retirement of our assets in California. The state’sability to legally impose such restrictions is uncertain. However, if theregulations are imposed in their current form, and such imposition withstandsany legal challenge that might be undertaken, then our business, financialcondition and results of operation may be materially adversely affected.

We cannot predict whetherthe federal or state legislatures will adopt legislation relating to therestructuring of the energy industry. There are proposals in many jurisdictionsto both advance and to roll back the movement toward competitive markets forsupply of electricity, at both the wholesale and retail level. In particular,the 109th United States Congress is expected to consider legislationthat could contain provisions that could impair competition in existing or evolvingpower markets in which we operate, including restrictions on the authority ofthe FERC under the Federal Power Act. In addition, any legislation resulting inan environment dominated by large, vertically integrated utilities and aconcentration of ownership of such utilities, could impact our ability tocompete successfully, and our business and results of operations could suffer.We cannot provide assurance that the introductions of new laws, or other futureregulatory developments, will not have a material adverse impact on ourbusiness, operations or financial condition.

***Changes intechnology may significantly impact our generation business by making our powerplants less competitive.***

A basic premise of ourgeneration business is that generating power at central plants achieveseconomies of scale and produces electricity at a low price. There are othertechnologies that can produce electricity, most notably fuel cells,microturbines, windmills and photovoltaic solar cells. It is possible thatadvances in technology will reduce the cost of alternative methods ofelectricity production to levels that are equal to or below that of mostcentral station electric production, which could have a material impact on ourresults of operations.

***Terrorist attacks,future war or risk of war may adversely impact our results of operations, ourability to raise capital or our future growth.***

As power generators, weface above-average risk of an act of terrorism, either a direct act against oneof our generating facilities or an inability to operate as a result of systemicdamage resulting from an act 

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againstthe transmission and distribution infrastructure that we use to transport ourpower. If such an attack were to occur, our business, financial condition andresults of operations could be materially adversely impacted. In addition, suchan attack could impact our ability to service our indebtedness, our ability toraise capital and our future growth opportunities.

***Our operations aresubject to hazards customary to the power generation industry. We may not haveadequate insurance to cover all of these hazards.***

Our operations are subjectto many hazards associated with the power generation industry, which may exposeus to significant liabilities for which we may not have adequate insurancecoverage. Power generation involves hazardous activities, including acquiring,transporting and unloading fuel, operating large pieces of rotating equipmentand delivering electricity to transmission and distribution systems. In additionto natural risks such as earthquake, flood, lightning, hurricane and wind,hazards, such as fire, explosion, collapse and machinery failure, are inherentrisks in our operations. These hazards can cause significant personal injury orloss of life, severe damage to and destruction of property, plant andequipment, contamination of, or damage to, the environment and suspension ofoperations. The occurrence of any one of these events may result in our beingnamed as a defendant in lawsuits asserting claims for substantial damages,environmental cleanup costs, personal injury and fines and/or penalties. Wemaintain an amount of insurance protection that we consider adequate, but wecannot assure that our insurance will be sufficient or effective under all circumstancesand against all hazards or liabilities to which we may be subject. A successfulclaim for which we are not fully insured could hurt our financial results andmaterially harm our financial condition.

***Certain participants in the wholesale power markets are able to recoverfixed costs through rate base mechanisms, allowing them to build, buy andupgrade generation assets without relying exclusively on market clearing pricesto recover their investments, which may give them a competitive advantage to us.***

Certainparticipants in the wholesale power markets, including many regulatedutilities, enjoy a lower cost of capital than most merchant generators andoften are able to recover fixed costs through rate base mechanisms, allowingthem to build, buy and upgrade generation assets without relying exclusively onmarket clearing prices to recover their investments. This could impact ourability to compete effectively and could have an adverse impact on the revenuesgenerated by our facilities.

**Item7A.**                *Quantitative and Qualitative Disclosures about Market Risk*

We are exposed to marketrisks associated with commodity prices, foreign currency exchange rates andinterest rates and to credit risks. Prior to the Petition Date, the MirantDebtors were also exposed to market risks associated with interest rates ondebt that is now classified as liabilities subject to compromise.

**Commodity PriceRisk**

In connection with ourpower generating business in North America, we are exposed to energy commodityprice risk associated with the acquisition of fuel needed to generateelectricity, as well as the electricity produced and sold. A portion of ourfuel requirements is purchased in the spot market and a portion of theelectricity we produce is also sold in the spot market. In addition, the openpositions in our optimization trading and legacy portfolio activities expose usto risks associated with the changes in energy commodity prices. As a result,our financial performance in North America varies depending on changes in theprices of energy and energy-related commodities. See “Critical AccountingPolicies and Estimates” for a discussion of the accounting treatment foroptimization trading and asset management activities.

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The financial performance of our power generatingbusiness is influenced by the difference between the cost of converting sourcefuel, such as natural gas or coal, into electricity, and the revenue we receivefrom the sale of that electricity. The difference between the cost of aspecific fuel used to generate one megawatt hour of electricity and the marketvalue of the electricity generated is commonly referred to as the “sparkspread.” Absent the impacts of our asset management activities, the operating marginsthat we realize are equal to the difference between the spark spread and thecost of operating the plants that produce the electricity sold.

Spark spreads are dependent on a variety of factorsthat influence the cost of fuel and the sales price of the electricitygenerated over the longer-term, including spark spreads of additional plantgenerating capacity in the regions in which we operate, plant outages, weatherand general economic conditions. As a result of these influences, the cost offuel and electricity prices do not always change by the same magnitude ordirection, which results in spark spreads widening or narrowing over time.

Through our asset management activities, we enter intoa variety of exchange-traded and OTC energy and energy-relatedderivative contracts, such as forward contracts, futures contracts, optioncontracts and financial swap agreements to manage our exposure to commodityprice risk and changes in spark spreads. These derivatives have varying termsand durations, or tenors, which range from a few days to a number of years,depending on the instrument. Our optimization trading activities also utilizesimilar contracts in markets where we have a physical presence to attempt togenerate incremental gross margin. In addition, our legacy portfolio consistsof a variety of energy and energy-related derivative and non-derivativecontracts that have been determined to be no longer consistent with our assetmanagement or optimization trading strategies.

Derivative energy contracts required to be reflectedat fair value are presented as price risk management assets and liabilities inthe accompanying consolidated balance sheets. The net changes in their marketvalues are recognized in income in the period of change. The fair value of thepower purchase agreements which we account for as derivatives and which we haveattempted to reject are included in liabilities subject to compromise on theaccompanying consolidated balance sheets as of December 31, 2004 and 2003.

The determination of fair value considers variousfactors, including closing exchange or OTC market price quotations, time value,credit quality, liquidity and volatility factors underlying options andcontracts.

The volumetric weighted average maturity, or weightedaverage tenor, of the price risk management portfolio at December 31, 2004was 1 year. The net notional amount, or net short position, of the price riskmanagement assets and liabilities at December 31, 2004 was approximately17 million equivalent MWh.

Thefollowing table provides a summary of the factors impacting the change in netfair value of the price risk management asset and (liability) accounts in 2004(in millions).
| ** **                                             | ** ** | **Optimization** | ** ** | **Asset  Management** | ** ** | **Legacy** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|------------------|------------|-----------------------|------------|------------|------------|-----------|------------|
| Net fair value of  portfolio at December 31, 2003 |       |             | $          | 30                    |       |       |       | $         | 16         |   |   |   | $ | (54 | ) |   | $ | (8 | ) |
| (Losses) gains  recognized in the period, net          |       |             | (4         | )                     |       |       | (115       | )         |       |   | 16 |   |   | (103 | ) |
| Contracts settled  during the period, net              |       |             | (27        | )                     |       |       | 48         |      |       |   | 61 |   |   | 82 |   |
| Other changes in  fair value, net                      |       |             | 2          |                  |       |       | —     |      |       |   | — |   |   | 2 |   |
| Net fair value of  portfolio at December 31, 2004 |       |             | $          | 1                     |       |       |       | $         | (51        | ) |   |   | $ | 23 |   |   | $ | (27 | ) |

 

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Thefair values of our price risk management assets and liabilities, net of creditreserves, as of December 31, 2004 are included in the following table (inmillions).
| ** **  | ** ** | **Net Price Risk Management Assets/(Liabilities)** | ** ** |
|-------------|------------|------------------------------------------------------------------------|------------|
| ** **  | ** ** | **Assets**                                                             | ** ** | **Liabilities** | ** ** | **Net Value at  December 31,** | ** ** |
| ** **  | ** ** | **Current**                                                            | ** ** | **Noncurrent** | ** ** | **Current** | ** ** | **Noncurrent** | ** ** | **2004** | ** ** |
| Electricity |       |                                                                   | $          | 106 |   |   |   | $ | 85 |   |   |   | $ | (198 | ) |   |   | $ | (41 | ) |   |   | $ | (48 | ) |   |
| Natural Gas |       |                                                                   | 59         |   |   |   | 26 |   |   |   | (65 | ) |   |   | (20 | ) |   |   | — |   |   |
| Crude Oil   |       |                                                                   | 46         |   |   |   | 1 |   |   |   | (23 | ) |   |   | (1 | ) |   |   | 23 |   |   |
| Other       |       |                                                                   | (2         | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (2 | ) |   |
| Total       |       |                                                                   | $          | 209 |   |   |   | $ | 112 |   |   |   | $ | (286 | ) |   |   | $ | (62 | ) |   |   | $ | (27 | ) |   |

 

Thefollowing table represents the net price risk management assets and liabilitiesby tenor as of December 31, 2004 (in millions):
| 2005                      |   | $  | (75    | ) |
|---------------------------|--------|----|--------|---|
| 2006                      |   | 14 |   |
| 2007                      |   | 9  |   |
| 2008                      |   | 8  |   |
| 2009                      |   | 9  |   |
| Thereafter                |   | 8  |   |
| Net assets  (liabilities) |   | $  | (27    | ) |

 

In the Philippines, our business is largely conductedthrough fixed-price, long-term contracts denominated in U.S. dollars,under which the purchaser is responsible for supplying the fuel, therebymitigating our exposures to both fluctuating commodity prices and foreigncurrencies in these businesses.

In the Caribbean, ourgenerating facilities either operate as rate regulated integrated utilities, orunder long-term power sales agreements which contain energy cost adjustmentclauses. These arrangements help mitigate our exposure to fluctuating commodityprices and foreign currencies in these businesses.

**Value at Risk**

Effective November 5, 2003, we amended our RiskManagement Policy to prohibit the trading of certain products (e.g., naturalgas liquids and pulp and paper) and to change or clarify limits related to ourasset management and optimization trading. As part of this amendment, weestablished a new value-at-risk (“VaR”) limit with respect to our optimizationtrading activities of $7.5 million. There is now no VaR limit with respectto our asset management activities, as these activities are only allowable ifthey reduce the commodity price exposure of our generation assets. We managethe market risks associated with our asset management activities in conjunctionwith the physical generation assets that they are designed to economicallyhedge. As a result, in 2004 our asset management portfolio is no longerincluded in our VaR calculation for purposes of compliance with our RiskManagement Policy.

We manage the price risk associated with assetmanagement activities through a variety of methods. To ensure that economichedge positions are risk reducing in nature, we measure the impact of eachasset management transaction executed relative to the overall asset position,including previously executed economic hedge transactions, that it is designedto economically hedge. See “Critical Accounting Policies Estimates” foraccounting treatment for asset management and optimization trading activities.

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The average VaR for ouroptimization activities, using various assumed holding periods and a 95%confidence interval, was $2 million for the year ended December 31,2004 and the VaR as of December 31, 2004 was $2 million. If weassumed VaR levels using a one-day holding period for all positions in ouroptimization portfolio, based on a 95% confidence interval, our averageportfolio VaR for the year ended December 31, 2004 was $1 million andthe VaR at December 31, 2004 was $1 million. During the year ended December 31,2004, the actual daily loss on a fair value basis exceeded the correspondingone-day VaR calculation 8 times, which falls within our 95% confidenceinterval.

*Collection Risk*

Once we bill a customerfor the commodity delivered or have financially settled the credit risk, we aresubject to collection risk. Collection risk is similar to credit risk andcollection risk is accounted for when we establish our allowance for bad debts.We manage this risk using the same techniques and processes used in credit riskdiscussed below.

*Credit Risk*

Credit risk represents theloss that we would incur if a counterparty failed to perform under its contractualobligations. We have established controls and procedures in our Risk ManagementPolicy to determine and monitor the creditworthiness of customers andcounterparties. Our credit policies are established and monitored by the RiskOversight Committee. We measure credit risk as the loss we would record if ourcustomers failed to perform pursuant to the terms of their contractualobligations less the value of collateral held by us, if any, to cover suchlosses. We manage our portfolio positions such that the average credit qualityof the portfolio must fall inside an authorized range. We use published ratingsof customers, as well as our internal analysis, to guide us in the process ofsetting credit levels, risk limits and contractual arrangements includingmaster netting agreements. Where external ratings are not available, we rely onour internal assessments of customers.

*Foreign CurrencyRisk*

From time to time, we haveused currency swaps and currency forwards to hedge our net investments incertain foreign subsidiaries. Gains or losses on these derivatives aredesignated as hedges of net investments and are offset against the foreigncurrency translation gains or losses recorded in OCI relating to theseinvestments. Occasionally, we use currency forwards to offset the effect ofexchange rate fluctuations on forecasted transactions denominated in a foreigncurrency. We do not have any foreign exchange contracts outstanding at December 31,2004 that are designated as hedges of our investments in foreign countries orotherwise.

**Item 8.**                        *Financial Statements and Supplementary Data*

The information required hereunder is included in thisreport as set forth in the “Index to Financial Statements” on page F-1.

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**INDEX TO FINANCIALSTATEMENTSMIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)**
|                                                                                                                            | ** ** | **Page**      |
|----------------------------------------------------------------------------------------------------------------------------|------------|---------------|
| Consolidated Statements of  Operations for the Years Ended December 31, 2004, 2003 and 2002                           |       | F-2           |
| Consolidated Balance Sheets as of  December 31, 2004 and 2003                                                         |       | F-3           |
| Consolidated Statements of  Stockholders’ Equity (Deficit) for the Years Ended December 31, 2004,  2003 and 2002 |       | F-4           |
| Consolidated Statements of  Comprehensive Loss for the Years Ended December 31, 2004, 2003 and 2002                   |       | F-4           |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                           |       | F-5           |
| Notes to Consolidated  Financial Statements                                                                                |       | F-6           |
| Reports  of Registered Independent Public Accounting Firm                                                                  |       | F-77 and F-78 |

 

F-1

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**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)CONSOLIDATED STATEMENTS OFOPERATIONS**
| ** **                                                                                               | ** ** | **For the Years Ended December 31,**                                         | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **     2004     **                                  | ** ** | **     2003     ** | ** ** | **     2002     ** | ** ** |
| ** **                                                                                               | ** ** | **   (in millions, except per share data)   ** | ** ** |
| **Operating Revenues:**                                                                                  |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Generation                                                                                               | ** ** | ** **                                                                                            | **$**      | **3,963** | ** ** |   |   | $ | 4,640 |   |   |   | $ | 3,877 |   |   |
| Integrated utilities and  distribution                                                                   | ** ** | ** **                                                                                            | **573**    | ** ** |   |   | 523 |   |   |   | 485 |   |   |
| Net trading revenue                                                                                      | ** ** | ** **                                                                                            | **36**     | ** ** |   |   | (1 | ) |   |   | 341 |   |   |
| Total operating revenues                                                                                 | ** ** | ** **                                                                                            | **4,572**  | ** ** |   |   | 5,162 |   |   |   | 4,703 |   |   |
| Cost of fuel,  electricity and other products                                                            | ** ** | ** **                                                                                            | **2,620**  | ** ** |   |   | 3,184 |   |   |   | 2,482 |   |   |
| **Gross  Margin**                                                                                        | ** ** | ** **                                                                                            | **1,952**  | ** ** |   |   | 1,978 |   |   |   | 2,221 |   |   |
| **Operating Expenses:**                                                                                  |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Operations and  maintenance                                                                              | ** ** | ** **                                                                                            | **1,004**  | ** ** |   |   | 1,085 |   |   |   | 1,209 |   |   |
| Depreciation and  amortization                                                                           | ** ** | ** **                                                                                            | **308**    | ** ** |   |   | 340 |   |   |   | 282 |   |   |
| Goodwill  impairment losses                                                                              | ** ** | ** **                                                                                            | **582**    | ** ** |   |   | 2,067 |   |   |   | 697 |   |   |
| Long-lived asset  impairment losses                                                                      | ** ** | ** **                                                                                            | **—** | ** ** |   |   | 1,339 |   |   |   | 610 |   |   |
| Other impairment  losses and restructuring charges                                                       | ** ** | ** **                                                                                            | **23**     | ** ** |   |   | 57 |   |   |   | 363 |   |   |
| Loss (gain) on  sales of assets, net                                                                     | ** ** | ** **                                                                                            | **53**     | ** ** |   |   | (46 | ) |   |   | (41 | ) |   |
| Total operating expenses                                                                                 | ** ** | ** **                                                                                            | **1,970**  | ** ** |   |   | 4,842 |   |   |   | 3,120 |   |   |
| **Operating  Loss**                                                                                      | ** ** | ** **                                                                                            | **(18**    | **)** |   |   | (2,864 | ) |   |   | (899 | ) |   |
| **Other (Expense) Income, net:**                                                                         |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                         | ** ** | ** **                                                                                            | **(130**   | **)** |   |   | (379 | ) |   |   | (495 | ) |   |
| Interest rate  hedging losses                                                                            | ** ** | ** **                                                                                            | **—** | ** ** |   |   | (110 | ) |   |   | — |   |   |
| Gain on sales of  investments, net                                                                       | ** ** | ** **                                                                                            | **—** | ** ** |   |   | 67 |   |   |   | 329 |   |   |
| Equity in income  of affiliates                                                                          | ** ** | ** **                                                                                            | **26**     | ** ** |   |   | 33 |   |   |   | 168 |   |   |
| Impairment losses  on minority owned affiliates                                                          | ** ** | ** **                                                                                            | **—** | ** ** |   |   | — |   |   |   | (467 | ) |   |
| Interest income                                                                                          | ** ** | ** **                                                                                            | **11**     | ** ** |   |   | 24 |   |   |   | 38 |   |   |
| Other, net                                                                                               | ** ** | ** **                                                                                            | **68**     | ** ** |   |   | 48 |   |   |   | 10 |   |   |
| Total other expense, net                                                                                 | ** ** | ** **                                                                                            | **(25**    | **)** |   |   | (317 | ) |   |   | (417 | ) |   |
| **Loss  From Continuing Operations Before Reorganization Items, Income Taxes and  Minority Interest**    |       | ** **                                                                                            | **(43**    | **)** |   |   | (3,181 | ) |   |   | (1,316 | ) |   |
| Reorganization  Items, net                                                                               | ** ** | ** **                                                                                            | **259**    | ** ** |   |   | 290 |   |   |   | — |   |   |
| Provision for  Income Taxes                                                                              | ** ** | ** **                                                                                            | **87**     | ** ** |   |   | 126 |   |   |   | 949 |   |   |
| Minority interest                                                                                        | ** ** | ** **                                                                                            | **21**     | ** ** |   |   | 35 |   |   |   | 75 |   |   |
| **Loss  From Continuing Operations**                                                                     | ** ** | ** **                                                                                            | **(410**   | **)** |   |   | (3,632 | ) |   |   | (2,340 | ) |   |
| **Loss  from Discontinued Operations, net of tax benefit of $1 and $55 in 2003 and  2002, respectively** | ** ** | ** **                                                                                            | **(66**    | **)** |   |   | (174 | ) |   |   | (98 | ) |   |
| **Loss  Before Cumulative Effect of Changes in Accounting Principles**                                   | ** ** | ** **                                                                                            | **(476**   | **)** |   |   | (3,806 | ) |   |   | (2,438 | ) |   |
| **Cumulative  Effect of Changes in Accounting Principles, net of taxes of $1 in 2003**                   | ** ** | ** **                                                                                            | **—** | ** ** |   |   | (29 | ) |   |   | — |   |   |
| **Net Loss**                                                                                             | ** ** | ** **                                                                                            | **$**      | **(476** | **)** |   |   | $ | (3,835 | ) |   |   | $ | (2,438 | ) |   |
| **Loss Per Share:**                                                                                      |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Basic and diluted:                                                                                       |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| From continuing  operations                                                                              | ** ** | ** **                                                                                            | **$**      | **(1.01** | **)** |   |   | $ | (8.97 | ) |   |   | $ | (5.82 | ) |   |
| From discontinued  operations                                                                            | ** ** | ** **                                                                                            | **(0.16**  | **)** |   |   | (0.43 | ) |   |   | (0.24 | ) |   |
| From cumulative effect of  changes in accounting                                                         |       |                                                                                                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| principles                                                                                               | ** ** | ** **                                                                                            | **—** | ** ** |   |   | (0.07 | ) |   |   | — |   |   |
| Net loss                                                                                                 | ** ** | ** **                                                                                            | **$**      | **(1.17** | **)** |   |   | $ | (9.47 | ) |   |   | $ | (6.06 | ) |   |

 

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

F-2

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**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)CONSOLIDATED BALANCE SHEETS**
|                                                       | ** **                                        | **December 31,**  | ** ** |
|-------------------------------------------------------|---------------------------------------------------|------------------------|------------|
| ** **                                            | ** **                                        | **2004**               | ** ** | **2003** | ** ** |
| ** **                                            | ** **                                        | **(in millions)** | ** ** |
| **ASSETS**                                            |                                              |                   |       |   |   |
| **Current Assets:**                                   |                                              |                   |       |   |   |
| Cash and cash equivalents                             | ** **                                        | **$**                  | **1,485**  |   | $ | 1,587 |   |
| Funds on deposit                                      | ** **                                        | **275**                |       | 150 |   |
| Receivables, net                                      | ** **                                        | **986**                |       | 1,326 |   |
| Price risk  management assets                         | ** **                                        | **209**                |       | 104 |   |
| Inventories                                           | ** **                                        | **351**                |       | 286 |   |
| Assets held for  sale                                 | ** **                                        | **161**                |       | 312 |   |
| Other                                                 | ** **                                        | **386**                |       | 335 |   |
| Total current  assets                                 | ** **                                        | **3,853**              |       | 4,100 |   |
| **Property, Plant and Equipment,  net**               | ** **                                        | **6,245**              |       | 6,475 |   |
| **Noncurrent Assets:**                                |                                              |                   |       |   |   |
| Goodwill, net                                         | ** **                                        | **5**                  |       | 587 |   |
| Other intangible  assets, net                         | ** **                                        | **271**                |       | 293 |   |
| Investments                                           | ** **                                        | **248**                |       | 267 |   |
| Price risk  management assets                         | ** **                                        | **112**                |       | 135 |   |
| Funds on deposit                                      | ** **                                        | **210**                |       | 49 |   |
| Deferred income  taxes                                | ** **                                        | **185**                |       | 203 |   |
| Other                                                 | ** **                                        | **295**                |       | 224 |   |
| Total noncurrent  assets                              | ** **                                        | **1,326**              |       | 1,758 |   |
| **Total assets**                                      | ** **                                        | **$**                  | **11,424** |   | $ | 12,333 |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**       |                                              |                   |       |   |   |
| **Current Liabilities:**                              |                                              |                   |       |   |   |
| Short-term debt                                       | ** **                                        | **$**                  | **15**     |   | $ | 28 |   |
| Current portion of long-term liabilities              | ** **                                        | **206**                |       | 256 |   |
| Accounts payable  and accrued liabilities             | ** **                                        | **725**                |       | 764 |   |
| Price risk management liabilities                     | ** **                                        | **286**                |       | 151 |   |
| Transition power  agreements and other obligations    | ** **                                        | **14**                 |       | 353 |   |
| Accrued taxes and other                               | ** **                                        | **166**                |       | 227 |   |
| Total current  liabilities                            | ** **                                        | **1,412**              |       | 1,779 |   |
| **Noncurrent Liabilities:**                           |                                              |                   |       |   |   |
| Long-term debt                                        | ** **                                        | **1,169**              |       | 1,282 |   |
| Price risk management liabilities                     | ** **                                        | **62**                 |       | 96 |   |
| Transition power  agreements and other obligations    | ** **                                        | **5**                  |       | 54 |   |
| Deferred income taxes                                 | ** **                                        | **346**                |       | 174 |   |
| Other                                                 | ** **                                        | **373**                |       | 525 |   |
| Total noncurrent liabilities                          | ** **                                        | **1,955**              |       | 2,131 |   |
| **Liabilities  Subject to Compromise**                | ** **                                        | **9,211**              |       | 9,077 |   |
| **Minority Interest in Subsidiary  Companies**        | ** **                                        | **164**                |       | 169 |   |
| **Commitments  and Contingencies**                    |                                              |                   |       |   |   |
| **Stockholders’ Equity (Deficit):**              |                                              |                   |       |   |   |
| Common stock, $.01  par value, per share              | ** **                                        | **4**                  |       | 4 |   |
| Authorized                                            | —2,000,000,000  shares                       | ** **             | ** ** |   |   |   |
| Issued                                                | —December 31,  2004: 405,568,084 shares | ** **             | ** ** |   |   |   |
|                                                  | —December 31,  2003: 405,568,084 shares | ** **             | ** ** |   |   |   |
| Treasury                                              | —December 31,  2004: 100,000 shares     | ** **             | ** ** |   |   |   |
|                                                  | —December 31,  2003: 100,000 shares     | ** **             | ** ** |   |   |   |
| Additional paid-in capital                            | ** **                                        | **4,918**              |       | 4,918 |   |
| Accumulated  deficit                                  | ** **                                        | **(6,155**             | **)**      | (5,679 | ) |
| Accumulated other comprehensive loss                  | ** **                                        | **(83**                | **)**      | (64 | ) |
| Treasury stock, at  cost                              | ** **                                        | **(2**                 | **)**      | (2 | ) |
| Total stockholders’ deficit                      | ** **                                        | **(1,318**             | **)**      | (823 | ) |
| **Total  liabilities and stockholders’ deficit** | ** **                                        | **$**                  | **11,424** |   | $ | 12,333 |   |

 

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

F-3

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**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY (DEFICIT)**
| ** **                      | ** ** | ** **             | ** ** | ** **     | ** ** | ** **      | ** ** | **Accumulated**   | ** ** | ** **   | ** ** |
|---------------------------------|------------|------------------------|------------|----------------|------------|-----------------|------------|-------------------|------------|--------------|------------|
| ** **                      | ** ** | ** **             | ** ** | **Additional** | ** ** | ** **      | ** ** | **Other**         | ** ** | ** **   | ** ** |
| ** **                      | ** ** | **Common**             | ** ** | **Paid-In**    | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** ** | **Treasury** | ** ** |
| ** **                      | ** ** | **Stock**              | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Loss**          | ** ** | **Stock**    | ** ** |
| ** **                      | ** ** | **(in millions)** | ** ** |
| **Balance,  December 31, 2001** |       |                   | $          | 4              |       |            |       | $                 | 4,884      |         |       |   | $ | 594 | ** ** |   |   | $ | (222 | ) |   |   | $ | (2 | ) |   |
| Net loss                        |       |                   | —     |           |       |            | —     |              |       |         | (2,438     | ) |   |   | — |   |   |   | — |   |   |
| Other comprehensive income      |       |                   | —     |           |       |            | —     |              |       |         | —     |   |   |   | 120 |   |   |   | — |   |   |
| Issuance of common stock        |       |                   | —     |           |       |            | 15         |              |       |         | —     |   |   |   | — |   |   |   | — |   |   |
| **Balance,  December 31, 2002** |       |                   | 4          |           |       |            | 4,899      |              |       |         | (1,844     | ) |   |   | (102 | ) |   |   | (2 | ) |   |
| Net loss                        |       |                   | —     |           |       |            | —     |              |       |         | (3,835     | ) |   |   | — |   |   |   | — |   |   |
| Other comprehensive income      |       |                   | —     |           |       |            | —     |              |       |         | —     |   |   |   | 38 |   |   |   | — |   |   |
| Issuance of common stock        |       |                   | —     |           |       |            | 19         |              |       |         | —     |   |   |   | — |   |   |   | — |   |   |
| **Balance,  December 31, 2003** |       |                   | 4          |           |       |            | 4,918      |              |       |         | (5,679     | ) |   |   | (64 | ) |   |   | (2 | ) |   |
| Net loss                        | ** ** | ** **             | —     |           | ** ** | ** **      | —     |              | ** ** | ** **   | (476       | ) | ** ** | ** ** | **—** |   | ** ** | ** ** | **—** |   |   |
| Other comprehensive loss        | ** ** | ** **             | —     |           | ** ** | ** **      | —     |              | ** ** | ** **   | —     |   | ** ** | ** ** | (19 | ) | ** ** | ** ** | **—** |   |   |
| **Balance, December 31, 2004**  | ** ** | ** **             | **$**      | **4**          |       | ** **      | ** ** | **$**             | **4,918**  |         | ** ** | ** ** | **$** | **(6,155** | **)** | ** ** | ** ** | **$** | **(83** | **)** | ** ** | ** ** | **$** | **(2** | **)** |   |

 

**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)CONSOLIDATED STATEMENTS OFCOMPREHENSIVE LOSS**
| ** **                                                         | ** ** | **For the Years Ended** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                         | ** ** | **December 31,**        | ** ** |
| ** **                                                         | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                         | ** ** | **(in millions)**       | ** ** |
| **Net  Loss**                                                      |       | $                            | (476       | ) | $ | (3,835 | ) | $ | (2,438 | ) |
| **Other comprehensive (loss)  income, net of tax**                 |       |                         |       |   |   |   |   |
| Net change in fair value of derivative hedging  instruments        |       | —                       |       | (4 | ) | (16 | ) |
| Reclassification of TIERS investment unrealized  gains to earnings |       | (7                           | )          | — |   | — |   |
| Reclassification of derivative net gains to earnings               |       | —                       |       | 73 |   | 41 |   |
| Cumulative translation adjustment                                  |       | (17                          | )          | (41 | ) | 109 |   |
| Share of other comprehensive income of affiliates                  |       | —                       |       | 7 |   | (12 | ) |
| Minimum pension liability adjustment                               |       | —                       |       | — |   | (2 | ) |
| Unrealized gain (loss) on TIERS investments                        |       | 5                            |       | 3 |   | — |   |
| Other comprehensive (loss) income, net of tax                      |       | (19                          | )          | 38 |   | 120 |   |
| **Total Comprehensive Loss**                                       | ** ** | **$**                        | **(495**   | **)** | **$** | **(3,797** | **)** | **$** | **(2,318** | **)** |

 

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

F-4

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**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)CONSOLIDATED STATEMENTS OFCASH FLOWS**
| ** **                                                                                 | ** ** | **For the Years Ended  December 31,** | ** **   |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|--------------|
| ** **                                                                                 | ** ** | **2004**                                                  | ** **   | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                 | ** ** | **(in millions)**                                    | ** **   |
| **Cash Flows from Operating Activities:**                                                  |       | *** ***                                              | *** *** |   |   |   |   |
| Net loss                                                                                   | ** ** | **$**                                                     | **(476**     | **)** | $ | (3,835 | ) | $ | (2,438 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       | ** **                                                | ** **   |   |   |   |   |
| Amortization of  transition power agreements and other obligations (non-cash revenue)      | ** ** | **(349**                                                  | **)**        | (449 | ) | (430 | ) |
| Depreciation and  amortization                                                             | ** ** | **320**                                                   | ** **   | 359 |   | 339 |   |
| Impairment losses  and restructuring charges                                               | ** ** | **639**                                                   | ** **   | 3,640 |   | 2,222 |   |
| Loss (Gain) on  sales of assets and investments                                            | ** ** | **53**                                                    | ** **   | (92 | ) | (362 | ) |
| Interest rate  hedging losses                                                              | ** ** | **—**                                                | ** **   | 110 |   | — |   |
| Equity in income  of affiliates, net of dividends                                          | ** ** | **(7**                                                    | **)**        | (12 | ) | (133 | ) |
| Non-cash charges  for reorganization items                                                 | ** ** | **168**                                                   | ** **   | 260 |   | — |   |
| Minority interest                                                                          | ** ** | **21**                                                    | ** **   | (70 | ) | 56 |   |
| Cumulative effect  of changes in accounting principles                                     | ** ** | **—**                                                | ** **   | 29 |   | — |   |
| Price risk  management activities, net                                                     | ** ** | **(148**                                                  | **)**        | 126 |   | (135 | ) |
| Deferred income  taxes                                                                     | ** ** | **50**                                                    | ** **   | 46 |   | 974 |   |
| Other, net                                                                                 | ** ** | **6**                                                     | ** **   | (23 | ) | 148 |   |
| Changes in operating  assets and liabilities:                                              |       | ** **                                                | ** **   |   |   |   |   |
| Receivables, net                                                                           | ** ** | **160**                                                   | ** **   | 809 |   | 558 |   |
| Other current  assets                                                                      | ** ** | **(164**                                                  | **)**        | 49 |   | 23 |   |
| Other assets                                                                               | ** ** | **23**                                                    | ** **   | (84 | ) | (18 | ) |
| Accounts payable  and accrued liabilities                                                  | ** ** | **(194**                                                  | **)**        | (787 | ) | (281 | ) |
| Taxes accrued                                                                              | ** ** | **(22**                                                   | **)**        | (10 | ) | 119 |   |
| Other liabilities                                                                          | ** ** | **(9**                                                    | **)**        | (85 | ) | (64 | ) |
| Total adjustments                                                                          | ** ** | **547**                                                   | ** **   | 3,816 |   | 3,016 |   |
| Net cash provided  by (used in) operating activities                                       | ** ** | **71**                                                    | ** **   | (19 | ) | 578 |   |
| **Cash Flows from Investing Activities:**                                                  |       | ** **                                                | ** **   |   |   |   |   |
| Capital  expenditures                                                                      | ** ** | **(159**                                                  | **)**        | (493 | ) | (1,512 | ) |
| Cash paid for  acquisitions                                                                | ** ** | **(21**                                                   | **)**        | (61 | ) | (111 | ) |
| Issuance of notes  receivable                                                              | ** ** | **—**                                                | ** **   | (29 | ) | (378 | ) |
| Repayments on  notes receivable                                                            | ** ** | **1**                                                     | ** **   | 98 |   | 209 |   |
| Proceeds from the  sale of assets and minority owned investments                           | ** ** | **45**                                                    | ** **   | 398 |   | 2,677 |   |
| Cash paid related to  disposition                                                          | ** ** | **(12**                                                   | **)**        | — |   | — |   |
| Other                                                                                      | ** ** | **—**                                                | ** **   | (1 | ) | (11 | ) |
| Net cash (used in)  provided by investing activities                                       | ** ** | **(146**                                                  | **)**        | (88 | ) | 874 |   |
| **Cash Flows from Financing  Activities:**                                                 |       | ** **                                                | ** **   |   |   |   |   |
| (Payments on)  proceeds from short-term debt, net                                          | ** ** | **(14**                                                   | **)**        | (36 | ) | 6 |   |
| Proceeds from issuance  of long-term debt                                                  | ** ** | **376**                                                   | ** **   | 355 |   | 2,598 |   |
| Repayment of  long-term debt                                                               | ** ** | **(218**                                                  | **)**        | (300 | ) | (3,100 | ) |
| Repayment of  commodity prepay transaction                                                 | ** ** | **—**                                                | ** **   | — |   | (25 | ) |
| Purchase of TIERS  Certificates                                                            | ** ** | **—**                                                | ** **   | (51 | ) | — |   |
| Payment of debt  related derivatives                                                       | ** ** | **—**                                                | ** **   | — |   | (60 | ) |
| Proceeds from  issuance of common stock                                                    | ** ** | **—**                                                | ** **   | 2 |   | 17 |   |
| Change in debt  service reserve fund                                                       | ** ** | **(154**                                                  | **)**        | 9 |   | 7 |   |
| Other                                                                                      | ** ** | **(17**                                                   | **)**        | 3 |   | 9 |   |
| Net cash used in  financing activities                                                     | ** ** | **(27**                                                   | **)**        | (18 | ) | (548 | ) |
| **Effect  of Exchange Rate Changes on Cash and Cash Equivalents**                          | ** ** | **—**                                                | ** **   | 6 |   | 9 |   |
| **Net (Decrease)  Increase in Cash and Cash Equivalents**                                  | ** ** | **(102**                                                  | **)**        | (119 | ) | 913 |   |
| **Cash and  Cash Equivalents, beginning of year**                                          | ** ** | **1,587**                                                 | ** **   | 1,706 |   | 793 |   |
| **Cash and  Cash Equivalents, end of year**                                                | ** ** | **$**                                                     | **1,485**    | ** ** | $ | 1,587 |   | $ | 1,706 |   |
| **Supplemental Cash Flow  Disclosures:**                                                   |       | ** **                                                | ** **   |   |   |   |   |
| Cash paid for  interest, net of amounts capitalized                                        | ** ** | **$**                                                     | **117**      | ** ** | $ | 372 |   | $ | 398 |   |
| Cash paid (refunds  received) for income taxes                                             | ** ** | **$**                                                     | **42**       | ** ** | $ | (7 | ) | $ | (254 | ) |
| Cash paid for  reorganization items                                                        | ** ** | **$**                                                     | **107**      | ** ** | $ | 56 |   | $ | — |   |
| **Business Acquisitions:**                                                                 |       | ** **                                                | ** **   |   |   |   |   |
| Fair value of  assets acquired                                                             | ** ** | **$**                                                     | **21**       | ** ** | $ | 61 |   | $ | 114 |   |
| Less cash paid                                                                             | ** ** | **21**                                                    | ** **   | 61 |   | 111 |   |
| Liabilities  assumed                                                                       | ** ** | **$**                                                     | **—**   | ** ** | $ | — |   | $ | 3 |   |

 

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

F-5

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**MIRANT CORPORATION AND SUBSIDIARIES(Debtor-in-Possession)NOTES TO CONSOLIDATED FINANCIALSTATEMENTSDecember 31, 2004, 2003 and 2002**

**1.**   Description of Business and Organization

Mirant Corporation (formerly Southern Energy, Inc.)and its subsidiaries (collectively, “Mirant” or the “Company”) is aninternational energy company incorporated in Delaware on April 20, 1993.Prior to April 2, 2001, Mirant was a subsidiary of Southern Company (“Southern”).The Company’s revenues are primarily generated through the production ofelectricity in the United States, the Philippines and the Caribbean. As of December 31,2004, Mirant owned or leased approximately 18,000 MW of electric generatingcapacity.

Mirant manages itsbusiness through two principal operating segments: North America andInternational. The Company’s North America segment consists of the ownershipand operation of power generation facilities and energy trading and marketingoperations. The International segment includes power generation businesses inthe Philippines, Curacao and Trinidad, and integrated utilities in the Bahamasand Jamaica. In the Philippines, currently approximately 90% of the revenues comefrom fixed capacity charges under long-term contracts that are paid without regardto the dispatch level of the plant. The Company’s operations in the Caribbeaninclude fully integrated electric utilities, which generate power sold toresidential, commercial and industrial customers.

**2.   Accountingand Reporting Policies**

***Basis of Presentation***

The accompanying consolidated financial statements ofMirant and its wholly-owned subsidiaries have been prepared in accordancewith accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying financial statements include theaccounts of Mirant and its wholly-owned, and controlled majority-ownedsubsidiaries, as well as variable interest entities in which Mirant has aninterest and is the primary beneficiary, and have been prepared from recordsmaintained by Mirant and its subsidiaries in their respective countries ofoperation. All significant intercompany accounts and transactions have beeneliminated in consolidation. Investments in minority-owned companies inwhich Mirant exercises significant influence over operating and financialpolicies are accounted for using the equity method of accounting. Majority orjointly owned affiliates, which Mirant does not control, as well as interestsin variable interest entities in which Mirant is not the primary beneficiary,are also accounted for using the equity method of accounting.

Certain prior periodamounts have been reclassified to conform to the current year financialstatement presentation. All amounts are presented in U.S. dollars unlessotherwise noted.

***Use of Estimates***

The preparation ofconsolidated financial statements in conformity with GAAP requires managementto make a number of estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof revenues and expenses during the period. Actual results could differ fromthose estimates. Mirant’s significant estimates include: determining the fairvalue of certain derivative contracts; 

F-6

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estimatingliabilities resulting from the bankruptcy, including the effects of bankruptcyclaims and rejected contracts; estimating future cash flows and fair values inrecording impairments of long-lived assets, goodwill and indefinite-livedintangible assets; estimating the expected return on plan assets, rate ofcompensation increases and other actuarial assumptions used in estimatingpension and other postretirement benefit plan liabilities; and estimatinglosses to be recorded for contingent liabilities.

***New Accounting Standards***

In December 2003, the Financial AccountingStandards Board (“FASB”) issued FASB Interpretation No. 46 (revised December 2003),*Consolidation of Variable Interest Entities, anInterpretation of Accounting Research Bulletin (“ARB”) No. 51* (“FIN46R”). FIN 46R addresses the consolidation by business enterprises of variableinterest entities (“VIEs”), as defined in FIN 46R. FIN 46R expands existingaccounting guidance regarding when a company should consolidate in itsfinancial statements the assets, liabilities and activities of another entity.The consolidation requirements applied immediately to Special Purpose Entities(“SPEs”) in 2003 and to all other VIEs no later than the end of the firstreporting period ending after March 15, 2004. At December 31, 2003,the Company deconsolidated Mirant Trust I, an SPE, and began accounting for itsinterest in Mirant Trust I using the equity method of accounting pursuant to FIN46R.

As of March 31, 2004, the Company applied theconsolidation requirements of FIN 46R to all interests it has in non-SPE VIEs.The effect of the Company’s adoption of FIN 46R with respect to these VIEs wasnot material to the Company’s consolidated results of operations, cash flows orfinancial position.

The Company has held aminority equity interest in a non-consolidated VIE since July 2000. Thenon-consolidated VIE primarily holds an interest in a generation facility andhas total assets of approximately $105 million at December 31, 2004.The Company believes that its maximum exposure to loss associated with itsinterest in the non-consolidated VIE is the Company’s carrying value of itsinvestment in the VIE at December 31, 2004 of approximately$55 million.

***New Accounting Standard Not Yet Adopted***

In December 2004, theFASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123R,“Share-Based Payment: an amendment of FASB Statements No. 123 and 95” (“SFAS123R”), which requires companies to recognize in the income statement thegrant-date fair value of stock options and other equity-based compensationissued to employees. The provisions of the interpretation are effective forfinancial statements issued for periods that begin after June 15, 2005.The Company will use the modified prospective transition method. Under themodified prospective method, awards that are granted, modified or settled afterthe date of adoption will be measured and accounted for in accordance with SFAS123R. Compensation cost for awards granted prior to, but not vested as of, thedate SFAS 123R is adopted would be based on the grant date, fair value andattributes originally used to value those awards. Due to the Company’sdebtor-in-possession status, the Company cannot predict the effect thisstandard will have on 2005 financial statements.

***Revenue Recognition***

Mirant recognizes generation revenue from the sale ofenergy and integrated utilities and distribution revenue from the sale anddistribution of energy when earned and collection is probable. The Companyrecognizes revenue when electric power is delivered to a customer pursuant tocontractual commitments that specify volume, price and delivery requirements.When a long-term electric power agreement conveys the right to use thegenerating capacity of Mirant’s plant to the buyer of the electric power, thatagreement is evaluated to determine if it is a lease of the generating facilityrather than a sale of electric power.

F-7

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Derivative financial instruments are recorded in theaccompanying consolidated balance sheets at fair value as either assets orliabilities, and changes in fair value are recognized currently in earnings,unless specific hedge accounting criteria are met. If the derivative isdesignated as a fair value hedge, the changes in the fair value of thederivative and of the hedged item attributable to the hedged risk arerecognized currently in earnings. If the derivative is designated as a cashflow hedge, the changes in the fair value of the derivative are recorded inother comprehensive income (“OCI”) and the realized gains and losses related tothese derivatives are recognized in earnings in the same period as thesettlement of the underlying hedged transaction. Any ineffectiveness relatingto cash flow hedges is recognized currently in earnings. The assets andliabilities related to derivative instruments that do not qualify for hedgeaccounting treatment are included in price risk management assets and liabilities.For the years ended December 31, 2004 and 2003, the Company did not haveany derivative instruments that it had designated as cash flow hedges foraccounting purposes. Mirant’s derivative financial instruments are categorizedby the Company as one of three types, based on the business objective theinstrument is expected to achieve: asset management, legacy and optimization.All asset management, legacy and optimization activities are recorded at fairvalue, except for a limited number of transactions that qualify for the normalpurchases or normal sales exclusion from “Accounting for Derivative Instrumentsand Hedging Activities,” (“SFAS No.133”) and therefore qualify for use ofaccrual accounting.

As the Company’s commodityderivative financial instruments have not been designated as hedges foraccounting purposes, changes in such instruments’ fair values are recognizedcurrently in earnings. Unless the contract is held for trading purposes,changes in fair value of electricity derivative financial instruments arereflected in generation revenue and changes in fair value of fuel derivativecontracts are reflected in cost of fuel and other products in the accompanyingconsolidated statements of operations. Changes in the fair value andsettlements of contracts held for trading purposes are recorded as net tradingrevenues in the accompanying consolidated statement of operations.

***Concentration of Revenues***

During 2004 and 2003,revenue earned from a single customer did not exceed 10% of the Company’s totalrevenues. In 2003, Mirant earned a significant portion of its operating revenuefrom the Pennsylvania-New Jersey-Maryland Interconnection, LLC (“PJM”) energymarket, which is where Mirant’s Mid-Atlantic assets are primarily located.

***Cash and Cash Equivalents***

Mirant considers allshort-term investments with an original maturity of three months or less to becash equivalents.

***Restricted Cash***

Restricted cash isincluded in current and other noncurrent assets in the accompanyingconsolidated balance sheets and amounted to $485 million and$199 million at December 31, 2004 and 2003, respectively. Restrictedcash includes deposits with brokers to support the Company’s commoditypositions and deposits for debt service reserve requirements under Mirant’sproject financing in the Philippines.

***Inventory***

Inventory consistsprimarily of natural gas, oil, coal, purchased emission certificates, andmaterials and supplies. Inventory, including commodity trading inventory, isgenerally stated at the lower of cost or market value at December 31, 2004and 2003.

F-8

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***Property, Plant and Equipment***

Property, plant andequipment are recorded at cost, which includes materials, labor, and associatedpayroll-related and overhead costs and the cost of financingconstruction. The cost of routine maintenance and repairs, such as inspectionsand corrosion removal, and the replacement of minor items of property arecharged to expense as incurred. Certain expenditures incurred during a majormaintenance outage of a generating plant are capitalized, including thereplacement of major component parts and labor and overheads incurred toinstall the parts. Depreciation of the recorded cost of depreciable property,plant and equipment is determined using primarily composite rates. Upon theretirement or sale of property, plant and equipment the cost of such assets andthe related accumulated depreciation are removed from the consolidated balancesheet. No gain or loss is recognized for ordinary retirements in the normalcourse of business since the composite depreciation rates used by Mirant takeinto account the effect of interim retirements.

***Capitalization of Interest Cost***

Mirantcapitalizes interest on projects during the advanced stages of development andduring the construction period. The Company determines which debt instrumentsrepresent a reasonable measure of the cost of financing construction assets interms of interest cost incurred that otherwise could have been avoided. Thesedebt instruments and associated interest cost are included in the calculationof the weighted average interest rate used for determining the capitalizationrate. Upon commencement of commercial operations of the plant or project,capitalized interest, as a component of the total cost of the plant, isamortized over the estimated useful life of the plant or the life of thecooperation period of the various energy conversion agreements. For the years endedDecember 31, 2004, 2003 and 2002, the Company incurred the followinginterest costs (in millions):
| ** **                                                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Total interest  costs                                      |       | $        | 131        |     | $          | 407      |       | $ | 590 |   |
| Capitalized and  included in construction work in progress |       | (1       | )          | (28      | )          | (95      | )          |
| Interest expense                                           |       | $        | 130        |     | $          | 379      |       | $ | 495 |   |

 

***Leasehold Interests***

Certain of Mirant’sPhilippine power generation facilities are developed under “build, operate andtransfer agreements” with government controlled agencies of the respectivelocal country government. Under these agreements, Mirant builds powergeneration facilities, operates them for a period of years (a “cooperationperiod”) and transfers ownership to the government at the end of thecooperation period. During construction, the cost of these facilities isrecorded as construction work in progress. Upon completion of a facility, itsentire cost is reclassified to leasehold interests where the balance isamortized over the remaining term of the agreement.

***Goodwill and Intangible Assets***

Goodwill represents theexcess of costs over fair value of assets of businesses acquired. Goodwill andintangible assets acquired in a purchase business combination that aredetermined to have an indefinite useful life are not amortized, but insteadtested for impairment at least annually. Intangible assets with definite usefullives are amortized on a straight-line basis over their respective useful livesranging up to 40 years to their estimated residual values. An impairmentoccurs when the fair value of a reporting unit is less than its carrying valueincluding goodwill. The amount of the impairment charge, if an impairmentexists, is calculated as the difference between the implied fair value of thereporting unit goodwill and its carrying value. The Company performs an annualassessment of goodwill at October 31 and whenever contrary evidence existsas to the recoverability of goodwill. The fair value of the reporting unit is 

F-9

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calculatedusing discounted cash flow techniques and assumptions as to business prospectsusing the best information available.

***Income Taxes***

Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date.

SFAS No. 109, “Accounting for Income Taxes,”requires that a valuation allowance be established when it is more likely thannot that all or a portion of a deferred tax asset will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesare deductible. In making this determination, management considers allavailable positive and negative evidence affecting specific deferred taxassets, including the Company’s past and anticipated future performance, thereversal of deferred tax liabilities, and the implementation of tax planningstrategies.

Objective positiveevidence is necessary to support a conclusion that a valuation allowance is notneeded for all or a portion of deferred tax assets when significant negativeevidence exists. Cumulative losses in recent years are the most compelling formof negative evidence considered by management in this determination. In 2004,2003 and 2002, the Company recognized increases in its valuation allowance of$162 million, $943 million and $1,088 million, respectively,related to its net deferred tax assets.

***Impairment of Long-Lived Assets***

Mirant evaluates long-lived assets, such as property,plant, and equipment, and purchased intangible assets subject to amortization,for impairment whenever events or changes in circumstances indicate that thecarrying amount of the asset may not be recoverable. Recoverability of assetsto be held and used is measured by a comparison of the carrying amount of anasset to the estimated undiscounted future cash flows expected to be generatedby the asset. If the carrying amount of an asset exceeds its estimateddiscounted future cash flows, an impairment charge is recognized as the amountby which the carrying amount of the asset exceeds the fair value of the asset.Assets to be disposed of are separately presented in the accompanyingconsolidated balance sheets and are reported at the lower of the carrying amountor fair value less costs to sell, and are not depreciated. The assets andliabilities of a disposal group classified as held for sale are presentedseparately in the appropriate asset and liability sections of the accompanyingconsolidated balance sheets.

Mirant evaluates itsgoodwill and indefinite-lived intangible assets for impairment at leastannually and periodically if indicators of impairment are present.

***Cumulative Effect of Changes in Accounting Principles***

In October 2002, the Emerging Issues Task Force (“EITF”)reached a consensus on EITF Issue 02-03, “Issues Related toAccounting for Contracts Involved in Energy Trading and Risk ManagementActivities,” to rescind EITF Issue 98-10, “Accounting for ContractsInvolved in Energy Trading and Risk Management Activities.” Accordingly, energy-relatedcontracts that are not accounted for pursuant to SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” (“SFAS No. 133”), suchas transportation contracts, storage contracts and tolling agreements, arerequired to be accounted for as executory contracts using the accrual method ofaccounting and not fair value. Energy-related contracts 

F-10

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that meet the definitionof a derivative pursuant to SFAS No. 133 continue to be carried at fairvalue. In addition, the EITF observed that accounting for energy-relatedinventory at fair value by analogy to the consensus on EITF Issue 98-10is not appropriate and that such inventory is not to be recognized at fairvalue. As a result of the consensus on EITF Issue 02-03, allnon-derivative energy trading contracts on the consolidated balance sheet as ofJanuary 1, 2003 that existed on October 25, 2002 and energy-relatedinventories that were recorded at fair value have been adjusted to historicalcost resulting in a cumulative effect adjustment of $26 million, net oftaxes, which was recorded in the first quarter of 2003.

The Company adopted SFAS No. 143 “Accounting forAsset Retirement Obligations” (“SFAS No. 143”) effective January 1,2003, relating to costs associated with legal obligations to retire tangible,long-lived assets. Asset retirement obligations are recorded at fair value inthe period in which they are incurred by increasing the carrying amount of therelated long-lived asset. In each subsequent period, the liability is accretedto its fair value and the capitalized costs are depreciated over the usefullife of the related asset. In the first quarter of 2003, the Company recorded acharge as a cumulative effect of a change in accounting principle ofapproximately $3 million, net of tax, related to the adoption of thisaccounting standard.

On November 5, 2003,the FASB made certain revisions to the implementation guidance contained in DerivativesImplementation Group (“DIG”) Issue C15, “Scope Exceptions: Normal Purchases andNormal Sales Exception for Certain Option-Type Contracts and Forward Contractsin Electricity.” DIG Issue C15 describes the criteria that permit powerpurchase or sale agreements to qualify for the normal purchases and normalsales exception. The revisions were effective on the first day of the firstfiscal quarter beginning after November 10, 2003. The modifications to DIGIssue C15 did not have a material impact on the Company’s consolidated resultsof operations, cash flows or financial position.

***Interest Rate Financial Instruments***

Historically, Mirant’spolicy was to manage interest expense using a combination of fixed- andvariable-rate debt. The Company also entered into interest rate swaps to hedgeits exposure to changes in interest rates. For qualifying hedges, changes inthe fair value of the swaps were deferred in OCI, net of tax, and werereclassified from OCI to interest expense as an adjustment of interest expenseover the term of the debt. Gains and losses resulting from the termination ofqualifying hedges prior to their stated maturities were recognized as interestexpense ratably over the remaining term of the hedged debt instrument. For non-qualifyinghedges, changes in fair values of the swaps were recognized currently inearnings. As a result of the Company’s bankruptcy filing, it recognized theremaining interest expense related to the previously terminated qualifyinginterest rate hedges in the third quarter of 2003. The Company does not haveany interest rate swaps outstanding at December 31, 2004.

***Foreign Currency Translation***

For internationaloperations in which the Company considers the functional currency to be thelocal currency, the foreign currency is translated into U.S. dollars usingexchange rates in effect at period end for assets and liabilities and averageexchange rates during each reporting period for results of operations.Adjustments resulting from translation of financial statements of foreignoperations are reported in accumulated other comprehensive loss. Forinternational operations in which the Company considers the functional currencyto be the U.S. dollar, transactions denominated in currencies other than theU.S. dollar are translated into U.S. dollars. Gains or (losses) on suchtransactions are recognized in earnings and amounted to $12 million,$8 million and $2 million in 2004, 2003 and 2002, respectively.

F-11

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***Earnings (Loss) Per Share***

Basic earnings (loss) pershare is calculated by dividing net income (loss) applicable to commonstockholders by the weighted average number of common shares outstanding.Diluted earnings (loss) per share is computed using the weighted average numberof shares of common stock and dilutive potential common shares, includingcommon shares from stock options using the treasury stock method and assumedconversion of convertible debt securities using the if-converted method.

**3.   Bankruptcy Related Disclosures**

*Proceeding Summary*

On July 14, 2003 and July 15, 2003(collectively, the “Petition Date”), Mirant and 74 of its wholly-ownedsubsidiaries in the U.S. (collectively, the “Original Debtors”) filed voluntarypetitions for relief under Chapter 11 of the Bankruptcy Code in the UnitedStates Bankruptcy Court for the Northern District of Texas, Fort Worth Division(“Bankruptcy Court”). On August 18, 2003, October 3, 2003 and November 18,2003, four additional wholly-owned subsidiaries and four affiliates ofMirant commenced Chapter 11 cases under the Bankruptcy Code (together with theOriginal Debtors, the “Mirant Debtors”). The Chapter 11 cases of the MirantDebtors are being jointly administered for procedural purposes only under casecaption In re Mirant Corporation *et al*., Case No. 03-46590(DML).

Additionally, on the Petition Date, certain of Mirant’sCanadian subsidiaries, Mirant Canada Energy Marketing, Ltd. and MirantCanada Marketing Investments, Inc. (together, the “Mirant CanadianSubsidiaries”), filed an application for creditor protection under theCompanies Creditors’ Arrangement Act in Canada (“CCAA”), which, likeChapter 11, allows for reorganization under the protection of the courtsystem. The Mirant Canadian Subsidiaries emerged from creditor protection on May 21,2004. The accounting for their emergence is reflected in this report and didnot have a material impact on the Company’s operating results.

Mirant’s businesses in the Philippines and theCaribbean were not included in the Chapter 11 filings.

The Mirant Debtors are operating their businesses asdebtors-in-possession under the jurisdiction of the Bankruptcy Court and inaccordance with the applicable provisions of the Bankruptcy Code, the Federal Rules ofBankruptcy Procedure and applicable court orders, as well as other applicablelaws and rules. In general, as debtors-in-possession, each of the MirantDebtors is authorized under the Bankruptcy Code to continue to operate as anongoing business, but may not engage in transactions outside the ordinarycourse of business without the prior approval of the Bankruptcy Court.

The Office of the United States Trustee hasestablished a committee of unsecured creditors for Mirant Corporation and acommittee of unsecured creditors for Mirant Americas Generation (collectively,the “Creditor Committees”). The Office of the United States Trustee has alsoestablished a committee of equity securities holders of Mirant Corporation (the“Equity Committee” and, collectively with the Creditor Committees, the “StatutoryCommittees”). Pursuant to an order of the Bankruptcy Court, the Office of theUnited States Trustee appointed an examiner (the “Examiner”) in these cases toanalyze certain potential causes of action and act as a mediator with respectto certain disputes that may arise among the Mirant Debtors, the StatutoryCommittees and other parties in interest.

Subject to certain exceptions in the Bankruptcy Code,the Chapter 11 filings automatically stayed the initiation or continuationof most actions against the Mirant Debtors, including most actions to collectpre-petition indebtedness or to exercise control over the property of thebankruptcy estates. As a result, absent an order of the Bankruptcy Court,creditors of the Mirant Debtors are precluded from collecting pre-petitiondebts and substantially all pre-petition liabilities are subject to compromiseunder a plan or plans of reorganization currently being developed by the MirantDebtors in the bankruptcy proceedings. One 

F-12

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exception to this stay oflitigation is for an action or proceeding by a governmental agency to enforceits police or regulatory power.

Under the Bankruptcy Code, the Mirant Debtors alsohave the right to assume, assume and assign, or reject certain executorycontracts and unexpired leases, subject to the approval of the Bankruptcy Courtand certain other conditions. The Mirant Debtors are continuing to evaluatetheir executory contracts in order to determine which contracts will beassumed, assigned or rejected.

In response to a motion filed under section 502(c) ofthe Bankruptcy Code (the “Estimation Motion”) by the Mirant Debtors, theBankruptcy Court entered an order establishing procedures for estimating proofsof claim under section 502(c) of the Bankruptcy Code that are binding forall purposes, including voting on, feasibility of and distribution under aChapter 11 plan for the Mirant Debtors. As a result, the Mirant Debtorsfiled approximately sixty material claim objections and three notices of intentto contest claims.

On January 19, 2005, the Mirant Debtors filed aproposed Plan of Reorganization and Disclosure Statement (the “Disclosure Statement”)with the Bankruptcy Court. The proposed Plan sets forth a proposed structure ofthe Company at emergence and how the claims of creditors and stockholders areto be treated. If the Disclosure Statement is found by the Bankruptcy Court tocontain adequate information, then we will solicit votes on the proposed Planfrom those creditors, security holders and interest holders who are entitled tovote on the proposed Plan.

The proposed Planimplements and includes the following key elements:

·       the business of the MirantDebtors will continue to be operated in substantially its current form, subjectto certain internal structural changes that the Mirant Debtors believe willimprove operational efficiency, facilitate and optimize their ability to meetfinancing requirements and accommodate the enterprise’s debt structure ascontemplated at emergence;

·       the original Mirant Debtorsthat are parties to the Chapter 11 proceedings, excluding Mirant AmericasGeneration, LLC (“Mirant Americas Generation”) and its subsidiaries (collectively,the “Mirant Americas Generation Debtors”), are substantively consolidated forall purposes under the proposed Plan;

·       the Mirant AmericasGeneration Debtors are substantively consolidated for all purposes under theproposed Plan;

·       the unsecured debt of theMirant Americas Generation Debtors is to be paid in full through (i) theissuance to the lenders under the Mirant Americas Generation revolving creditfacilities and the holders of Mirant Americas Generation senior notes maturingin 2006 and 2008 of (a) new debt securities of a newly formed intermediateholding company under Mirant Americas Generation (“New Mirant AmericasGeneration Holdco”) in an amount equal to 90% of the full amount owed to suchcreditors (as determined by the Bankruptcy Court) and (b) common stock inthe new corporate parent of the Mirant Debtors (“New Mirant”) having a valueequal to 10% of such amount owed; and (ii) the reinstatement of MirantAmericas Generation senior notes maturing in 2011, 2021 and 2031;

·       to ensure the feasibilityof the proposed Plan with respect to the Mirant Americas Generation Debtors andto resolve intercompany claims, the proposed Plan provides that additionalvalue shall be contributed to Mirant Americas Generation, including the tradingbusiness (subject to an obligation to return a portion of the embedded capitalin the trading business to Mirant), the Zeeland generating facility andcommitments to make prospective capital contributions of up to $150 million(for refinancing) and $265 million (for sulfur dioxide capital expenditures);

F-13

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·       the prospective workingcapital requirements of Mirant Americas Generation will be met with theproceeds of a new first lien facility in the amount of at least $750 million;

·       the bulk of the contingentliabilities of the Mirant Debtors associated with the California energy crisisand certain related matters will be resolved pursuant to a global settlement asdescribed in Note 15. Litigation and Other Contingencies;

·       substantially all of theassets of Mirant will be transferred to a new company (“New Mirant”) to beformed pursuant to the proposed Plan, which will serve as the corporate parentof our business enterprise on and after the effective date of the proposed Planand which shall have no successor liability for any unassumed obligations ofMirant Corporation, including any obligations to Potomac Electric Power Company(“PEPCO”)  under the back-to-backagreement discussed in Note 15. Litigation and Other Contingencies; similarly,the trading business shall be transferred to Mirant Energy Trading, LLC, whichshall have no successor liability for any unassumed obligations of MirantAmericas Energy Marketing, LP, including any obligations to PEPCO under theback-to-back agreement discussed in Note 15. Litigation and Other Contingencies; and

·       the outstanding commonstock in Mirant Corporation will be cancelled and the holders thereof willreceive any surplus value after creditors are paid in full, plus the right toreceive a pro rata share of warrants issued by New Mirant if they vote toaccept the proposed Plan.

At present, the proposed Plan has not been approved byany of the Statutory Committees. As such, the Mirant Debtors anticipate thatnegotiations (which, whether or not successful, could lead to material changesto certain components of the proposed Plan) will continue between the MirantDebtors and each of the Statutory Committees until the hearing to approve theadequacy of the Disclosure Statement. At present, the Bankruptcy Court has setthe following schedule with respect to the Disclosure Statement: the FirstAmended Disclosure Statement is to be filed by March 25, 2005; objectionsto the draft Disclosure Statement is to be filed by April 1, 2005; theSecond Amended Disclosure Statement to be filed by April 15, 2005; and theDisclosure Statement adequacy hearing in the Bankruptcy Court is set for April 20, 2005.

At this time, it is notpossible to accurately predict if or when the proposed Plan will be approved bythe creditors and security holders and confirmed by the Bankruptcy Court, or ifand when some or all of the Mirant Debtors may emerge from Bankruptcy Courtprotection under Chapter 11.

***Accounting for Reorganization***

The accompanying consolidated financial statements ofMirant have been prepared in accordance with Statement of Position 90-7, “FinancialReporting by Entities in Reorganization Under the Bankruptcy Code,” and on agoing concern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. However, as aresult of the bankruptcy filings, such realization of assets and satisfactionof liabilities are subject to a significant number of uncertainties. Mirant’sconsolidated financial statements do not reflect adjustments that might berequired if Mirant (or each of the Mirant Debtors) is unable to continue as agoing concern.

Condensed combined financial statements of the MirantDebtors and Non-Debtors are set forth below. Mirant Debtors include allentities that filed for protection from creditors in 2003. “Non-Debtors”include the Company’s businesses in the Caribbean and Philippines that aregenerally not affected by the bankruptcy filings, as well as certain non wholly-ownedsubsidiaries and the Mirant Canadian Subsidiaries which emerged from CCAAcreditor protection in May 2004.

F-14

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**CondensedCombined Statement of Operations DataFor the Year Ended December 31, 2004(in millions)**
| ** **                                     | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Operating  revenues                            |       | $           | 3,530      |            |       | $                                        | 1,061      |             |       |   | $ | (19 | ) |   |   | $ | 4,572 |   |   |
| Cost of fuel,  electricity and other products  |       | 2,333       |       |            | 304        |                                     |       |             | (17        | ) |   |   | 2,620 |   |   |
| Operating  expenses                            |       | 962         |       |            | 1,010      |                                     |       |             | (2         | ) |   |   | 1,970 |   |   |
| Operating (loss)  income                       |       | 235         |       |            | (253       | )                                        |       |             | —     |   |   |   | (18 | ) |   |
| Other (expense)  income net                    |       | (161        | )          |            | (52        | )                                        |       |             | 188        |   |   |   | (25 | ) |   |
| Reorganization  items, net                     |       | 250         |       |            | 6          |                                     |       |             | 3          |   |   |   | 259 |   |   |
| Provision  (benefit) for income taxes          |       | 282         |       |            | (195       | )                                        |       |             | —     |   |   |   | 87 |   |   |
| Minority interest                              |       | —      |       |            | 21         |                                     |       |             | —     |   |   |   | 21 |   |   |
| (Loss) income  from continuing operations      |       | (458        | )          |            | (137       | )                                        |       |             | 185        |   |   |   | (410 | ) |   |
| Loss from  discontinued operations, net of tax |       | (18         | )          |            | (48        | )                                        |       |             | —     |   |   |   | (66 | ) |   |
| Net (loss) income                              |       | $           | (476       | )               |       | $                                        | (185       | )                |       |   | $ | 185 |   |   |   | $ | (476 | ) |   |

 

**CondensedCombined Statement of Operations DataFor the Year Ended December 31, 2003(in millions)**
| ** **                                                           | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Operating  revenues                                                  |       | $           | 4,162      |            |       | $                                        | 1,024      |             |       |   | $ | (24 | ) |   |   | $ | 5,162 |   |   |
| Cost of fuel,  electricity and other products                        |       | 2,923       |       |            | 280        |                                     |       |             | (19        | ) |   |   | 3,184 |   |   |
| Operating  expenses                                                  |       | 4,456       |       |            | 392        |                                     |       |             | (6         | ) |   |   | 4,842 |   |   |
| Operating (loss)  income                                             |       | (3,217      | )          |            | 352        |                                     |       |             | 1          |   |   |   | (2,864 | ) |   |
| Other (expense)  income net                                          |       | (225        | )          |            | 14         |                                     |       |             | (106       | ) |   |   | (317 | ) |   |
| Reorganization  items, net                                           |       | 290         |       |            | —     |                                     |       |             | —     |   |   |   | 290 |   |   |
| Provision for  income taxes                                          |       | (110        | )          |            | 236        |                                     |       |             | —     |   |   |   | 126 |   |   |
| Minority interest                                                    |       | 12          |       |            | 23         |                                     |       |             | —     |   |   |   | 35 |   |   |
| (Loss) income  from continuing operations                            |       | (3,634      | )          |            | 107        |                                     |       |             | (105       | ) |   |   | (3,632 | ) |   |
| Loss from  discontinued operations, net of tax                       |       | (172        | )          |            | (2         | )                                        |       |             | —     |   |   |   | (174 | ) |   |
| Cumulative effect  of changes in accounting principles, net of taxes |       | (29         | )          |            | —     |                                     |       |             | —     |   |   |   | (29 | ) |   |
| Net (loss) income                                                    |       | $           | (3,835     | )               |       | $                                        | 105        |             |       |   | $ | (105 | ) |   |   | $ | (3,835 | ) |   |

 

F-15

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**CondensedCombined Balance Sheet DataDecember 31, 2004(in millions)**
| ** **                                       | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Current assets                                   |       | $           | 2,854      |            |       | $                                        | 1,233      |             |       |   | $ | (234 | ) |   |   | $ | 3,853 |   |   |
| Intercompany  receivables                        |       | 684         |       |            | 618        |                                     |       |             | (1,302     | ) |   |   | — |   |   |
| Property, plant  and equipment, net              |       | 4,055       |       |            | 2,190      |                                     |       |             | —     |   |   |   | 6,245 |   |   |
| Intangible  assets, net                          |       | 262         |       |            | 14         |                                     |       |             | —     |   |   |   | 276 |   |   |
| Investments                                      |       | 2,101       |       |            | 231        |                                     |       |             | (2,084     | ) |   |   | 248 |   |   |
| Other                                            |       | 281         |       |            | 521        |                                     |       |             | —     |   |   |   | 802 |   |   |
| Total assets                                     |       | $           | 10,237     |            |       | $                                        | 4,807      |             |       |   | $ | (3,620 | ) |   |   | $ | 11,424 |   |   |
| Liabilities not  subject to compromise:          |       |        |       |            |       |                                     |       |             |       |   |   |   |   |   |   |
| Current liabilities                              |       | 977         |       |            | 436        |                                     |       |             | (1         | ) |   |   | 1,412 |   |   |
| Intercompany payables                            |       | 526         |       |            | 685        |                                     |       |             | (1,211     | ) |   |   | — |   |   |
| Other noncurrent liabilities                     |       | 333         |       |            | 454        |                                     |       |             | (1         | ) |   |   | 786 |   |   |
| Long-term debt                                   |       | 185         |       |            | 984        |                                     |       |             | —     |   |   |   | 1,169 |   |   |
| Liabilities  subject to compromise               |       | 9,534       |       |            | —     |                                     |       |             | (323       | ) |   |   | 9,211 |   |   |
| Minority interest                                |       | —      |       |            | 164        |                                     |       |             | —     |   |   |   | 164 |   |   |
| Stockholders’  (deficit) equity             |       | (1,318      | )          |            | 2,084      |                                     |       |             | (2,084     | ) |   |   | (1,318 | ) |   |
| Total liabilities  and stockholders’ equity |       | $           | 10,237     |            |       | $                                        | 4,807      |             |       |   | $ | (3,620 | ) |   |   | $ | 11,424 |   |   |

 

**CondensedCombined Balance Sheet DataDecember 31, 2003(in millions)**
| ** **                                       | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Current assets                                   |       | $           | 3,051      |            |       | $                                        | 1,292      |             |       |   | $ | (243 | ) |   |   | $ | 4,100 |   |   |
| Intercompany  receivables                        |       | 848         |       |            | 644        |                                     |       |             | (1,492     | ) |   |   | — |   |   |
| Property, plant  and equipment, net              |       | 4,212       |       |            | 2,263      |                                     |       |             | —     |   |   |   | 6,475 |   |   |
| Intangible  assets, net                          |       | 282         |       |            | 598        |                                     |       |             | —     |   |   |   | 880 |   |   |
| Investments                                      |       | 2,400       |       |            | 211        |                                     |       |             | (2,344     | ) |   |   | 267 |   |   |
| Other                                            |       | 282         |       |            | 328        |                                     |       |             | 1          |   |   |   | 611 |   |   |
| Total assets                                     |       | $           | 11,075     |            |       | $                                        | 5,336      |             |       |   | $ | (4,078 | ) |   |   | $ | 12,333 |   |   |
| Liabilities not  subject to compromise:          |       |        |       |            |       |                                     |       |             |       |   |   |   |   |   |   |
| Current liabilities                              |       | 1,270       |       |            | 514        |                                     |       |             | (5         | ) |   |   | 1,779 |   |   |
| Intercompany payables                            |       | 561         |       |            | 847        |                                     |       |             | (1,408     | ) |   |   | — |   |   |
| Other noncurrent liabilities                     |       | 478         |       |            | 367        |                                     |       |             | 4          |   |   |   | 849 |   |   |
| Long-term debt                                   |       | 189         |       |            | 1,095      |                                     |       |             | (2         | ) |   |   | 1,282 |   |   |
| Liabilities  subject to compromise               |       | 9,400       |       |            | —     |                                     |       |             | (323       | ) |   |   | 9,077 |   |   |
| Minority interest                                |       | —      |       |            | 169        |                                     |       |             | —     |   |   |   | 169 |   |   |
| Stockholders’  (deficit) equity             |       | (823        | )          |            | 2,344      |                                     |       |             | (2,344     | ) |   |   | (823 | ) |   |
| Total liabilities  and stockholders’ equity |       | $           | 11,075     |            |       | $                                        | 5,336      |             |       |   | $ | (4,078 | ) |   |   | $ | 12,333 |   |   |

 

F-16

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**CondensedCombined Statement of Cash Flow DataFor the Year Ended December 31, 2004(in millions)**
| ** **                                                    | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Net cash provided by  (used in):                              |       |        |       |            |       |                                     |       |             |       |   |   |   |   |   |   |
| Operating activities                                          |       | $           | (391       | )               |       | $                                        | 435        |             |       |   | $ | 27 |   |   |   | $ | 71 |   |   |
| Investing activities                                          |       | (121        | )          |            | (11        | )                                        |       |             | (14        | ) |   |   | (146 | ) |   |
| Financing activities                                          |       | 392         |       |            | (406       | )                                        |       |             | (13        | ) |   |   | (27 | ) |   |
| Effect of exchange  rate changes on cash and cash equivalents |       | (3          | )          |            | 3          |                                     |       |             | —     |   |   |   | — |   |   |
| Net (decrease)  increase in cash and cash equivalents         |       | (123        | )          |            | 21         |                                     |       |             | —     |   |   |   | (102 | ) |   |
| Cash and cash  equivalents, beginning of year                 |       | 1,075       |       |            | 512        |                                     |       |             | —     |   |   |   | 1,587 |   |   |
| Cash and cash  equivalents, end of year                       |       | $           | 952        |            |       | $                                        | 533        |             |       |   | $ | — |   |   |   | $ | 1,485 |   |   |
| Cash paid for  reorganization items                           |       | $           | 104        |            |       | $                                        | 3          |             |       |   | $ | — |   |   |   | $ | 107 |   |   |

 

**CondensedCombined Statement of Cash Flow DataFor the Year Ended December 31, 2003(in millions)**
| ** **                                                    | ** ** | **Debtors** | ** ** | **Non-Debtors** | ** ** | **Consolidation/  Elimination  Entries** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|-----------------|------------|------------------------------------------|------------|------------------|------------|
| Net cash provided by  (used in):                              |       |        |       |            |       |                                     |       |             |       |   |   |   |   |   |   |
| Operating activities                                          |       | $           | (340       | )               |       | $                                        | 256        |             |       |   | $ | 65 |   |   |   | $ | (19 | ) |   |
| Investing activities                                          |       | (91         | )          |            | 51         |                                     |       |             | (48        | ) |   |   | (88 | ) |   |
| Financing activities                                          |       | 287         |       |            | (288       | )                                        |       |             | (17        | ) |   |   | (18 | ) |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | 3           |       |            | 3          |                                     |       |             | —     |   |   |   | 6 |   |   |
| Net (decrease)  increase in cash and cash equivalents         |       | (141        | )          |            | 22         |                                     |       |             | —     |   |   |   | (119 | ) |   |
| Cash and cash  equivalents, beginning of year                 |       | 1,216       |       |            | 490        |                                     |       |             | —     |   |   |   | 1,706 |   |   |
| Cash and cash equivalents,  end of year                       |       | $           | 1,075      |            |       | $                                        | 512        |             |       |   | $ | — |   |   |   | $ | 1,587 |   |   |
| Cash paid for  reorganization items                           |       | $           | 56         |            |       | $                                        | —     |             |       |   | $ | — |   |   |   | $ | 56 |   |   |

 

*Interest Expense*

The Mirant Debtors havediscontinued recording interest on liabilities subject to compromise.Contractual interest on liabilities subject to compromise in excess of reportedinterest was approximately $535 million and $239 million for theyears ended December 31, 2004 and 2003, respectively. Contractual intereston liabilities subject to compromise in excess of reported interest for theperiod from the Petition Date through December 31, 2004 is approximately$774 million. This amount includes approximately $225 million of interestrelated to Mirant Americas Generation long dated bonds to be reinstated underthe proposed Plan filed by the Company on January 19, 2005.

F-17

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*ReorganizationItems*

Reorganizationitems, net represents expense or income amounts that were recorded in thefinancial statements as a result of the bankruptcy proceedings. For the yearsended December 31, 2004 and 2003, the following were the significant itemswithin this category (in millions): 
| ** **                                                     | ** ** | **Years Ended  December 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                     | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| Estimated claims  and losses on rejected and amended contracts |       | $                                       | 171        |   | $ | 241 |   |
| Professional fees  and administrative expense                  |       | 110                                     |       | 48 |   |
| Interest income,  net                                          |       | (15                                     | )          | 1 |   |
| Other gains, net                                               |       | (7                                      | )          | — |   |
| Total                                                          |       | $                                       | 259        |   | $ | 290 |   |

 

Estimated claims and losses on rejected and amendedcontracts relate primarily to rejected energy contracts, such as tollingagreements, gas transportation and electric transmission contracts.

Professional fees and administrative expense relate tolegal, accounting and other professional costs directly associated with thereorganization process. Approximately $39 million and $15 million ofthe professional fees and administrative expense for the years ended December 31,2004 and 2003, respectively, relate to advisors of the Statutory Committees.

Othergains, net for the year ended December 31, 2004 includes a gain onsettlements of accounts payable of $7 million upon emergence of the MirantCanadian Subsidiaries from creditor protection.

***Liabilities Subject to Compromise***

Liabilities subject to compromise include certainliabilities incurred prior to the Petition Date. The amounts of the variouscategories of liabilities that are subject to compromise are set forth below.These amounts represent the Company’s estimates of known or potential claimsagainst Mirant Debtors that are likely to be resolved in connection with thebankruptcy filings. Such claims remain subject to future adjustments.Adjustments may result from negotiations, actions of the Bankruptcy Court,rejections of executory contracts and unexpired leases, and determinations asto the value of any collateral securing claims, proofs of claim or otherevents. The fair value of a Mirant Debtor’s assets may be lower than itsliabilities. This fact could result in liabilities being settled at less than100% of their face value and the Company’s equity being cancelled.

Liabilities not subject to compromise include: (1) liabilitiesof Non-Debtor entities; (2) liabilities incurred after the Petition Date; (3) liabilitiesincurred prior to the Petition Date that the Mirant Debtors expect to pay infull, even though certain of these amounts may not be paid until a plan ofreorganization is approved; (4) liabilities related to pre-petitioncontracts that have not been rejected; and (5) liabilities incurred priorto the Petition Date that have been approved for payment by the BankruptcyCourt and that the Mirant Debtors expect to pay (in advance of a plan ofreorganization) in the ordinary course of business, including certainemployee-related items (e.g., salaries, vacation and medical benefits). Theproposed Plan contemplates complete funding of Mirant Americas Generation debtcurrently classified as liabilities subject to compromise. The debt willcontinue to be classified as such until the Bankruptcy Court approves theproposed Plan.

The classification of liabilities not subject to compromiseversus liabilities subject to compromise is based on currently availableinformation and analysis. As the bankruptcy cases proceed and additionalinformation and analysis is completed or, as the Bankruptcy Court rules onrelevant matters, the 

F-18

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classification of amountsbetween these two categories may change. The amount of any such changes couldbe significant.

The amounts subject to compromise at December 31,2004 and 2003, consisted of the following items (in millions):

Items,absent the bankruptcy filings, that would have been considered current at:
| ** **                                | ** ** | **Years ended  December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| Accounts payable  and accrued liabilities |       | $                                       | 1,022      |   | $ | 1,102 |   |
| Current portion  of long-term debt        |       | 3,112                                   |       | 2,500 |   |
| Price risk management  liabilities        |       | 80                                      |       | 133 |   |
|                                           |            |                                         |            |  |  |  |  |

 

Items,absent the bankruptcy filings, that would have been considered noncurrent at:
| Long-term  debt                                             |   | 3,974 |   | 4,361  |   |
|-------------------------------------------------------------|--------|-------|--------|--------|--------|
| Price risk  management liabilities                          |   | 460   |   | 575    |   |
| Note payable to  Mirant Trust I                             |   | 356   |   | 356    |   |
| Indemnification  agreement and other noncurrent liabilities |   | 207   |   | 50     |   |
| Total                                                       |   | $     | 9,211  |   | $      | 9,077 |   |
|                                                             |        |       |        |        |        |  |  |

 

The price risk management liabilities included inliabilities subject to compromise relate to power purchase agreements. The $168million decrease in these liabilities from December 31, 2003 to December 31,2004 relates to purchases made under the power purchase agreements during theyear ended December 31, 2004 and to changes in the fair value of theremaining obligation as of December 31, 2004 due to changes in forwardpower prices. Price risk managementliabilities represent the fair value of the PEPCO Back-to-Back Agreement. SeeNote 15 for additional information related to the PEPCO Back-to-BackAgreement.

Accounts payable and accrued liabilities above are netof approximately $35 million of pre-petition accounts receivable due fromcounterparties with which the Mirant Debtors have a netting agreement.

Included in the indemnification agreement and othernon-current liabilities is $189 million for an estimated obligation thatrelates to potential tax obligations stemming from the sale of a business in2002. As part of the sale agreement, Mirant guaranteed that two wholly-ownedsubsidiaries would indemnify the purchaser, if the purchaser became liable foradditional taxes on the acquisition. No triggering event has occurred, but theCompany believes it is probable that additional tax will be due on the sale,and consequently the guarantee between Mirant and the subsidiaries will becalled upon to reimburse the purchaser for additional taxes due on the transaction.No payments are due on the indemnification agreement if additional taxes arenever assessed on the transaction. The estimated maximum exposure approximatesthe amount recorded as of December 31, 2004. During the fourth quarter of2004, this liability was transferred to liabilities subject to compromisebecause the guarantee is expected to be rejected or otherwise avoided throughthe bankruptcy process. In prior year periods, this liability was included inother non-current liabilities on the balance sheet.

During the first quarter of 2003, Mirant paid$51 million to purchase $83 million in aggregate principal amount ofTIERS Fixed Rate Certificates (the “TIERS Certificates”). The TIERSCertificates were issued by a third party trust (the “Trust”) and were securedby $750 million aggregate principal amount of Mirant’s 2.5% convertiblesenior debentures due 2021 (the “Mirant Debentures”). On June 15, 2004,the Trust was terminated in accordance with the terms of the Trust agreementand the Mirant Debentures were distributed to holders of the TIERSCertificates. The Company received $83 million of 

F-19

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the Mirant Debentures uponliquidation of the Trust. The acquisition of the Mirant Debentures wasaccounted for as an extinguishment of $83 million of debt. Mirantrecognized a $37 million gain on the extinguishment of debt during theyear ended December 31, 2004, which is reflected in other income(expense), net in the consolidated statements of operations.

On January 28, 2004, theBankruptcy Court approved the amended lease agreement for Mirant’s AtlantaHeadquarters to reduce its space commitments to approximately 216,000 squarefeet and reduce the term of the lease to three years. This new agreement isaccounted for as an operating lease. Under the previous lease agreement, theremaining obligations totaled $57 million as of December 31, 2003. TheCompany recorded the estimated damage claim and the gain on the lease amendmentin reorganization items, net in the consolidated statement of income. In theyear ended December 31, 2004, the net reorganization expense recognizedrelated to the lease amendment was approximately $5 million.

On August 29, 2003, the Mirant Debtors filed amotion with the Bankruptcy Court to reject the tolling agreement withPerryville Energy Partners, LLC (“Perryville”), under which Mirant AmericasEnergy Marketing, LP paid a fixed capacity payment and supplied the natural gasneeded to fuel the Perryville generation facility in exchange for the right toown and market the facility’s output. The rejection was approved by theBankruptcy Court on September 15, 2003. Perryville filed claims in excessof $1 billion against the Mirant Debtors as a result of the rejection.Mirant Americas Energy Marketing, L.P. has filed an objection to the Perryvilleclaims and the Mirant Debtors are investigating the nature, scope and defensesto such claims. The Company has recorded an estimated damage claim related tothe rejection of the tolling agreement of approximately $80 million as of December 31,2004. Approximately $43 million of the $80million recorded represents the Company’s estimate of the out-of-market valueof the tolling agreement (after netting of $99 million of debt owed byPerryville to Mirant Americas, Inc.). The balance of the $80 millionliability reflects the uncertainties associated with the ongoing litigation ofthe Perryville claims and the potential for an adverse outcome of thelitigation. The amount recorded is included in accounts payable and accruedliabilities within liabilities subject to compromise.

On January 28, 2004, Perryvilleand its parent company Perryville Energy Holdings, LLC filed voluntarypetitions for protection under Chapter 11 in Alexandria, Louisiana (the“Perryville Cases”). The Mirant Debtors filed claims in the Perryville Casesbased on the unpaid subordinated loan.

OnJuly 14, 2004, Perryville filed a motion for relief from the automatic stay tocompel arbitration of Perryville’s claim in Mirant Americas Energy Marketing’sChapter 11 case. On September 29, 2004, the Bankruptcy Court deniedPerryville’s motion. Perryville appealed the decision to deny arbitration tothe United States District Court for the Northern District of Texas. Based ontheir expert analysis and report, the Mirant Debtors estimate the total damagesat $151 million (subject to offset by $99 million due and owing by Perryvilleon the subordinated loan). Perryville’s expert report estimates damages in therange of $395 million to $407 million with no offset for the unpaidsubordinated loan.

**4.**   AssetsHeld for Sale

The Company hasreclassified amounts for prior periods in the financial statements to reportseparately, as discontinued operations, the revenues and expenses of componentsof the Company that have been disposed of or are expected to be disposed of inthe next year. A description of the assets held for sale is discussed below thetables.

F-20

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Asummary of the operating results for these discontinued operations for theyears ended December 31, 2004, 2003 and 2002 follows (in millions):
| ** **                                                            | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                            | ** ** | **2004**              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Operating revenue                                                     |       | —                |       | $ | 13 |   | $ | 107 |   |
| Cost of fuel,  electricity and other products                         |       | —                |       | 6 |   | 6 |   |
| Operating expenses,  including other (expense) income, net            |       | (54                   | )*         | (270 | )** | (251 | ) |
| Loss before income  taxes, reorganization items and minority interest |       | (54                   | )          | (263 | ) | (150 | ) |
| Reorganization items,  net                                            |       | 12                    |       | 5 |   | — |   |
| Income tax expense (benefit)                                          |       | —                |       | (1 | ) | (55 | ) |
| Minority interest                                                     |       | —                |       | (93 | ) | 3 |   |
| Net loss                                                              |       | $                     | (66        | ) | $ | (174 | ) | $ | (98 | ) |
|                                                                       |            |                       |            |  |  |  |  |  |  |  |

----

*                    Forthe year ended December 31, 2004, an impairment charge of approximately$48 million was recorded related to Coyote Springs 2.

**             Forthe year ended December 31, 2003, an impairment charge of approximately$228 million was recorded related to the Wrightsville facility.

Currentassets and liabilities held for sale include discontinued operations and otherassets that the Company expects to dispose of in the next year. The table below presents the components of thebalance sheet accounts classified as current assets and liabilities held forsale as of December 31, 2004 and 2003 (in millions): 
| ** **                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Current  Assets:**                                       |       |     |       |     |       |
| Current assets                                             |       | $        | 7          |     | $          | 11 |   |
| Property, plant  and equipment                             |       | 145      |       | 292      |       |
| Other assets                                               |       | 9        |       | 9        |       |
| Total current  assets held for sale                        |       | $        | 161        |     | $          | 312 |   |
| **Current Liabilities:**                                   |       |     |       |     |       |
| Current  liabilities                                       |       | $        | 1          |     | $          | — |   |
| Liabilities  subject to compromise                         |       | 6        |       | 7        |       |
| Total current  liabilities related to assets held for sale |       | $        | 7          |     | $          | 7 |   |

 

F-21

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Thefollowing tables present the effects of the reclassifications in the previouslypresented consolidated statements of operations for the years ended December 31,2003 and 2002, and balance sheet as of December 31, 2003 (in millions).
| ** **                                                                     | ** ** | **Year Ended December 31, 2003** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **As Previously  Presented**                    | ** ** | **Reclassifications** | ** ** | **As Presented** | ** ** |
| Operating  revenues                                                            |       |                                                 | $          | 5,171 |   |   |   | $ | (9 | ) |   |   | $ | 5,162 |   |   |
| Cost of fuel,  electricity and other products                                  |       |                                                 | 3,190      |   |   |   | (6 | ) |   |   | 3,184 |   |   |
| Gross Margin                                                                   |       |                                                 | 1,981      |   |   |   | (3 | ) |   |   | 1,978 |   |   |
| Operating  expenses                                                            |       |                                                 | 5,087      |   |   |   | (245 | ) |   |   | 4,842 |   |   |
| Operating income                                                               |       |                                                 | (3,106     | ) |   |   | 242 |   |   |   | (2,864 | ) |   |
| Other expense, net                                                             |       |                                                 | (317       | ) |   |   | — |   |   |   | (317 | ) |   |
| (Loss) income  before reorganization items, income taxes and minority interest |       |                                                 | (3,423     | ) |   |   | 242 |   |   |   | (3,181 | ) |   |
| Reorganization  items, net                                                     |       |                                                 | 295        |   |   |   | (5 | ) |   |   | 290 |   |   |
| Income tax  expense                                                            |       |                                                 | 126        |   |   |   | — |   |   |   | 126 |   |   |
| Minority interest                                                              |       |                                                 | (58        | ) |   |   | 93 |   |   |   | 35 |   |   |
| (Loss) income  from continuing operations                                      |       |                                                 | (3,786     | ) |   |   | 154 |   |   |   | (3,632 | ) |   |
| Loss from  discontinued operations, net of tax                                 |       |                                                 | (20        | ) |   |   | (154 | ) |   |   | (174 | ) |   |
| Cumulative effect  of changes in accounting principles, net of taxes           |       |                                                 | (29        | ) |   |   | — |   |   |   | (29 | ) |   |
| Net loss                                                                       |       |                                                 | $          | (3,835 | ) |   |   | $ | — |   |   |   | $ | (3,835 | ) |   |

 
| ** **                                                                     | ** ** | **Year Ended December 31, 2002** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **As Previously  Presented**                    | ** ** | **Reclassifications** | ** ** | **As Presented** | ** ** |
| Operating  revenues                                                            |       |                                                 | $          | 4,705 |   |   |   | $ | (2 | ) |   |   | $ | 4,703 |   |   |
| Cost of fuel,  electricity and other products                                  |       |                                                 | 2,488      |   |   |   | (6 | ) |   |   | 2,482 |   |   |
| Gross Margin                                                                   |       |                                                 | 2,217      |   |   |   | 4 |   |   |   | 2,221 |   |   |
| Operating  expenses                                                            |       |                                                 | 3,128      |   |   |   | (8 | ) |   |   | 3,120 |   |   |
| Operating (loss)  income                                                       |       |                                                 | (911       | ) |   |   | 12 |   |   |   | (899 | ) |   |
| Other expense, net                                                             |       |                                                 | (417       | ) |   |   | — |   |   |   | (417 | ) |   |
| (Loss) income  before reorganization items, income taxes and minority interest |       |                                                 | (1,328     | ) |   |   | 12 |   |   |   | (1,316 | ) |   |
| Reorganization  items, net                                                     |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |
| Income tax expense                                                             |       |                                                 | 948        |   |   |   | 1 |   |   |   | 949 |   |   |
| Minority interest                                                              |       |                                                 | 78         |   |   |   | (3 | ) |   |   | 75 |   |   |
| (Loss) income from continuing operations                                       |       |                                                 | (2,354     | ) |   |   | 14 |   |   |   | (2,340 | ) |   |
| Loss from discontinued operations, net of tax                                  |       |                                                 | (84        | ) |   |   | (14 | ) |   |   | (98 | ) |   |
| Cumulative effect  of changes in accounting principles, net of tax             |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |
| Net loss                                                                       |       |                                                 | $          | (2,438 | ) |   |   | $ | — |   |   |   | $ | (2,438 | ) |   |

 

F-22

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| ** **                                        | ** ** | **As of December 31, 2003** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                        | ** ** | **As Previously  Presented**               | ** ** | **Reclassifications** | ** ** | **As Presented** | ** ** |
| Cash and cash  equivalents                        |       |                                            | $          | 1,589 |   |   |   | $ | (2 | ) |   |   | $ | 1,587 |   |   |
| Funds on deposit,  current                        |       |                                            | 150        |   |   |   | — |   |   |   | 150 |   |   |
| Receivables, net                                  |       |                                            | 1,329      |   |   |   | (3 | ) |   |   | 1,326 |   |   |
| Price risk  management assets, current            |       |                                            | 104        |   |   |   | — |   |   |   | 104 |   |   |
| Inventories                                       |       |                                            | 288        |   |   |   | (2 | ) |   |   | 286 |   |   |
| Assets held for  sale                             |       |                                            | —     |   |   |   | 312 |   |   |   | 312 |   |   |
| Other current  assets                             |       |                                            | 339        |   |   |   | (4 | ) |   |   | 335 |   |   |
| Property, plant  and equipment, net               |       |                                            | 6,767      |   |   |   | (292 | ) |   |   | 6,475 |   |   |
| Goodwill                                          |       |                                            | 587        |   |   |   | — |   |   |   | 587 |   |   |
| Other intangible  assets, net                     |       |                                            | 293        |   |   |   | — |   |   |   | 293 |   |   |
| Investments                                       |       |                                            | 267        |   |   |   | — |   |   |   | 267 |   |   |
| Price risk  management assets, noncurrent         |       |                                            | 135        |   |   |   | — |   |   |   | 135 |   |   |
| Funds on deposit,  noncurrent                     |       |                                            | 49         |   |   |   | — |   |   |   | 49 |   |   |
| Other noncurrent  assets                          |       |                                            | 436        |   |   |   | (9 | ) |   |   | 427 |   |   |
| Total assets                                      |       |                                            | $          | 12,333 |   |   |   | $ | — |   |   |   | $ | 12,333 |   |   |
| Current liabilities                               |       |                                            | $          | 1,552 |   |   |   | $ | — |   |   |   | $ | 1,552 |   |   |
| Other current  liabilities                        |       |                                            | 220        |   |   |   | 7 |   |   |   | 227 |   |   |
| Total noncurrent  liabilities                     |       |                                            | 2,131      |   |   |   | — |   |   |   | 2,131 |   |   |
| Liabilities  subject to compromise                |       |                                            | 9,084      |   |   |   | (7 | ) |   |   | 9,077 |   |   |
| Minority interest                                 |       |                                            | 169        |   |   |   | — |   |   |   | 169 |   |   |
| Stockholders’  deficit                       |       |                                            | (823       | ) |   |   | — |   |   |   | (823 | ) |   |
| Total liabilities and  stockholders’ deficit |       |                                            | $          | 12,333 |   |   |   | $ | — |   |   |   | $ | 12,333 |   |   |

 

*Description of Components in Assets Held for Sale*

*2004*

*CoyoteSprings 2:  *In October 2004, Mirant Oregon LLC (“MirantOregon”), a wholly-owned subsidiary of Mirant, entered into an agreement tosell its 50% undivided interest in Coyote Springs 2 to Avista Energy, subjectto Bankruptcy Court and regulatory approval. The Bankruptcy and regulatoryapprovals occurred in the fourth quarter of 2004. In the second quarter of2004, the Company recognized an impairment charge of $48 million related to theCoyote Springs 2 project. This amount is included in loss from discontinuedoperations for the year ended December 31, 2004 in the consolidatedstatements of operations. The Company completed the sale for $63 million in January 2005after conducting an auction in which Mirant Oregon solicited higher bids.

*Wrightsville:  *Duringthe third quarter of 2004, the Company negotiated a non-binding term sheet tosell its generating facility in Wrightsville, Arkansas. This facility iscurrently mothballed (temporarily shutdown). The Company expects proceeds fromthis sale to approximate book value as of December 31, 2004. In February 2005,certain indirect subsidiaries of the Company entered into an agreement to sellthe Wrightsville generating facility to Arkansas Electric CooperativeCorporation, and, subject to Bankruptcy Court and other approvals, expects tocomplete the sale in 2005.

*2003*

*Neenah:  *InJanuary 2003, Mirant completed the sale of its Neenah generating facilityfor approximately $109 million resulting in a pre-tax gain ofapproximately $4 million. The operating results for this business prior toits disposal are included in loss from discontinued operations in theaccompanying consolidated statements of operations.

F-23

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*Tanguisson:  *InApril 2003, Mirant completed the sale of its Tanguisson power plant inGuam for approximately $16 million, which approximated the book value ofthe assets sold. The operating results for this business prior to its disposalare included in loss from discontinued operations in the accompanyingconsolidated statements of operations.

*Mirant Americas Energy Capital:  *InMay and August 2003, Mirant Americas Energy Capital completed thesale of its two remaining investments for approximately $41 million and$3 million, respectively, which approximated book value. The operatingresults for this business prior to its disposal are included in loss fromdiscontinued operations in the accompanying consolidated statements ofoperations.

*2002*

*State Line:  *InJune 2002, Mirant completed the sale of its State Line generating facilityfor approximately $180 million plus an adjustment for working capital. Theasset was sold at approximately book value. The operating results for thisbusiness prior to its disposal are included in loss from discontinuedoperations in the accompanying consolidated statements of operations.

*Mirant Americas ProductionCompany:  *In August 2001, Mirant acquired a 75%working interest in 18 natural gas and oil producing fields as well as 206,000acres of mineral rights in southern Louisiana from Castex and a number of itsaffiliates for approximately $162 million. Castex, a privately heldHouston-based oil and gas producer, retained an interest in theproperties and continued to operate them. In September 2002, Mirantrecorded a write down of $48 million to reduce the carrying value of itsinvestment to its estimated fair value less costs to sell. In December 2002,Mirant completed the sale of its investment for $143 million, and recordedan additional loss of $7 million. The operating results for this businessprior to its disposal are included in loss from discontinued operations in theaccompanying consolidated statements of operations.

**5.   AccountsReceivable and Notes Receivable**

Receivablesconsisted of the following at December 31, 2004 and 2003(in millions).
| ** **                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Customer accounts                                               |       | $        | 1,049      |     | $          | 1,330 |   |
| Notes receivable                                                |       | 99       |       | 102      |       |
| Collateral  receivable                                          |       | 217      |       | 239      |       |
| Other                                                           |       | 48       |       | 66       |       |
| Less: allowance for uncollectibles                              |       | 395      |       | 411      |       |
| Total receivables                                               |       | 1,018    |       | 1,326    |       |
| Less: long-term receivables included in other  long-term assets |       | 32       |       | —   |       |
| Total current  receivables                                      |       | $        | 986        |     | $          | 1,326 |   |

 

**6.   FinancialInstruments**

***Commodity FinancialInstruments***

The Company manages therisks around fuel supply and power to be generated from its physical assetpositions (“asset management”), and attempts to achieve incremental returns byentering into additional energy contracts where it has specific marketexpertise or physical asset positions (“optimization trading”). In the fourthquarter of 2003, the Company segregated a portion of its existing derivativecontracts that were not considered strategic to ongoing operations into aseparately managed portfolio (“legacy portfolio”).

Mirant enters into avariety of derivative financial and physical instruments to manage its exposureto the prices of the fuel it acquires for generating electricity, as well theelectricity produced that it sells. 

F-24

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Theseinclude contractual agreements, such as forward purchase and sale agreements,and futures, swaps and option contracts. Futures are traded on nationalexchanges and swaps are typically traded in over-the-counter financial markets.Option contracts are traded on both a national exchange and in over-the-counterfinancial markets. These contractual agreements have varying terms anddurations, or tenors, which range from a few days to a number of years,depending on the instrument.

As part of itsoptimization trading activities, the Company is exposed to certain market risksin an effort to generate gains from changes in market prices by entering intoderivative instruments, including exchange-traded and over-the-countercontracts, as well as other contractual arrangements. The earnings and cashflows from the Company’s optimization trading business can be volatile andsubject to swings as commodity prices change. Gas and electricity, the primarycommodities the Company trades, are among the most volatile commodities interms of price in the market.

Derivative instruments arerecorded at their estimated fair value in the Company’s accompanyingconsolidated balance sheets as price risk management assets and liabilitiesexcept for a limited number of transactions that qualify for the normalpurchase or normal sale exception election that allows accrual accountingtreatment. Certain transactions are entered into under master nettingagreements that provide the Company with a legal right of offset in the eventof default by the counterparty and are, therefore, reported net in the Company’saccompanying consolidated balance sheets. Unless the contracts are held fortrading purposes, changes in the fair value and settlements of electricityderivative financial instruments are reflected in generation revenue andchanges in the fair value and settlements of fuel derivative contracts arereflected in cost of fuel and other products in the accompanying consolidatedstatements of operations. For contracts held for trading purposes, changes inthe fair value and settlements of these instruments are recorded as net tradingrevenues in the accompanying consolidated statements of operations. As of December 31,2004, the Company does not have any derivative instruments for which hedgeaccounting criteria are met.

Thefair values of Mirant’s price risk management assets and liabilities, net ofcredit reserves, as of December 31, 2004 are included in the followingtable (in millions).
| ** **  | ** ** | **Assets**  | ** ** | **Liabilities** | ** ** |
|-------------|------------|-------------|------------|-----------------|------------|
| ** **  | ** ** | **Current** | ** ** | **Noncurrent**  | ** ** | ** Current ** | ** ** | **Noncurrent** | ** ** |
| Electricity |       |        | $          | 106             |       |   |   | $ | 85 |   |   |   | $ | (198 | ) |   |   | $ | (41 | ) |   |
| Natural Gas |       |        | 59         |            |       |   | 26 |   |   |   | (65 | ) |   |   | (20 | ) |   |
| Crude Oil   |       |        | 46         |            |       |   | 1 |   |   |   | (23 | ) |   |   | (1 | ) |   |
| Other       |       |        | (2         | )               |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Total       |       |        | $          | 209             |       |   |   | $ | 112 |   |   |   | $ | (286 | ) |   |   | $ | (62 | ) |   |

 

The volumetric weightedaverage maturity, or weighted average tenor, of the price risk managementportfolio at December 31, 2004 was 1 year. The net notional amount,or net short position, of the price risk management assets and liabilities at December 31,2004 was approximately 17 million equivalent MWh.

***Fair Values***

Financial instrumentsrecorded at market or fair value include cash and interest-bearing cashequivalents, derivative financial instruments and financial instruments usedfor price risk management purposes. The following methods were used by Mirantto estimate the fair value of all financial instruments that are not subject tocompromise and not otherwise carried at fair value on the accompanyingconsolidated balance sheets:

*Notes and Other Receivables.  *Thefair value of Mirant’s notes receivable are estimated using interest rates itwould receive currently for similar types of arrangements.

*Notes Payable and Other Long- andShort-Term Debt.  *The fair value of Mirant’s notespayable and long- and short-term debt is estimated using quoted market prices,when available. Market prices for 

F-25

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internationalbusiness debt are not readily available as there is no active market for thesefinancial instruments. In most cases, the debt of the Company’s internationaloperations is secured by the assets of those operations. Therefore, thecarrying value of the debt is deemed to be a reasonable approximation of fairvalue.

Thecarrying or notional amounts and fair values of Mirant’s financial instrumentsat December 31, 2004 and 2003 were as follows (in millions):
| ** **                                  | ** ** | **2004**                         | ** ** | **2003**        | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | ** Carrying   Amount** | ** ** | **Fair  Value** | ** ** | ** Carrying   Amount** | ** ** | **Fair  Value** | ** ** |
| **Liabilities Subject to  Compromise:**     |       |                             |       |            |       |   |   |   |   |   |   |   |   |
| Notes payable and long-and  short-term debt |       |                             | $          | 7,086           |       |   | $ | * |   |   | $ | 6,861 |   |   | $ | * |   |
| Note payable to Mirant  Trust I        |       |                             | 356        |            |       | * |   |   | 356 |   |   | * |   |
| **Liabilities Not Subject to  Compromise:** |       |                             |       |            |       |   |   |   |   |   |   |   |   |
| Notes payable and long-and  short-term debt |       |                             | 1,390      |            |       | 1,390 |   |   | 1,566 |   |   | 1,566 |   |
| **Other:**                                  |       |                             |       |            |       |   |   |   |   |   |   |   |   |
| Notes and other receivables                 |       |                             | 32         |            |       | 32 |   |   | — |   |   | — |   |
|                                             |            |                                  |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |

----

*       Asa result of the Company’s Chapter 11 filing, the fair value cannot bereasonably determined for the outstanding debt that is included in liabilitiessubject to compromise on the consolidated balance sheets.

**7.   Property,Plant and Equipment**

Property,plant and equipment consisted of the following at December 31, 2004 and2003 (in millions):
| ** **                                                                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Production                                                                               |       | $        | 4,508      |     | $          | 4,573 |   |
| Transmission and  distribution                                                           |       | 307      |       | 277      |       |
| Leasehold interest                                                                       |       | 2,004    |       | 2,003    |       |
| Oil and gas properties                                                                   |       | 25       |       | 25       |       |
| Construction work in  progress                                                           |       | 127      |       | 178      |       |
| Other                                                                                    |       | 336      |       | 337      |       |
| Suspended construction  projects(1)                                                      |       | 250      |       | 241      |       |
|                                                                                     |       | 7,557    |       | 7,634    |       |
| Less: accumulated  depreciation, depletion and amortization and provision for impairment |       | 1,312    |       | 1,159    |       |
| Total property, plant and equipment, net                                                 |       | $        | 6,245      |     | $          | 6,475 |   |

----

(1)    TheCompany does not expect to independently complete its four suspendedconstruction projects that consist of 2,188 MW of generating capacity. TheCompany plans to either pursue partnerships to complete one or more of theprojects, sell the projects or abandon the projects.

Depreciationof the recorded cost of depreciable property, plant and equipment is providedon a straight-line basis over the estimated useful lives of the assets asfollows:
| ** **                                                                  | ** ** | **Years** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------|------------|
| Production                                                                  |       | 5 to 42   |       |
| Transmission and  distribution                                              |       | 5 to 39   |       |
| Other general plant  (office furniture, computer equipment, software, etc.) |       | 5 to 12   |       |
| Leasehold improvements                                                      |       | 12 to 29  |       |

 

The cost of oil and gasproperties were amortized using the units of production method over theestimated proved reserves of the properties. Mirant does not depreciate itssuspended construction project costs.

Mirant evaluates itslong-lived assets (property, plant and equipment) and definite-livedintangibles for impairment whenever events or changes in circumstances indicatethat the Company may not be able to recover the carrying amount of the asset.As a result of two credit rating downgrades, public opposition to 

F-26

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Mirant’spre-petition restructuring proposals, material unfavorable variances to itsprior business plan through the second quarter of 2003 and a lawsuit filedagainst its pre-petition restructuring proposal by Mirant Americas Generationbondholders, Mirant reassessed its long-lived assets for impairment at June 30,2003. The results of the analysis indicated no impairments of its property,plant and equipment existed at June 30, 2003. At December 31, 2003,an additional impairment analysis was prepared incorporating Mirant’s then mostrecent assumptions as to future operations and opportunities in connection withits 2004 10-year business plan. The results of such analysis indicated asubstantial decrease in nominal cash flows over Mirant’s 10-year planninghorizon and, in certain cases, an impairment of certain long-lived assetbalances.

In the second quarter of2004, the Company began pursuing the sale of its Coyote Springs 2 generationfacility. This decision represented a triggering event causing the Company toevaluate the asset for impairment, and to ultimately determine that animpairment charge of $48 million was required. The $48 million impairmentcharge related to Coyote Springs 2 is included in loss from discontinuedoperations in the consolidated statements of operations. The Coyote Springs 2sale was completed in January 2005. Aside from the Coyote Springsimpairment, certain project specific assets were determined to be impaired assuch assets were no longer utilized nor related to viable projects.

Anasset impairment charge must be recognized if the sum of the undiscountedexpected future cash flows from a long-lived asset or definite-livedintangible is less than the carrying value of that asset. The amount of anyimpairment charge is calculated as the excess of the carrying value of theasset over its fair value. Fair value is estimated based on the discountedfuture cash flows from that asset or determined by other valuation techniques.In the case of assets Mirant expects to sell the impairment charge is based onthe estimated fair value less costs to sell. Following is a summary oflong-lived asset impairment charges recorded for the years ended December 31,2004, 2003 and 2002 (in millions):
| ** **                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Property plant and  equipment, in service |       | $        | —     |     | $          | 743      |       | $ | — |   |
| Suspended construction  projects          |       | —   |       | 363      |       | 610      |       |
| Trading rights                            |       | —   |       | 145      |       | —   |       |
| Development rights                        |       | —   |       | 81       |       | —   |       |
| Emissions allowances                      |       | —   |       | 6        |       | —   |       |
| Other intangibles                         |       | —   |       | 1        |       | —   |       |
| Total                                     |       | $        | —     |     | $          | 1,339    |       | $ | 610 |   |

 

For purposes of testingfor impairment losses, Mirant grouped long-lived assets and definite-livedintangibles at the lowest level at which separate cash flows can be identified,which generally was determined to be the individual generating assets or severalgenerating assets operated as a group. The long-lived assets evaluated forimpairment consist of the legal entities’ property, plant and equipment,construction work in progress, development rights, trading rights, emissionsallowances and other definite-lived intangibles.

**8.   Goodwilland Other Intangible Assets**

***Goodwill***

Goodwillconsisted of the following as of December 31, 2004 and 2003 (in millions):
| ** **                      | ** ** | **  2004  ** | ** ** | **  2003  ** | ** ** |
|---------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Goodwill                        |       |                             | $          | 10                               |       |   | $ | 783 |   |
| Less: accumulated  amortization |       |                             | 5          |                             |       | 196 |   |
| Total                           |       |                             | $          | 5                                |       |   | $ | 587 |   |

 

F-27

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Followingis a summary of the changes in goodwill for the years ended December 31,2004 and 2003, (in millions):
| ** **                               | ** ** | **North America** | ** ** | **International** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|------------------------|------------|-------------------|------------|-----------|------------|
| **2004**                                 |       |                   |       |              |       |      |       |   |   |   |   |
| Goodwill,  beginning of year             |       |                   | $          | —            |       |      |       | $ | 587 |   |   | $ | 587 |   |
| Impairment losses                        |       |                   | —     |              |       |      | (582       | ) |   | (582 | ) |
| Goodwill, end of  year                   |       |                   | $          | —            |       |      |       | $ | 5 |   |   | $ | 5 |   |
| **2003**                                 |       |                   |       |              |       |      |       |   |   |   |   |
| Goodwill,  beginning of year             |       |                   | $          | 2,074             |       |      |       | $ | 609 |   |   | $ | 2,683 |   |
| Impairment losses                        |       |                   | (2,067     | )                 |       |      | —     |   |   | (2,067 | ) |
| Purchase  accounting and tax adjustments |       |                   | (7         | )                 |       |      | (21        | ) |   | (28 | ) |
| Asset disposal                           |       |                   | —     |              |       |      | (1         | ) |   | (1 | ) |
| Goodwill, end of year                    |       |                   | $          | —            |       |      |       | $ | 587 |   |   | $ | 587 |   |

 

As a result of two creditrating downgrades, public opposition to Mirant’s pre-petition restructuringproposals, material unfavorable variances to its prior business plan throughthe second quarter of 2003 and a lawsuit filed against its pre-petitionrestructuring proposal by Mirant Americas Generation bondholders, Mirantreassessed its goodwill for impairment at June 30, 2003 related to itsNorth America reporting unit. The results of the analysis indicated that agoodwill impairment existed at June 30, 2003. A detailed impairmentanalysis indicated that all of the North America goodwill was impaired andaccordingly, Mirant recorded an impairment charge of $2.1 billion, whichis reflected as an impairment loss in the consolidated statements of operationsfor the year ended December 31, 2003.

During the year ended December 31,2003, Mirant disposed of the Tanguisson power plant in Guam and also in 2003,Mirant finalized its purchase accounting adjustments for its West Georgia andTransCanada assets, resulting in reclassifications among deferred taxes,prepaid assets and goodwill.

The Company performed itsannual assessment of goodwill in the fourth quarter of 2004. The results of theassessment indicate an impairment of the goodwill related to the Company’s Asiareporting unit. The assets in this regionare operated under energy conversion agreements executed under the government’sbuild-operate-transfer program. The cash flows from these entitiesare inherently limited since at the end of the term of each energy conversionagreement, the plant is required to be transferred to National PowerCorporation (“NPC”), free from any lien or payment of compensation. Adetailed impairment analysis indicated that all of the Asia business unit’sgoodwill was impaired and accordingly, Mirant recorded an impairment charge of$582 million, which is reflected as an impairment loss in the consolidatedstatements of operations for the year ended December 31, 2004. Thisimpairment loss was recognized primarily due to changes in tax assumptions, acredit downgrade of the Philippine sovereign debt, and changes in asset andliability allocations.

***Intangible Assets***

Followingis a summary of intangible assets as of December 31, 2004 and 2003 (inmillions):
| ** **                    | ** ** | **Weighted**                     | ** **    | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** |
|-------------------------------|------------|----------------------------------|---------------|---------------------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **Average  Amortization  Lives** | ** **    | **Gross  Carrying  Amount**     | ** ** | **Accumulated  Amortization**   | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Trading rights                |       |                             | 26 years |                            |       |                            | $          | 27 |   |   |   | $ | (1 | ) |   |   | $ | 62 |   |   |   | $ | (35 | ) |   |
| Development rights            |       |                             | 39 years |                            |       |                            | 119        |   |   |   | (12 | ) |   |   | 137 |   |   |   | (24 | ) |   |
| Emissions allowances          |       |                             | 32 years |                            |       |                            | 131        |   |   |   | (15 | ) |   |   | 131 |   |   |   | (12 | ) |   |
| Other intangibles             |       |                             | 22 years |                            |       |                            | 25         |   |   |   | (3 | ) |   |   | 40 |   |   |   | (6 | ) |   |
| Total other intangible assets |       |                             |          |                            |       |                            | $          | 302 |   |   |   | $ | (31 | ) |   |   | $ | 370 |   |   |   | $ | (77 | ) |   |

 

F-28

----

 

Trading rights represent intangible assets recognizedin connection with asset purchases that represent the Company’s ability togenerate additional cash flows by incorporating Mirant’s trading activitieswith the acquired generating facilities.

Development rights represent the right to expandcapacity at certain acquired generating facilities. The existinginfrastructure, including storage facilities, transmission interconnections,and fuel delivery systems, and contractual rights acquired by Mirant providethe opportunity to expand or repower certain generation facilities. Thisability to repower or expand is expected to be at significant cost savingscompared to greenfield construction.

Emissions allowances represent credits that entitlethe holder of each allowance to emit one ton of sulfur dioxide (“SO2”) ornitrogen oxide (“NOx”). The basic feature of both the SO2 and NOx programs is asystem of emission allowances which imposes a cap on total SO2 and NOxemissions from the electric utility industry. These allowances can be used inthat year, saved for future years, or sold to other sources.

Substantially all of Mirant’s other intangible assetsare subject to amortization and are being amortized on a straight-line basisover their estimated useful lives, ranging up to 33 years.

Amortization expense was approximately$10 million, $21 million and $19 million for the years ended December 31,2004, 2003 and 2002, respectively. Assuming no future acquisitions,dispositions or impairments of intangible assets, amortization expense isestimated to be $9 million for each of the next five years.

During 2003, Mirant evaluated its definite-livedintangible assets for impairment. As a result of this evaluation, the Companyrecorded impairment charges related to trading and development rights ofapproximately $145 million and $81 million, respectively.

The carrying value of theintangible assets above may be further impaired in future periods as a resultof changes to the Company’s strategy in implementing its plan or plans ofreorganization.

**9.   Dispositionsand Acquisitions of Assets**

***Dispositions***

Thefollowing table summarizes information related to completed asset sales for theyears ended December 31, 2004, 2003 and 2002 (in millions):
| **Investment**            | ** ** | ** ** | ** ** | **Location** | ** ** | **Gross  Proceeds** | ** ** | **Gain  (Loss)** | ** ** | **Reporting  Segment** | ** ** | **Date of Sale** | ** ** |
|---------------------------|------------|------------|------------|--------------|------------|---------------------|------------|------------------|------------|------------------------|------------|----------------------------|------------|
| 2004:                     | ** ** | ** ** |       |         |       |                |       |             |       |                   |       |                       |       |   |   |
| Mirant Canada  operations |       | Canada     |       |         | $          | (12                 | )          |             |       | $                      | 16         |                       |       | North  America |   | March |   |
| Bowline gas  turbines     |       | New  York  |       |         | 42         |                |       |             | (65        | )                      |       | North  America             |       | December |   |
| Other                     |       |       |       |         | 3          |                |       |             | (4         | )                      |       |                       |       |   |   |
| Total                     |       |       |       |         | $          | 33                  |       |             |       | $                      | (53        | )                          |       |   |   |   |   |
| 2003:                     |       |       |       |         |       |                |       |             |       |                   |       |                       |       |   |   |
| Mirant Canada  operations |       | Canada     |       |         | 46         |                |       |             | 35         |                   |       | North  America             |       | July |   |
| Other                     |       |       |       |         | —     |                |       |             | 11         |                   |       |                       |       |   |   |
| Total                     |       |       |       |         | $          | 46                  |       |             |       | $                      | 46         |                       |       |   |   |   |   |
| 2002:                     |       |       |       |         |       |                |       |             |       |                   |       |                       |       |   |   |
| Kogan Creek               |       | Australia  |       |         | $          | 30                  |       |             |       | $                      | 28         |                       |       | International |   | May,  August |   |
| Other                     |       |       |       |         | 19         |                |       |             | 13         |                   |       |                       |       |   |   |
| Total                     |       |       |       |         | $          | 49                  |       |             |       | $                      | 41         |                       |       |   |   |   |   |

 

F-29

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The gain or loss amounts do not include the effects ofimpairments of these assets recorded prior to their sale.

*Mirant Canada operations:  *InMarch 2004, Mirant closed on agreements to dispose of its Canadian naturalgas transportation contracts and certain natural gas marketing contracts. Aspart of the sale agreements, Mirant paid approximately $12 million to havea third party assume these contracts, which released $28 million inliabilities related to such contracts. The resulting $16 million gain isreflected in loss (gain) on sales of assets, net for the year ended December 31,2004 in the consolidated statements of operations.

*Bowline gas turbines:  *Duringthe third quarter of 2004, the Company committed to dispose of three naturalgas turbines related to a suspended construction project. On October 6,2004, the Company entered into an agreement to sell these turbines, subject toBankruptcy Court approval. The Bankruptcy Court approved the sale on December 10,2004. On December 30, 2004, the Company received $42 million related tothe sale and expects $4 million in 2005. In the year ended December 31,2004, the Company recognized a loss related to these turbines of$65 million in loss (gain) on sales of assets, net in the consolidatedstatements of operations.

*Navotas 1:  *InMarch 2003, the Build Operate and Transfer (“BOT”) project agreement forNavotas 1 expired, and the plant was transferred to NPC pursuant to theterms of the BOT project agreement. No gain or loss was recorded on thetransfer.

*Mirant Canada operations:  *InApril and July 2003, Mirant closed on agreements to sell its Canadiannatural gas aggregator services contracts, a significant portion of its naturalgas transportation contracts and a portion of its storage contracts. As part ofthe sale agreements, Mirant received approximately $33 million and$13 million in April and July 2003, respectively. Mirantrecognized a pre-tax gain of approximately $25 million and$10 million related to these transactions in April and July 2003,respectively, which is reflected in gain on sale of assets in the accompanyingconsolidated statements of operations.

*Kogan Creek:  *In May 2002,Mirant completed the sale of its 60% ownership interest in the Kogan Creekpower project located near Chinchilla in southeast Queensland, Australia, andthe associated coal deposits for approximately $30 million. The gain onthe sale of Mirant’s investment in Kogan Creek was approximately$28 million.

*AQC:  *In August 2002,Mirant completed the sale of its wholly-owned subsidiary MAP FuelsLimited, which wholly-owned AQC, a coal mining company in Queensland,Australia for approximately $21 million. The subsidiary was sold at a gainof approximately $2 million. The sale included both the Wilkie Creek CoalMine and the Horse Creek coal deposits. The operating results for this businessprior to its disposal are included in income (loss) from discontinuedoperations in the accompanying consolidated statements of operations.

***Acquisitions***

*Sual and Pagbilao:  *The Sualproject and the Pagbilao project shareholder agreements grant minorityshareholders put option rights such that they can require Mirant Asia-PacificLimited and/or certain of its subsidiaries to purchase the minorityshareholders’ interests in the project. The put option for the Sual project,representing the remaining 5.15% ownership interest in the Sual project as of December 31,2004, can be exercised until December 21, 2005, or thereafter in the eventof any change in control, a change in the Sual project’s charter documents orthe transfer of sponsor in violation of the sponsor support agreement on theearlier of the date of such changes/events or December 21, 2011. The putoption for the Pagbilao project, representing the remaining 4.26% ownershipinterest in the Pagbilao project as of December 31, 2004, can be exercisedthe earlier of August 5, 2008 or, in the event of any change in control, achange in the Pagbilao project’s charter documents or the transfer of thesponsor in violation of the 

F-30

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sponsor completion supportagreement. The price for the put options is determined by a formula set forthin the shareholder agreements. The formula price is based on discounted futurenet cash flow less total liabilities plus current assets as of the date of theput notice.

In March 2003, Mirant paid approximately$30 million to acquire a 4.26% ownership interest in the Pagbilao projectand in May 2003, Mirant paid approximately $30 million to acquire anadditional 4.26% ownership interest in the Pagbilao project.

In March 2004, Mirant paid approximately$21 million to acquire an additional 2.94% ownership interest in the Sualproject.

*Sangi and Carmen:  *InApril 2002, Mirant acquired ARB Power Ventures, Inc. and CMSGeneration Cebu Limited Company, located in the Philippines, for approximately$21 million. The purchase included the Toledo Power Co., which owns theSangi and Carmen generating facilities.

**10.   Investments**

Followingis a summary of the Company’s consolidated subsidiaries and equity affiliatesin which Mirant has less than 100% ownership at December 31, 2004 and thecarrying value of its equity method and other investments as of December 31,2004 and 2003 (in millions):
| ** **                                                                        | ** ** | **Country of**              | ** ** | **Year of** | ** ** | **Economic  Ownership  Percentage at  December 31,** | ** ** | **Voting Interest  Percentage at  December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------|------------|----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                        | ** ** | **Operations**                   | ** ** | **Investment**   | ** ** | **2004**                                                       | ** ** | **2004**                                                        | ** ** | **2004**              | ** ** | **2003** | ** ** |
| **Entities Consolidated:**                                                        |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Mirant Pagbilao Corporation (“Pagbilao”)                                |       | Philippines                      |       |             | 1997       |                                                           |       |                                                            | 95.7       | %                     |       |   | 95.7 | % |   |   |   |   |   |   |   |   |   |
| Mirant Sual Corporation (“Sual”)                                        |       | Philippines                      |       |             | 1997       |                                                           |       |                                                            | 94.9       |                  |       |   | 94.9 |   |   |   |   |   |   |   |   |   |   |
| Grand Bahama Power Company (“Grand Bahama Power”)                       |       | Bahamas                          |       |             | 1993       |                                                           |       |                                                            | 55.4       |                  |       |   | 57.0 |   |   |   |   |   |   |   |   |   |   |
| Jamaica Public Service Company  (“JPS”)                                 |       | Jamaica                          |       |             | 2001       |                                                           |       |                                                            | 80.0       |                  |       |   | 80.0 |   |   |   |   |   |   |   |   |   |   |
| Wrightsville Power Facility, L.L.C. (“Wrightsville”)                    |       | United  States                   |       |             | 2000       |                                                           |       |                                                            | 51.0       |                  |       |   | 51.0 |   |   |   |   |   |   |   |   |   |   |
| **Entities accounted for under  the Equity method:**                              |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| The Power Generation Company of Trinidad and Tobago  (“PowerGen”)  |       | Trinidad                         |       |             | 1994       |                                                           |       |                                                            | 39.0       |                  |       |   | 39.0 |   |   |   | $ | 80 |   |   |   | $ | 82 |   |   |
| KEPCO Ilijan Corporation (“Ilijan”)                                     |       | Philippines                      |       |             | 2000       |                                                           |       |                                                            | 20.0       |                  |       |   | 20.0 |   |   |   | 56 |   |   |   | 52 |   |   |
| Mirant Global Corporation (“MGC”)                                       |       | Philippines                      |       |             | 2002       |                                                           |       |                                                            | 50.0       |                  |       |   | 50.0 |   |   |   | 27 |   |   |   | 25 |   |   |
| Curacao Utilities Company (“CUC”)                                       |       | Curacao,  Netherlands,  Antilles |       |             | 2001       |                                                           |       |                                                            | 25.5       |                  |       |   | 25.5 |   |   |   | 27 |   |   |   | 9 |   |   |
| **Other:**                                                                        |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment in Aqualectra convertible preferred equity                             |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   | 40 |   |   |   | 40 |   |   |
| Other                                                                             |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   | 18 |   |   |   | 59 |   |   |
| Total                                                                             |       |                             |       |             |       |                                                           |       |                                                            |       |                  |       |   |   |   |   |   | $ | 248 |   |   |   | $ | 267 |   |   |

 

*Aqualectra:  *Mirant owns the$40 million convertible preferred equity interest in Aqualectra, anintegrated water and electric company in Curacao, Netherlands Antilles, ownedand operated by the government. The Company receives 16.75% preferred dividendson its investment on a quarterly basis. Aqualectra has a call option and Miranthas a put option related to this investment. The options became exercisable on December 19,2004 and the options can be exercised at any time during the following three 

F-31

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years from the beginningof this period. Aqualectra has the option (but not the obligation) to purchasefrom Mirant all, but not less than all, of the shares of preferred stock thenheld by Mirant on the terms as set forth in the agreement. Mirant has theoption (but not the obligation) to require Aqualectra to purchase all, but notless than all, of the shares of preferred stock then held by Mirant on theterms as set forth in the agreement. Mirant also has an option to convert itsconvertible preferred equity interest in Aqualectra to common shares during thesame three-year period beginning upon the date the options become exercisable.

Followingis a summary of information related to completed sales of equity and otherinvestments for the years ended December 31, 2004, 2003 and 2002(in millions).
| **Investment** | ** ** | ** ** | ** ** | **Gross  Proceeds** | ** ** | **Gain  (Loss)** | ** ** | **Impairment  Loss** | ** ** |
|----------------|------------|------------|------------|---------------------|------------|------------------|------------|----------------------|------------|
| **2004**       |       |       | $          | —              |       |             |       | $                    | —     |   |   |   | $ | — |   |   |
| **2003:**      |       |       |       |                |       |             |       |                 |       |   |   |   |   |
| Birchwood      |       |       | 70         |                |       |             | 67         |                 |       |   | — |   |   |
| Total          |       |       | $          | 70                  |       |             |       | $                    | 67         |   |   |   | $ | — |   |   |
| **2002:**      |       |       |       |                |       |             |       |                 |       |   |   |   |   |
| Bewag          |       |       | $          | 1,632               |       |             |       | $                    | 249        |   |   |   | $ | — |   |   |
| SIPD           |       |       | 120        |                |       |             | (7         | )                    |       |   | — |   |   |
| Perryville     |       |       | —     |                |       |             | (1         | )                    |       |   | — |   |   |
| WPD            |       |       | 235        |                |       |             | (3         | )                    |       |   | (325 | ) |   |
| Shajiao C      |       |       | 300        |                |       |             | 91         |                 |       |   | — |   |   |
| CEMIG          |       |       | —     |                |       |             | —     |                 |       |   | (132 | ) |   |
| Norway         |       |       | —     |                |       |             | —     |                 |       |   | (10 | ) |   |
| Total          |       |       | $          | 2,287               |       |             |       | $                    | 329        |   |   |   | $ | (467 | ) |   |

 

The gain or loss amounts do not include the effects ofimpairment losses relating to those investments prior to their sale.

Followingis a summary of equity in income of affiliates attributable to investments forthe years ended December 31, 2004, 2003 and 2002 (in millions).
| ** **                       | ** ** | ** 2004 ** | ** ** | ** 2003 ** | ** ** | **2002** | ** ** |
|----------------------------------|------------|----------------------|------------|----------------------|------------|----------|------------|
| Equity in income  of affiliates: |       |                 |       |                 |       |     |       |   |   |   |   |
| Interests retained               |       |                 | $          | 26                   |       |     |       | $ | 26 |   |   | $ | 27 |   |
| Interests disposed of            |       |                 | —     |                 |       |     | 7          |   |   | 141 |   |
|                             |       |                 | $          | 26                   |       |     |       | $ | 33 |   |   | $ | 168 |   |

 

*Description ofSignificant Activity*

*2004*

*Sual:  *TheSual project shareholder agreement grants minority shareholders put optionrights such that they can require Mirant Asia-Pacific Limited and/or certain ofits subsidiaries to purchase the minority shareholders’ interests in theproject*.*See Note 9 for discussion of activityrelated to the shareholder agreement.

*2003*

*Mirant Global Corporation:  *InJune 2003, Mirant Global Corporation (“MGC”), a wholly-ownedsubsidiary of Mirant (Philippines) Corporation (“MPC”), entered into anagreement with the First Metro 

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Investment CorporationGroup (“the FMIC Group”) to pursue business opportunities in power generationin the Visayas region of the Philippines. The FMIC Group agreed to acquire theentire equity interest in Panay Power Corporation, which owns a 72 MW powergeneration facility on the island of Panay and the 22.8 MW Sunrise PowerProject generation facility located in the island of Luzon. The totalacquisition cost of these two projects is approximately $64 million inaddition to the assumption of the project debt at Panay Power Corporation ofapproximately $32 million. Also, a new project debt of approximately$10 million has been raised for the 22.8 MW generation facility. Thetransaction closed on December 4, 2003. Effective December 4, 2003,the FMIC Group contributed its equity interest in Panay Power Corporation andin the project company that owns the 22.8 MW generation facility of theSunrise Power Project to an entity, Claredon Tower Holdings, Inc. (“Claredon”).Claredon became a subsidiary of MGC in exchange for a 50% ownership interest inMGC. As a result, the FMIC Group and MPC each have a 50% voting interest in thejoint venture. MPC’s investment in MGC at December 31, 2003 aggregated$25 million and is accounted for as an equity investment. The FMIC Groupand MPC have agreed not to transfer all or any of their shares in MGC for aperiod of three years. No gain or loss was recorded as a result of thistransaction.

*Pagbilao:  *The Pagbilaoproject shareholder agreement grants minority shareholders put option rightssuch that they can require Mirant Asia-Pacific Limited and/or certain of itssubsidiaries to purchase the minority shareholders’ interests in the project*.*See Note 9 for discussion of activity related to theshareholder agreement.

*Birchwood:  *InMay 2003, Mirant announced that it had entered an agreement to sell allbut one half of one percent of its 50% ownership interest in the Birchwoodgenerating plant located near Fredricksburg, Virginia. On October 9, 2003,the Bankruptcy Court entered an order approving the consummation of the sale.In October 2003, Mirant completed the sale for a price of $70 millionand recorded a gain of approximately $67 million related to thistransaction.

*2002*

*Bewag:  *Prior to 2001,Mirant acquired a 26% interest in Bewag, an electric utility serving over2 million customers in Berlin, Germany. In June 2001, Mirantpurchased an additional 18.8% interest in Bewag for approximately$464 million. In February 2002, Mirant sold its interest in Bewag forapproximately $1.63 billion and recorded a gain of approximately$249 million.

*SIPD:  *In May 2002,Mirant sold its 9.99% ownership interest in SIPD, located in the ShandongProvince, China, for approximately $120 million. The loss on the sale ofMirant’s investment in SIPD was approximately $7 million.

*Perryville:  *In June 2002,Mirant sold its 50% ownership interest in Perryville to Cleco, which owned theremaining 50% interest. As part of the sale, Cleco assumed Mirant’s $13 millionfuture equity commitment to Perryville and paid approximately $55 millionin cash to Mirant in repayment of a subordinated loan to Perryville and forother miscellaneous costs. In connection with the sale, Mirant agreed to make a$25 million subordinated loan to Perryville. In 2002, Mirant andPerryville restructured the tolling agreement and Mirant made a$100 million subordinated loan to Perryville. The proceeds were used byPerryville to repay the existing $25 million subordinated loan owed to Mirantand to repay $75 million of senior debt of the project. On August 29,2003, the Mirant Debtors filed a motion with the Bankruptcy Court to reject thetolling agreement with Perryville. The rejection was approved by the BankruptcyCourt on September 15, 2003. See Note 3 for additional information.Mirant recognized a $1 million loss on the sale of its investment inPerryville in 2002.

*WPD:  *In September 2002,Mirant sold its 49% economic interest in Western Power Distribution HoldingsLimited and WPD Investment Holdings (collectively, WPD) for approximately$235 million. WPD included the electric distribution networks forSouthwest England and South Wales. In June 2002, 

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Mirant recognized animpairment loss of approximately $325 million to reflect the differencebetween the carrying value of its investment and its estimated fair value. Uponcompletion of the sale in the third quarter of 2002, Mirant recognized anadditional loss of $3 million.

*Shajiao C:  *In December 2002,Mirant sold its indirect 33% interest in Shajiao C power project inGuangdong Province, China for approximately $300 million. Mirantrecognized a gain of approximately $91 million on the sale.

*CEMIG:  *In December 2002,Mirant recognized an impairment charge of approximately $132 millionreflecting the current fair market value of its investment in CEMIG. Theinvestment was sold in December 2002 at approximately its carrying value.

*Norway Project:  *Inthe third quarter of 2002, Mirant recognized an impairment loss ofapproximately $10 million to reflect the difference between the carryingvalue of its investment in the project and its estimated fair value less coststo sell. In December 2002, Mirant completed the sale of its investment inthe development project in Norway. The investment was sold at approximately itscarrying value.

**11.   RestructuringCharges and Other Impairment Losses**

Mirant adopted a plan in March 2002 torestructure its operations by exiting certain activities (including itsEuropean trading and marketing business), canceling or suspending planned powerplant developments, closing business development offices, and severingemployees in an effort to better position the Company to operate in the thencurrent business environment. During 2004 and 2003, Mirant recorded additionalrestructuring charges of $14 million and $46 million, respectively.

Componentsof the impairment losses and restructuring charges for the years ended December 31,2004, 2003 and 2002 are as follows (in millions):
| ** **                                                                       | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Impairment losses                                                                |       |                                        | $          | 9 |   |   |   | $ | 11 |   |   |   | $ | — |   |   |
| Restructuring  charges:                                                          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Costs to cancel  equipment orders and service agreements per contract terms |       |                                        | —     |   |   |   | 8 |   |   |   | 302 |   |   |
| Severance of  employees and other employee termination-related charges           |       |                                        | 14         |   |   |   | 38 |   |   |   | 61 |   |   |
| Total restructuring charges                                                      |       |                                        | 14         |   |   |   | 46 |   |   |   | 363 |   |   |
| Total impairment  losses and restructuring charges                               |       |                                        | $          | 23 |   |   |   | $ | 57 |   |   |   | $ | 363 |   |   |

 

Thefollowing is a summary of the liability for accrued restructuring charges forthe years ended December 31, 2004 and 2003 (in millions):
| ** **                     | ** ** | **Years ended  December 31,** | ** ** |
|--------------------------------|------------|-----------------------------------------|------------|
| ** **                     | ** ** | **2004**                                | ** ** | **2003** | ** ** |
| Balance,  beginning of period. |       |                                    | $          | 19 |   |   |   | $ | 9 |   |   |
| Provision                      |       |                                    | 14         |   |   |   | 53 |   |   |
| Reversal                       |       |                                    | —     |   |   |   | (7 | ) |   |
| Cash payments                  |       |                                    | (27        | ) |   |   | (36 | ) |   |
| Balance, end of period         |       |                                    | $          | 6 |   |   |   | $ | 19 |   |   |

 

During the year ended December 31, 2004, Mirantterminated approximately 451 employees as part of its restructuring activitiesand paid $27 million in severance and related restructuring charges. 

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Approximately 300 of theemployees terminated were part of Mirant’s international operations and therelated restructuring charge for these terminations was recognized in December 2003.

During the year ended December 31,2003, Mirant terminated approximately 550 employees as part of itsrestructuring activities and paid $36 million in severance and relatedrestructuring charges.

**12.   Long-Term Debt**

Long-termdebt not included in liabilities subject to compromise at December 31,2004 and 2003 was as follows (in millions):
| ** **                                                                                                       | ** ** | **Interest Rate**        | ** ** | **2004** | ** ** | **2003** | ** ** | **Secured/  Unsecured** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|----------|------------|----------|------------|-------------------------|------------|
| **Long-Term Debt Not  Included in Liabilities Subject to Compromise in 2004 and 2003:**                          |       |                          |       |     |       |     |       |                    |       |
| Debtor-in-Possession Financing                                                                                   |       | LIBOR  + 3.5% or Prime + 2.5% |       | $        | —     |     | $          | —                  |       | Secured |   |
| West Georgia, due 2009                                                                                           |       | LIBOR  + 2.625%               |       | 140      |       | 140      |       | Secured                 |       |
| Mirant Sual project loan, due 2006 to 2012                                                                       |       | LIBOR  + 2.5% to 10.56%       |       | 547      |       | 640      |       | Secured                 |       |
| Mirant Pagbilao project loan, due 2005 to 2007                                                                   |       | LIBOR  + 2.15% to 10.25%      |       | 166      |       | 233      |       | Secured                 |       |
| Jamaica Public Service Company Limited, due 2005 to  2030                                                        |       | 7% to  12%                    |       | 241      |       | 224      |       | Secured                 |       |
| Mirant Grand Bahamas Limited, due 2005 to 2006                                                                   |       | LIBOR  + 1.25%                |       | 13       |       | 14       |       | Secured                 |       |
| Grand Bahama Power Company, due 2005 to 2014                                                                     |       | LIBOR  + 1.125%               |       | 29       |       | 29       |       | Unsecured               |       |
| Mirant Curacao Investments , Ltd., due 2005  to 2007                                                   |       | 10.15%                        |       | 14       |       | 16       |       | Secured                 |       |
| Mirant Trinidad Investments, Inc., due 2006                                                                 |       | 10.2%                         |       | 73       |       | 73       |       | Secured                 |       |
| Capital leases, due 2015 through 2018                                                                            |       | 8.19%  to 12.51%              |       | 146      |       | 161      |       | —                  |       |
| Mirant Curacao Investments—deferred acquisition  price, due 2005 to 2006                                    |       | 9.00%                         |       | 6        |       | 8        |       | Unsecured               |       |
| Total                                                                                                            |       |                          |       | 1,375    |       | 1,538    |       |                    |       |
| Less: current portion of long-term debt                                                                          |       |                          |       | (206     | )          | (256     | )          |                    |       |
| Total long-term  debt not included in liabilities subject to compromise in 2004,  excluding current portion |       |                          |       | $        | 1,169      |     | $          | 1,282                   |       |   |   |

 

At December 31,2004, the annual scheduled maturities of long-term debt not subject tocompromise during the next five years and thereafter were as follows (inmillions):
| 2005       |   | $   | 206    |   |
|------------|--------|-----|--------|--------|
| 2006       |   | 387 |   |
| 2007       |   | 143 |   |
| 2008       |   | 98  |   |
| 2009       |   | 238 |   |
| Thereafter |   | 303 |   |
| Total      |   | $   | 1,375  |   |

 

***Debtor-in-Possession Financing***

On November 5, 2003, certain of the MirantDebtors (the “DIP Borrowers”) entered into a two-year debtor-in-possessioncredit facility (the “DIP Facility”) providing for borrowings or the issuanceof letters of credit in an amount not to exceed the lesser of $500 millionor the then existing “borrowing base.” The borrowing base is the aggregatevalue assigned to specified power generation assets of the DIP Borrowers 

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that serve as collateralfor the DIP Facility. However, upon the occurrence of certain triggeringevents, including the sale of borrowing base assets or an event that has amaterial adverse effect on the business, operations or value of a powergeneration facility, the borrowing base may be revalued or reserves against theborrowing base may be imposed, thus lowering the borrowing base amount. Theborrowing base as of December 31, 2004 was $724 million. Theborrowing base decreased $48 million in January 2005 following the sale ofCoyote Springs and will decrease another $37 million following the proposedsale of Wrightsville. The orders entered by the Bankruptcy Court approving theDIP Facility permit up to $300 million of borrowings, which amount may beincreased to $500 million upon written approval of each of the StatutoryCommittees or further order of the Bankruptcy Court. The DIP Facility alsocontains an option, exercisable by Mirant or Mirant Americas Generation, toremove Mirant Americas Generation and its subsidiaries as borrowers andobligors under the DIP Facility and reduce the DIP Facility commitment to amaximum of $200 million of borrowings. Borrowings under the DIP Facilityare secured by substantially all of the assets of the DIP Borrowers.

Pursuant to the DIPFacility, the DIP Borrowers are subject to a number of affirmative andrestrictive covenants, reporting requirements, and, subject to usage, financialcovenants. The Company was in compliance with the DIP Facility covenants, orhad received affirmative waivers of compliance where compliance was notattained, as of December 31, 2004.

***Jamaica Public Service Company Credit Facilities***

In February 2004, Jamaica Public Service CompanyLimited, in which Mirant has an 80% ownership interest, entered into a$30 million, 7-year amortizing credit facility (“2004 RBTT creditfacility”) with RBTT Merchant Bank Limited. The proceeds from this facilitywere used to replace the construction financing of the Bogue constructionproject completed in 2003. The loans are non-recourse to Mirant Corporation.The loan agreements contain a number of covenants, including(i) restrictions on change of control; (ii) restrictions on theissuance or purchase of borrower’s shares; (iii) limitations ontransactions with affiliates; (iv) limitations on the incurrence of newdebt; and (v) limitations on dividends. The Company was in compliance withthe covenants as of December 31, 2004.

Jamaica Public Service Company Limited is also partyto a separate $30 million, 7-year amortizing credit facility with RBTTMerchant Bank Limited entered into in 2003 (“2003 RBTT credit facility”) and a$45 million, 12-year amortizing credit facility with International FinanceCorporation (“IFC credit facility”). In connection with the 2004 RBTT, 2003RBTT and IFC credit facilities, Jamaica Public Service Company Limited wasrequired to obtain and register a title related to property on which the 120MWfacility at Bogue is situated to facilitate registration of the lenders’mortgages. At December 31, 2003, Jamaica Public Service Company Limitedhad secured title and was actively working with the lender’s local attorneys toregister the mortgages, but had not finalized the registration at that time,which represented a breach of the IFC credit facility and a potential breach ofthe 2004 RBTT and 2003 RBTT credit facilities. As a result, the Companyincluded amounts outstanding under the 2003 RBTT and IFC credit facilities inthe current portion of long-term debt on its consolidated balance sheets atDecember 31, 2003. In June 2004, the registration of the mortgage wasfinalized and the amounts outstanding under the 2004 RBTT, 2003 RBTT and IFCcredit facilities were reclassified to long-term debt. The Company was incompliance with the covenants as of December 31, 2004.

InOctober 2004, Jamaica Public Service Company Limited entered into an $8million, 5-year amortizing credit facility (“2004 AIC credit facility”)with AIC Capital Market Brokers Limited. The proceeds from this facility wereused to replace working capital and other funds used to repay a previous creditfacility. The facility is non-recourse to Mirant Corporation. The facility issecured by a mortgage on the corporate headquarters and related real propertyof Jamaica Public Service Company Limited. The Company was in compliance withthe covenants as of December 31, 2004.

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***Grand Bahama Power Company Limited Credit Facilities***

In November 2004,Grand Bahama Power Company Limited entered into a $48 million senior unsecuredcredit facility (“2004 GBPC facility”) with Scotiabank (Bahamas) Limited. The2004 GBPC facility includes a $28 million 10-year amortizing term facility and a$20 million construction facility. As of December 2004, Grand Bahama PowerCompany Limited has drawn the entire term facility and $2 million of theconstruction facility. In addition, a $10 million letter of credit has beenissued under the construction facility. The construction facility converts intoan amortizing term facility at the conclusion of the construction period (up tosixteen months) and matures together with the $28 million term facility. Thefacility is non-recourse to Mirant Corporation. The loan agreement for the 2004GBPC facility contains a number of covenants, including (i) restrictionson change of control and sales of assets; (ii) restrictions on capital expenditures;(iii) limitations on transactions with affiliates; (iv) limitationson the incurrence of new debt; and (v) limitations on dividends. Inaddition, the credit facility includes a debt service coverage maintenancecovenant and a tangible net worth maintenance covenant. The Company was incompliance with the covenants as of December 31, 2004.

**13.   Income Taxes**

Theprovision (benefit) for income taxes from continuing operations is as follows(in millions):
| ** **                        | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Current  Provision (Benefit):** |       |                                        |       |   |   |   |   |
| United States                     |       | $                                           | (32        | ) | $ | 2 |   | $ | (114 | ) |
| Foreign                           |       | 69                                          |       | 78 |   | 35 |   |
| Subtotal                          |       | 37                                          |       | 80 |   | (79 | ) |
| **Deferred  Provision:**          |       |                                        |       |   |   |   |   |
| United States                     |       | —                                      |       | 14 |   | 877 |   |
| Foreign                           |       | 50                                          |       | 32 |   | 151 |   |
| Subtotal                          |       | 50                                          |       | 46 |   | 1,028 |   |
| Provision for income  taxes       |       | $                                           | 87         |   | $ | 126 |   | $ | 949 |   |

 

Areconciliation of the Company’s federal statutory income tax provision to theeffective income tax provision for continuing operations adjusted forrestructuring items for the years ended December 31, 2004, 2003 and 2002is as follows (in millions):
| ** **                                                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| United States  federal statutory income tax rate                                    |       | $        | (106       | )        | $          | (1,215   | )          | $ | (461 | ) |
| State and local  income tax, net of federal income taxes                            |       | (1       | )          | (24      | )          | (30      | )          |
| Foreign earnings  and dividends taxed at different rates                            |       | (64      | )          | (61      | )          | (80      | )          |
| Impairment of non-deductible  goodwill                                              |       | —   |       | 517      |       | —   |       |
| Residual tax on  foreign earnings                                                   |       | 93       |       | 88       |       | 380      |       |
| Tax credits                                                                         |       |     |       | —   |       | —   |       |
| Change in  deferred tax asset valuation allowance excluding discontinued operations |       | 139      |       | 882      |       | 1,088    |       |
| Other  differences, net                                                             |       | 26       |       | (61      | )          | 52       |       |
| Tax Provision                                                                       |       | $        | 87         |     | $          | 126      |       | $ | 949 |   |

 

Ourlarger Philippine projects have been granted preferred or pioneer status that,among other things, has qualified them for income tax holiday incentives ofthree to six years. The income tax holiday incentive expired in June 2002for our Pagbilao facility and will expire in October 2005 and January 2008for our 

F-37

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Sual and Ilijan facilities, respectively. The amountof benefit from these holiday incentives is $54 million, $50 million, and $69million for 2004, 2003, and 2002, respectively.

The taxeffects of temporary differences between the carrying amounts of assets andliabilities in the consolidated financial statements and their respective taxbases which give rise to deferred tax assets and liabilities are as follows (inmillions):
| ** **                                                  | ** ** | **Years Ended December 31,**                                      | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **      2004      ** | ** ** | **      2003      ** | ** ** |
| **Deferred  Tax Assets:**                                   |       |                                                                             |       |   |   |   |   |   |   |
| Obligations under  energy delivery and purchase commitments |       |                                                                             | $          | 329 |   |   |   | $ | 453 |   |   |
| Employee benefits                                           |       |                                                                             | 45         |   |   |   | 24 |   |   |
| Reserves                                                    |       |                                                                             | 248        |   |   |   | 240 |   |   |
| Accumulated other  comprehensive income                     |       |                                                                             | 29         |   |   |   | 2 |   |   |
| Operating loss  carryforwards                               |       |                                                                             | 1,413      |   |   |   | 1,182 |   |   |
| Unrealized  foreign exchange losses                         |       |                                                                             | 88         |   |   |   | 113 |   |   |
| Property and  intangible assets                             |       |                                                                             | 762        |   |   |   | 685 |   |   |
| Deferred cost                                               |       |                                                                             | 50         |   |   |   | 18 |   |   |
| Energy marketing  and risk management contracts             |       |                                                                             | 2          |   |   |   | 10 |   |   |
| Other                                                       |       |                                                                             | 118        |   |   |   | 153 |   |   |
| Subtotal                                                    |       |                                                                             | 3,084      |   |   |   | 2,880 |   |   |
| Valuation  allowance                                        |       |                                                                             | (2,369     | ) |   |   | (2,207 | ) |   |
| Net deferred tax assets                                     |       |                                                                             | $          | 715 |   |   |   | $ | 673 |   |   |
| **Deferred  Tax Liabilities:**                              |       |                                                                             |       |   |   |   |   |   |   |
| Tax accrued on  foreign earnings                            |       |                                                                             | (621       | ) |   |   | (568 | ) |   |
| Other                                                       |       |                                                                             | (121       | ) |   |   | (105 | ) |   |
| Total                                                       |       |                                                                             | (742       | ) |   |   | (673 | ) |   |
| Net deferred  taxes                                         |       |                                                                             | $          | (27 | ) |   |   | $ | — |   |   |

 

SFAS No. 109, “Accounting for Income Taxes,”requires that a valuation allowance be established when it is more likely thannot that all or a portion of a deferred tax asset will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesare deductible. In making this determination, management considers all availablepositive and negative evidence affecting specific deferred tax assets,including the Company’s past and anticipated future performance, the reversalof deferred tax liabilities and the implementation of tax planning strategies.

Objective positive evidence is necessary to support aconclusion that a valuation allowance is not needed for all or a portion ofdeferred tax assets when significant negative evidence exists. Cumulativelosses in recent years are the most compelling form of negative evidenceconsidered by management in this determination. In 2004, 2003 and 2002, theCompany recognized increases in its valuation allowance of $162 million,$943 million and $1,088 million, respectively related to its netdeferred tax assets.

As of December 31, 2004, the Company hasapproximately $2.8 billion of U.S. federal net operating loss (“NOL”)carryforwards for financial reporting purposes. Similarly, there areapproximately $3.9 billion of state NOL carryforwards. The ultimate utilizationof the Company’s NOLs will depend on several factors, such as the amount of theCompany’s debt that is cancelled through the bankruptcy proceedings and thefinancial plan contained in the proposed Plan. If a portion of the debt iscancelled, the amount of the cancelled debt will reduce tax attributes such asNOLs and tax basis on fixed assets which, depending on the proposed Plan andcertain tax elections, could partially or fully utilize the available NOLs. In 

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addition, the Company hasapproximately $705 million of foreign net operating loss carryforwardswith varying expiration dates which are available to offset future taxableincome in those jurisdictions. A significant portion of the deferred tax assetsrelated to these foreign losses are also subject to a valuation allowance.

The Company has negotiated a settlement agreement withthe Internal Revenue Service (IRS) for certain tax liabilities arising fromtheir audit of the Company’s federal income tax returns for tax years when it wasa subsidiary of the Southern Company. This agreement results in an assessmentof $39 million including interest. The Company has provided adequate taxprovisions in prior years for the recognition of this liability.

The Company has contingentliabilities related to tax uncertainties arising in the ordinary course ofbusiness. The Company periodically assesses its contingent liabilities inconnection with these uncertainties based upon the latest informationavailable. For those uncertainties where it is probable that a loss hasoccurred and the loss or range of loss can be reasonably estimated, a liabilityis recorded on the consolidated financial statements. As additional informationbecomes available, the assessment and estimates of such liabilities are adjustedaccordingly.

**14.   Employee Benefit Plans**

Mirant offers pension benefits to its domesticnonunion and union employees through various defined benefit and definedcontribution pension plans. These benefits are based on pay, service historyand age at retirement. Defined benefit pensions are not provided for nonunionemployees hired after April 1, 2000 who participate in a profit sharingarrangement. Most pension benefits are provided through tax-qualified plansthat are funded in accordance with Employee Retirement Income Security Act of1974 (“ERISA”) and IRS requirements. Certain executive pension benefits thatcannot be provided by the tax-qualified plans are provided through unfundednon-tax-qualified plans. In August 2004, these non-tax qualified planswere approved for continuation by the Bankruptcy Court for eligible employeesand directors actively employed on July 9, 2004. These plans are currentlynot approved by the Bankruptcy Court for former employees and such balancesremain as claims against the estate. The measurement date for the domesticbenefit plans is September 30 for each year presented.

Grand Bahama Power participates in defined benefit,trusteed, non-contributory pension plans for all nonunion and union employees.Plan benefits are based on the employees’ years of service, age at retirement,and average compensation for the highest five years out of the ten yearsimmediately preceding retirement. Plan assets are primarily invested in equityand debt securities. The measurement date for Grand Bahama Power is December 31for each year presented.

Jamaica Public Service Company (“JPS”) participates ina defined benefit, trusteed, contributory pension plan covering all categoriesof permanent employees. Benefits earned are based on years of service, age atretirement, and the highest average annual salary during any consecutivethree-year period. The measurement date for JPS is December 31 for eachyear presented.

Therates assumed in the actuarial calculations for measuring year-end pensionobligations as of their respective measurement dates were as follows:
| ** **                     | ** ** | **Domestic** | ** ** | **JPS**  | ** ** | **Grand  Bahamas** | ** ** |
|--------------------------------|------------|--------------|------------|----------|------------|--------------------|------------|
| ** **                     | ** ** | **2004**     | ** ** | **2003** | ** ** | **2004**           | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Discount rate                  |       | 5.73         | %          | 6.00     | %          | 10.00              | %          | 9.00 | % | 6.75 | % | 6.75 | % |
| Rate of compensation  increase |       | 3.00         |       | 3.75     |       | 8.00               |       | 7.00 |   | 5.00 |   | 5.00 |   |

 

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The followingtables show the collective actuarial results for the defined benefit pensionplans of Mirant (in millions):
| ** **                                                                        | ** ** | **Domestic Tax-  Qualified** | ** ** | **Domestic  Non-Tax-  Qualified** | ** ** | **International** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-------------------|------------|
| ** **                                                                        | ** ** | **2004**                          | ** ** | **2003**                          | ** ** | **2004**          | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Change  in Benefit Obligation:**                                                |       |                              |       |                              |       |              |       |   |   |   |   |   |   |
| Benefit  obligation, beginning of year                                            |       | $                                 | 186        |                              | $          | 159               |       | $ | 7 |   | $ | 11 |   | $ | 57 |   | $ | 54 |   |
| Service cost                                                                      |       | 9                                 |       | 9                                 |       | 1                 |       | 1 |   | 1 |   | 2 |   |
| Interest cost                                                                     |       | 11                                |       | 10                                |       | 0                 |       | 1 |   | 5 |   | 4 |   |
| Benefits paid                                                                     |       | (5                                | )          | (3                                | )          | —            |       | — |   | (6 | ) | (2 | ) |
| Actuarial loss                                                                    |       | (4                                | )          | 17                                |       | —            |       | 10 |   | (4 | ) | 6 |   |
| Special termination benefits                                                      |       | —                            |       | —                            |       | —            |       | — |   | — |   | — |   |
| Amendments                                                                        |       | 5                                 |       | (6                                | )          | 1                 |       | 1 |   | — |   | — |   |
| Employee contributions                                                            |       | —                            |       | —                            |       | —            |       | — |   | 2 |   | 2 |   |
| Plan curtailment                                                                  |       | —                            |       | —                            |       | —            |       | — |   | (4 | ) | — |   |
| Impact of foreign exchange rates                                                  |       | —                            |       | —                            |       | —            |       | — |   | (1 | ) | (9 | ) |
| Liability settled                                                                 |       | —                            |       | —                            |       | —            |       | (17 | ) | — |   | — |   |
| Benefit obligation, end of year                                                   |       | $                                 | 202        |                              | $          | 186               |       | $ | 9 |   | $ | 7 |   | $ | 50 |   | $ | 57 |   |
| **Changes in Plan Assets:**                                                       |       |                              |       |                              |       |              |       |   |   |   |   |   |   |
| Fair value of  plan assets, beginning of year                                     |       | $                                 | 72         |                              | $          | 54                |       | $ | — |   | $ | — |   | $ | 80 |   | $ | 73 |   |
| Return on plan assets                                                             |       | 8                                 |       | 10                                |       | —            |       | — |   | 20 |   | 17 |   |
| Settlement                                                                        |       | —                            |       | —                            |       | —            |       | (17 | ) | — |   | — |   |
| Impact of foreign exchange rates                                                  |       | —                            |       | —                            |       | —            |       | — |   | (1 | ) | (13 | ) |
| Employee contributions                                                            |       | —                            |       | —                            |       | —            |       | — |   | 2 |   | 2 |   |
| Employer contributions                                                            |       | 14                                |       | 11                                |       | —            |       | 17 |   | 2 |   | 3 |   |
| Benefits paid                                                                     |       | (5                                | )          | (3                                | )          | —            |       | — |   | (6 | ) | (2 | ) |
| Fair value of plan assets, end of year                                            |       | $                                 | 89         |                              | $          | 72                |       | $ | — |   | $ | — |   | $ | 97 |   | $ | 80 |   |
| **Funded Status:**                                                                |       |                              |       |                              |       |              |       |   |   |   |   |   |   |
| Funded status at end of year                                                      |       | $                                 | (113       | )                                 | $          | (114              | )          | $ | (9 | ) | $ | (7 | ) | $ | 47 |   | $ | 23 |   |
| Unrecognized prior service cost                                                   |       | 4                                 |       | (1                                | )          | 2                 |       | 1 |   | 3 |   | 4 |   |
| Unrecognized net loss (gain)                                                      |       | 10                                |       | 15                                |       | 4                 |       | 4 |   | (21 | ) | (6 | ) |
| Net amount recognized                                                             |       | (99                               | )          | (100                              | )          | (3                | )          | (2 | ) | 29 |   | 21 |   |
| Intangible asset                                                                  |       | —                            |       | —                            |       | (2                | )          | (1 | ) | — |   | — |   |
| Additional minimum liability reflected in  accumulated other comprehensive income |       | —                            |       | —                            |       | (2                | )          | (2 | ) | — |   | — |   |
| Total liability recognized                                                        |       | (99                               | )          | (100                              | )          | (7                | )          | (5 | ) | 29 |   | 21 |   |
| Fourth quarter funding                                                            |       | 2                                 |       | 2                                 |       | —            |       | — |   | — |   | — |   |
| Total (liability) asset recognized on the  consolidatedbalance sheets             |       | $                                 | (97        | )                                 | $          | (98               | )          | $ | (7 | ) | $ | (5 | ) | $ | 29 |   | $ | 21 |   |
| Unfunded accumulated benefit obligation                                           |       | $                                 | (70        | )                                 | $          | (63               | )          | $ | (7 | ) | $ | (5 | ) | 60 |   |   |   |
| Accumulated benefit  obligation                                                   |       | 159                               |       | 135                               |       | 7                 |       | 5 |   | 37 |   |   |   |

 

F-40

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The components ofthe net periodic cost of Mirant’s pension plans for the years ended December 31,2004, 2003 and 2002 are shown below (in millions).
| ** **                                                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                                                 |       | $        | 13         |     | $          | 13       |       | $ | 12 |   |
| Interest cost                                                                |       | 17       |       | 15       |       | 15       |       |
| Expected return  on plan assets                                              |       | (15      | )          | (12      | )          | (11      | )          |
| Curtailment gain                                                             |       | (4       | )          | —   |       | (4       | )          |
| Settlement loss                                                              |       | —   |       | 9        |       | —   |       |
| Employee  contributions                                                      |       | (2       | )          | (2       | )          | (2       | )          |
| Special  termination benefits                                                |       | —   |       | —   |       | 2        |       |
| Net  amortization(1)                                                         |       | 0        |       | 1        |       | 1        |       |
| Net periodic  pension cost                                                   |       | $        | 9          |     | $          | 24       |       | $ | 13 |   |
| Other comprehensive  expense related to additional minimum pension liability |       | $        | —     |     | $          | —   |       | $ | 2 |   |

----

(1)          Amountincludes unrecognized transition obligation or asset, prior service cost and actuarialgains or losses.

Therates assumed in the actuarial calculations for measuring pension cost eachyear were as follows:
| ** **                      | ** ** | **Domestic** | ** ** | **JPS**  | ** ** | **Grand Bahamas** | ** ** |
|---------------------------------|------------|--------------|------------|----------|------------|------------------------|------------|
| ** **                      | ** ** | **2004**     | ** ** | **2003** | ** ** | **2002**               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Discount rate                   |       | 6.00         | %          | 6.75     | %          | 7.50                   | %          | 9.00 | % | 9.00 | % | 9.00 | % | 6.75 | % | 7.00 | % | 7.00 | % |
| Rate of  compensation increase  |       | 3.75         |       | 3.75     |       | 4.50                   |       | 7.00 |   | 7.00 |   | 7.00 |   | 5.00 |   | 5.00 |   | 5.00 |   |
| Expected return on plan  assets |       | 8.50         |       | 8.50     |       | 9.00                   |       | 10.00 |   | 10.00 |   | 10.00 |   | 6.25 |   | 6.25 |   | 7.25 |   |

 

In determining the long-term rate of return forplan assets, historical markets and current market factors such as inflationand interest rates are evaluated before long-term capital marketassumptions are determined and consideration of diversification and portfoliorebalancing is given. Peer data and historical returns are reviewed to checkfor reasonableness and appropriateness.

Thefollowing table shows the target allocation and percentage of fair value ofplan assets by asset category for Mirant’s domestic qualified pension plans for2004 and 2003:
| ** **            | ** ** | **2004**               | ** ** | **2003**                                                          | ** ** |
|-----------------------|------------|------------------------|------------|-------------------------------------------------------------------|------------|
| ** **            | ** ** | **Target  Allocation** | ** ** | **Percentage of  Fair Value of  Plan Assets** | ** ** | **Target  Allocation** | ** ** | **Percentage of  Fair Value of  Plan Assets** | ** ** |
| Domestic equity       |       |                   | 55         | %                                                                 |       |   | 56 | % |   |   | 55 | % |   |   | 55 | % |   |
| International  equity |       |                   | 15         |                                                              |       |   | 16 |   |   |   | 15 |   |   |   | 15 |   |   |
| Fixed income          |       |                   | 30         |                                                              |       |   | 28 |   |   |   | 30 |   |   |   | 30 |   |   |
| Total                 |       |                   | 100        | %                                                                 |       |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |

 

For the domestic qualified pension plans, Mirant usesa mix of equities and fixed income investments in an attempt to maximize thelong-term return of plan assets for a prudent level of risk. Risk tolerance isestablished through consideration of plan liabilities, plan funded status andcorporate financial condition. Equity investments are diversified across U.S.and non-U.S. stocks. For U.S. stocks, Mirant employs a passive approach byinvesting in an index that mirrors the Russell 3000 Index. For non-U.S. stocks,Mirant is invested in the Invesco International Equity Fund that is benchmarkedagainst the Europe-Australia-Far East (“EAFE”) Index. Fixed incomeinvestments include a passive bond market index fund which seeks to replicatethe Lehman Brothers Aggregate Bond Index. Investment risk is monitored on anongoing basis through quarterly portfolio reviews and annual pension liabilitymeasurements.

F-41

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Theinvestments held by Mirant’s international plans are subject tocountry-specific regulations. Approximately 97% of the international planassets are associated with the JPS pension plan. As of December 31, 2004,those assets were invested as follows:
| ** **                             | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------|------------|---------------------------------|------------|
| Equity Securities                      |       |                            | 14         | % |   |
| Government of  Jamaica Debt Securities |       |                            | 68         |   |   |
| Real Estate                            |       |                            | 13         |   |   |
| Cash Equivalents                       |       |                            | 5          |   |   |
| Total                                  |       |                            | 100        | % |   |

 

During2005, Mirant expects to contribute approximately $14 million to the domesticqualified pension plans, approximately $0.5 million to the domesticnon-tax-qualified pension plans, and approximately $2.3 million tointernational pension plans. Additionally, Mirant expects the followingbenefits to be paid from the pension plans (in millions).
| **Projected Benefit Payments to Plan Participants** | ** ** | ** ** | ** ** | **Domestic  Tax-  Qualified** | ** ** | **Domestic  Non-Tax-  Qualified** | ** ** | **International** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|-------------------------------|------------|-----------------------------------|------------|-------------------|------------|
| 2005                                                                         |       |       | $          | 5.1                           |       |                              |       | $0.5              |       |   |   | $ | 1.4 |   |   |
| 2006                                                                         |       |       | 5.4        |                          |       |                              | 0.2        |              |       |   | 1.5 |   |   |
| 2007                                                                         |       |       | 5.8        |                          |       |                              | 0.2        |              |       |   | 1.7 |   |   |
| 2008                                                                         |       |       | 6.4        |                          |       |                              | 0.2        |              |       |   | 2.0 |   |   |
| 2009                                                                         |       |       | 6.9        |                          |       |                              | 0.3        |              |       |   | 2.2 |   |   |
| 2010 through 2014                                                            |       |       | 54.0       |                          |       |                              | 2.1        |              |       |   | 15.2 |   |   |

 

***Other Postretirement Benefits***

Mirant also provides certain medical care and lifeinsurance benefits for eligible retired domestic employees which are accountedfor on an accrual basis using an actuarial method that recognizes the netperiodic costs as employees render service to earn the postretirement benefits.The measurement date for these domestic other post-retirement benefit plans is September 30for each year presented.

On December 8, 2003, President Bush signed intolaw the Medicare Prescription Drug, Improvement and Modernization Act of 2003.This act expands Medicare, primarily by adding a prescription drug benefitstarting in 2006 and is expected to reduce the Company’s cost of providing prescriptiondrug benefits for Medicare-eligible retirees. On July 1, 2004,Mirant measured a reduction of $6 million in the Accumulated Post-RetirementBenefit Obligation reflecting the expected impact of the Act. Accordingly,Mirant also recorded a reduction in the net expense for Mirant’s postretirementbenefit plans of $0.4 million for the six month period after thisre-measurement through the end of the fiscal year.

In measuring the accumulated postretirement benefitobligation at year-end, the weighted average medical care cost trend rate forpre-age 65 participants and post-age 65 participants was assumed to be 11.00%and 14.00%, respectively, for 2005, decreasing gradually to 5.00% for bothpre-age 65 participants and post-age 65 participants through the year 2011 andremaining at that level thereafter. An annual increase or decrease in theassumed medical care cost trend rate of 1% would correspondingly increase ordecrease the accumulated benefit obligation at September 30, 2004 by$10 million and $12 million, respectively.

F-42

----

Weightedaverage rates assumed in the actuarial calculations for other postretirementbenefit obligations as of their respective measurement dates were as follows:
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Discount rate                  |       | 5.73     | %          | 6.00     | %          |
| Rate of compensation  increase |       | 3.00     |       | 3.75     |       |

 

Thefollowing table shows the actuarial calculations for other postretirementbenefit obligations as of their respective measurement dates (in millions):
| ** **                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| **Change  in Benefit Obligation:**     |       |     |       |     |       |
| Benefit  obligation, beginning of year |       | $117     |       | $97      |       |
| Service cost                           |       | 4        |       | 4        |       |
| Interest cost                          |       | 7        |       | 6        |       |
| Actuarial loss                         |       | 12       |       | 13       |       |
| Amendments                             |       | (3       | )          | (2       | )          |
| Settlements                            |       | —   |       | —   |       |
| Plan curtailment                       |       | —   |       | —   |       |
| Net benefits paid                      |       | (2       | )          | (1       | )          |
| Benefit  obligation, end of year       |       | $135     |       | $117     |       |
| **Funded Status:**                     |       |     |       |     |       |
| Funded status at  end of year          |       | $(135    | )          | $(117    | )          |
| Unrecognized net loss                  |       | 44       |       | 33       |       |
| Unrecognized past service cost         |       | (2       | )          | 1        |       |
| Net amount recognized                  |       | $(93     | )          | $(83     | )          |

 

Thedomestic postretirement benefits were unfunded at December 31, 2003 and2002. The components of the net expense for Mirant’s postretirement benefitplans during the years ended December 31 are shown below (in millions).
| ** **                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                        |       | $        | 4          |     | $          | 4        |       | $ | 3 |   |
| Interest cost                       |       | 7        |       | 7        |       | 6        |       |
| Curtailment loss                    |       | —   |       | —   |       | 2        |       |
| Settlement gain                     |       | —   |       | —   |       | (1       | )          |
| Net amortization                    |       | 1        |       | 1        |       | 1        |       |
| Net postretirement  benefit expense |       | $        | 12         |     | $          | 12       |       | $ | 11 |   |

 

In measuring the cost of postretirement benefits for2004, the weighted average medical care cost trend rate for pre-age 65participants and post-age 65 participants was assumed to be 7.78% and 9.80%,respectively, for 2004, decreasing gradually to 5.50% for both pre-age 65participants and post-age 65 participants through the year 2008 and remainingat that level thereafter. An annual increase or decrease in the assumed medicalcare cost trend rate of 1% would correspondingly increase or decrease theaggregate of the service and interest cost components of the annualpostretirement benefit cost in 2004 by $1 million.

F-43

----

Otherweighted average rates assumed in the actuarial calculations for Mirant’spostretirement benefit costs during the years ended December 31 are shownbelow:
| ** **                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Assumed discount  rate                  |       | 6.00     | %          | 6.75     | %          | 7.50     | %          |
| Assumed rate of  compensation increases |       | 3.75     |       | 3.75     |       | 4.50     |       |

 

Mirantexpects to contribute approximately $3.5 million to pay otherpost-retirement benefits for retired domestic employees in 2004. Additionally,Mirant expects the following net benefits to be paid from the post-retirementbenefit plans:
| **Projected Benefit Payments to Plan Participants** | ** ** | ** ** | ** ** | **Net Employer  Benefits Before  Reflecting  Government  Subsidies** | ** ** | **Government  Provided  Subsidy for  Prescription  Drug Benefits** | ** ** | **Net Employer  Benefits After  Reflecting  Government  Subsidies** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Fiscal 2005                                                                  |       |       | $          | 3.5                                                                            |       |                                                                         |       | $                                                                             | 0.0        |   |   |   | $ | 3.5 |   |   |
| Fiscal 2006                                                                  |       |       | 4.1        |                                                                           |       |                                                                         | 0.0        |                                                                          |       |   | 4.1 |   |   |
| Fiscal 2007                                                                  |       |       | 4.7        |                                                                           |       |                                                                         | 0.0        |                                                                          |       |   | 4.7 |   |   |
| Fiscal 2008                                                                  |       |       | 5.4        |                                                                           |       |                                                                         | (0.1       | )                                                                             |       |   | 5.3 |   |   |
| Fiscal 2009                                                                  |       |       | 6.3        |                                                                           |       |                                                                         | (0.1       | )                                                                             |       |   | 6.2 |   |   |
| Fiscal Years 2010  through 2014                                              |       |       | 46.1       |                                                                           |       |                                                                         | (1.2       | )                                                                             |       |   | 44.9 |   |   |

 

JPS provides certain medical care and life insurancebenefits for its eligible retired employees. At December 31, 2004, theaccumulated postretirement benefit obligation was $9 million based on adiscount rate of 10%, rate of compensation increase of 8% and an assumed annualincrease in health care costs of 9%.

An increase or decrease in the assumed annual rate ofincrease in health care costs of 1% would correspondingly increase or decreasethe accumulated benefit obligation for JPS at December 31, 2004 by $2.2 millionand $1.7 million, respectively.

The postretirement benefits provided by JPS wereunfunded at December 31, 2004.

Grand Bahama Power doesnot provide postretirement benefits other than pensions for its employees.

***Stock-Based Compensation***

Stock option grants have been made from Mirant’sOmnibus Incentive Compensation Plan. Options are granted with a 10-year term.Generally, options vest equally on each of the first, second and thirdanniversaries of the grant date. Options are nontransferable, except upon thedeath of the option holder. The exercise price of options granted is equal tothe stock price on the date of grant.

F-44

----

Asummary of options granted, exercised and forfeited is as follows:
| ** **                                     | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|------------------------------------------------|------------|-------------|------------|----------------------------------------|------------|
| Outstanding at  December 31, 2001         |       | 15,322,159  |       |                                   | $          | 21.93 |   |   |
| Granted                                        |       | 7,838,765   |       |                                   | $          | 9.08 |   |   |
| Exercised                                      |       | (42,731     | )          |                                   | $          | 3.35 |   |   |
| Forfeited                                      |       | (2,453,392  | )          |                                   | $          | 16.95 |   |   |
| Outstanding at  December 31, 2002         |       | 20,664,801  |       |                                   | $          | 17.69 |   |   |
| Granted                                        |       | 7,669,891   |       |                                   | $          | 1.62 |   |   |
| Exercised                                      |       | —      |       |                                   | $          | — |   |   |
| Forfeited                                      |       | (7,124,021  | )          |                                   | $          | 14.56 |   |   |
| Outstanding at  December 31, 2003         |       | 21,210,671  |       |                                   | $          | 12.93 |   |   |
| Granted                                        |       | —      |       |                                   | $          | — |   |   |
| Exercised                                      |       | —      |       |                                   | $          | — |   |   |
| Forfeited                                      |       | (5,677,939  | )          |                                   | $          | 12.39 |   |   |
| Outstanding at  December 31, 2004         |       | 15,532,732  |       |                                   | $          | 13.12 |   |   |
| Options  exercisable at December 31, 2004 |       | 11,563,358  |       |                                   | $          | 16.34 |   |   |

 

Thefollowing table provides information with respect to stock options outstandingat December 31, 2004:
| ** **                                  | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Range of Exercise Prices** | ** ** | ** **                   | ** ** | **Number of  Options**  | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Number of  Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $0.00-$7.86                                 |       | 4,397,108                    |       |                         | $          | 1.66 |   |   |   | 7.7 |   |   | 1,573,200 |   |   | $ | 1.76 |   |   |
| $7.87-$19.65                                |       | 5,815,892                    |       |                         | $          | 11.90 |   |   |   | 5.0 |   |   | 4,670,426 |   |   | $ | 12.59 |   |   |
| $19.66-27.51                                |       | 5,278,759                    |       |                         | $          | 23.85 |   |   |   | 4.6 |   |   | 5,278,759 |   |   | $ | 23.85 |   |   |
| $27.52-$39.30                               |       | 40,973                       |       |                         | $          | 34.64 |   |   |   | 6.2 |   |   | 40,973 |   |   | $ | 34.64 |   |   |
| Total                                       |       | 15,532,732                   |       |                         | $          | 13.12 |   |   |   | 5.6 |   |   | 11,563,358 |   |   | $ | 16.34 |   |   |
|                                             |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Nostock options were granted during 2004. The weighted average fair value at dateof grant for options granted during 2003 and 2002 was $1.19 and $5.80,respectively, and was estimated using the Black-Scholes option valuationmodel with the following weighted average assumptions:
| ** **               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected life in  years  |       |     | —     |     |       | 5        |       | 5 |   |
| Risk free interest  rate |       |     | —     |     |       | 2.82     | %          | 4.34 | % |
| Volatility               |       |     | —     |     |       | 98.00    | %          | 75.00 | % |
| Dividend yield           |       |     | —     |     |       | —   |       | — |   |

 

***Phantom Stock and Restricted Stock***

During2004, no phantom stock or restricted stock was granted. During 2003 and 2002,Mirant made awards of 4,725,000 shares and 1,244,185 shares of phantom stockand restricted stock, respectively, to certain officers and employees. Thephantom stock awards are payable in cash based upon the price of Mirant commonstock on the vesting date. The outstanding phantom stock grants vest over timebetween March 2005 and February 2007. The restricted stock awards arepaid in shares of Mirant common stock. One-half of the restricted stock awardsvest in shares on each of the first and second anniversary dates of 

F-45

----

the grant date. Compensation expense recognized forthe phantom stock and restricted stock plans during 2004, 2003 and 2002 wasapproximately $610 thousand, $2 million, and $5 million respectively.A summary of phantom stock and restricted stock awarded is as follows:
| ** **                             | ** ** | **Phantom Stock** | ** ** | **Restricted Stock** | ** ** |
|----------------------------------------|------------|------------------------|------------|---------------------------|------------|
| Outstanding at  December 31, 2001 |       |                   | 94,362     |                      |       |   | — |   |   |
| Granted                                |       |                   | 944,185    |                      |       |   | 300,000 |   |   |
| Vested                                 |       |                   | (377,674   | )                         |       |   | — |   |   |
| Forfeited                              |       |                   | (129,413   | )                         |       |   | — |   |   |
| Outstanding at  December 31, 2002 |       |                   | 531,460    |                      |       |   | 300,000 |   |   |
| Granted                                |       |                   | 4,425,000  |                      |       |   | 300,000 |   |   |
| Vested                                 |       |                   | (1,132,366 | )                         |       |   | — |   |   |
| Forfeited                              |       |                   | (568,895   | )                         |       |   | (300,000 | ) |   |
| Outstanding at  December 31, 2003 |       |                   | 3,255,199  |                      |       |   | 300,000 |   |   |
| Granted                                |       |                   | —     |                      |       |   | — |   |   |
| Vested                                 |       |                   | (1,671,209 | )                         |       |   | — |   |   |
| Forfeited                              |       |                   | (661,525   | )                         |       |   | (300,000 | ) |   |
| Outstanding at  December 31, 2004 |       |                   | 922,465    |                      |       |   | — |   |   |

 

***Employee Stock Purchase Plan***

Under the 2000 EmployeeStock Purchase Plan (the “ESPP”), the Company is authorized to issue up to4,000,000 shares of common stock to its full-time employees, nearly all of whomare eligible to participate. In 2003, an additional 8,000,000 shares of commonstock was authorized to be issued under the ESPP. Under the terms of the ESPP,a new purchase cycle starts on May 1 and November 1 of each year andemployees of the Company can elect to have up to $10,625 of base and bonusamounts withheld to purchase the Company’s common stock during a purchasecycle. The purchase price of the stock is 85% of the lower of itsbeginning-of-the-cycle or end-of-cycle market price. Under the ESPP, theCompany sold 1,415,859 shares and 985,421 shares to employees in 2003 and 2002respectively. No shares were sold during 2004 because the ESPP was suspendedindefinitely on May 1, 2003.

***Employee Savings Plan***

TheCompany maintains an Employee Savings Plan (“ESP”) with a profit sharingarrangement (“PSA”) whereby employees may contribute a portion of their basecompensation to the ESP, subject to limits under the Internal Revenue Code. TheCompany provides a matching contribution each payroll period equal to 75% ofthe employee’s contributions up to 6% of the employee’s pay for that period(match levels vary by bargaining unit). Under the PSA, the Company contributesa quarterly fixed contribution of 3% of eligible pay and may make an annualdiscretionary contribution for those employees not accruing a benefit under thedefined benefit pension plan. Expenses recognized for the matching and profitsharing contributions were as follows (in millions):
| ** ** | ** ** | **ESP** | ** ** | **PSA** | ** ** |
|------------|------------|---------|------------|---------|------------|
| 2004       |       |    | $          | 5       |       |   |   | $ | 2 |   |   |
| 2003       |       |    | 6          |    |       |   | 4 |   |   |
| 2002       |       |    | 8          |    |       |   | 8 |   |   |

 

**15.   Litigationand Other Contingencies**

The Company is involved ina number of significant legal proceedings. In certain cases, plaintiffs seek torecover large and sometimes unspecified damages, and some matters may beunresolved for several years. The Company cannot currently determine theoutcome of the proceedings described below or the 

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ultimateamount of potential losses and therefore has not made any provision for suchmatters unless specifically noted below. Pursuant to SFAS No. 5, “Accountingfor Contingencies,” management provides for estimated losses to the extentinformation becomes available indicating that losses are probable and that theamounts are reasonably estimable. Additional losses could have a materialadverse effect on the Company’s consolidated financial position, results ofoperations or cash flows.

***Effect of Chapter 11 Filings***

On the Petition Date, August 18, 2003, October 3,2003, and November 18, 2003, the Mirant Debtors filed voluntary petitionsfor relief under Chapter 11 of the Bankruptcy Code.

As of the Petition Date,most pending litigation (including some of the actions described below) isstayed, and absent further order of the Bankruptcy Court, no party, subject tocertain exceptions, may take any action, again subject to certain exceptions,to recover on pre-petition claims against the Mirant Debtors. One exception tothis stay of litigation is for an action or proceeding by a governmental agencyto enforce its police or regulatory power. The claims asserted in litigationand proceedings to which the stay applies may be fully and finally resolved inconnection with the administration of the bankruptcy proceedings and, to theextent not resolved, will need to be addressed in the Plan. On November 19,2003, the Bankruptcy Court entered an order staying most litigation pendingagainst current or former officers, directors and managers of the MirantDebtors arising out of the performance of their duties and against certainpotential indemnitees of the Mirant Debtors. The Bankruptcy Court took thataction to avoid the risk that the continuation of such litigation would impedethe Mirant Debtors’ ability to reorganize or would have a negative impact uponthe assets of the Mirant Debtors. At this time, it is not possible to predictthe outcome of the Chapter 11 filings or their effect on the business of theMirant Debtors or outstanding legal proceedings. The Mirant Debtors intend toresolve as many of these claims as possible through the claims resolutionprocess in the bankruptcy proceeding or the Plan.

***California and Western Power Markets***

The Company is subject to litigation related to itsactivities in California and the western power markets and the high prices forwholesale electricity experienced in the western markets during 2000 and 2001.Various lawsuits and complaints have been filed by the California AttorneyGeneral, the California Public Utility Commission (“CPUC”), the CaliforniaElectricity Oversight Board (“EOB”) and various states’ rate payers in stateand federal courts and with the Federal Energy Regulatory Commission (“FERC”).Most of the plaintiffs in the rate payer suits seek to represent a state-wideclass of retail rate payers. In addition, civil and criminal investigationshave been initiated by the United States Department of Justice (“DOJ”), theGeneral Accounting Office, the FERC and various states’ attorneys general.These matters involve claims that the Company engaged in unlawful businesspractices and generally seek unspecified amounts of restitution and penalties,although the damages alleged to have been incurred in some of the suits are inthe billions of dollars. One of the suits brought by the California AttorneyGeneral seeks an order requiring the Company to divest its California plants.In addition, the Company is subject to the proceedings described below in *California Receivables, FERC Show Cause Proceeding Relating to TradingPractices, FERC Investigation Relating to Bidding,* and *DWR Power Purchases* relating to its operations in Californiaand the western power markets. Resolution of these matters, to the extent notfully and finally resolved through either the settlement of certain claimsdescribed below in “California Settlement” or the claims process, is subject toresolution of the ongoing litigation for the matters pending in courts and forthose matters pending at the FERC to the issuance of final decisions by theFERC.

*CaliforniaReceivables:  *In 2001, Southern California EdisonCompany (“SCE”) and Pacific Gas and Electric Company (“PG&E”) suspendedpayments to the California Power Exchange Corporation (“Cal PX”) and CaliforniaIndependent System Operator Corporation (“CAISO”) for certain power purchases,including purchases from Mirant Americas Energy Marketing. Both the Cal PX andPG&E filed for 

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bankruptcy protection in2001. As discussed below under “California Settlement,” on January 14,2005,**Mirant and certain of its subsidiariesentered into a Settlement and Release of Claims Agreement (the “CaliforniaSettlement”) with PG&E, SCE, San Diego Gas and Electric Company, the CPUC,the California Department of Water Resources (“DWR”), the EOB and the AttorneyGeneral of the State of California (collectively, the “California Parties”) andwith the Office of Market Oversight and Investigations of the FERC. If theCalifornia Settlement becomes effective, it will result in Mirant AmericasEnergy Marketing assigning to the California Parties its outstandingreceivables for sales made in the Cal PX and CAISO markets from January 1,2000 through June 20, 2001.

In July 2001, the FERC issued an order requiringproceedings (the “FERC Refund Proceedings”) to determine the amount of anyrefunds and amounts owed for sales made to the CAISO or the Cal PX from October 2,2000 through June 20, 2001 (the “Refund Period”). Various parties haveappealed these FERC orders to the United States Court of Appeals for the NinthCircuit (the “Ninth Circuit”) seeking review of a number of issues, includingchanging the Refund Period to include periods prior to October 2, 2000 andexpanding the sales of electricity subject to potential refund to includebilateral sales made to the DWR. Any such expansion of the Refund Period or thetypes of sales of electricity potentially subject to refund could significantlyincrease the refund exposure of Mirant Americas Energy Marketing in thisproceeding. Although Mirant Americas Energy Marketing is the Mirant entity thatengaged in transactions with the CAISO and the Cal PX, the orders issued by theFERC in the refund proceedings, and the filings made by other parties in thoseproceedings, generally refer to the Mirant entity involved as Mirant withoutbeing more specific. Mirant believes that the Mirant entity that would actuallybe liable to third parties for any refunds determined by the FERC to be owed,or that would be due any receivables found to be owed to Mirant, is MirantAmericas Energy Marketing. Agreements that were in effect at the time of thetransactions at issue between Mirant Americas Energy Marketing and the MirantAmericas Generation subsidiaries that own Mirant’s generating facilities inCalifornia would shift some of the economic burden of such refunds or thebenefit of such receivables from Mirant Americas Energy Marketing to thoseMirant Americas Generation subsidiaries. On December 12, 2002, the ALJdetermined the preliminary amounts currently owed to and by each entity actingas a scheduling coordinator in the CAISO and Cal PX markets, including MirantAmericas Energy Marketing. Based on the ALJ’s determination, the initialamounts owed to Mirant Americas Energy Marketing totaled approximately$122 million, which is net of refunds owed by Mirant Americas EnergyMarketing to the CAISO and the Cal PX. The ALJ decision indicated that theamounts did not reflect the final mitigated market clearing prices, interestthat would be applied under the FERC’s regulations, offsets for emission costsor the effect of certain findings made by the ALJ in the initial decision. A December 2002errata issued by the ALJ to his initial decision indicated that the amountsidentified by the initial decision as being owed to Mirant Americas EnergyMarketing and other participants in the Cal PX market failed to reflect anadjustment for January 2001 that the ALJ concluded elsewhere in hisinitial decision should be applied. If that adjustment is applied, the netamount owed Mirant Americas Energy Marketing after taking into account theproposed refunds would increase by approximately $37 million.

On March 26, 2003, the FERC largely adopted thefindings of the ALJ made in his December 12, 2002 order with the exceptionthat the FERC concluded that the price of gas used in calculating the mitigatedmarket prices used to determine refunds should not be based on published priceindices. Instead, the FERC ruled that the price of gas should be based upon theprice at the producing area plus transportation costs. This adjustment by theFERC to the refund methodology is expected to reduce the net amount that wouldremain owed to Mirant Americas Energy Marketing after taking into account anyrefunds. Based solely on the FERC staff’s formula, the amount of the reductioncould be as much as approximately $110 million, which would reduce the netamount owed to Mirant Americas Energy Marketing to approximately$49 million. The FERC indicated that it would allow any generator that candemonstrate it actually paid a higher price for gas to recover the differentialbetween that higher price and the proxy price for gas adopted by the FERC.Mirant Americas Energy Marketing’s actual cost of gas used 

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to make spot sales ofelectricity was higher than the amounts calculated under the staff’s formula,which differential, if accepted by the FERC, would decrease significantly the$110 million and increase the resulting net amount owed to Mirant AmericasEnergy Marketing, although the amount of such potential decrease that will beaccepted by the FERC and the resulting net amount owed to Mirant AmericasEnergy Marketing cannot at this time be determined. On October 16, 2003,the FERC issued an order addressing motions for rehearing filed with respect toits March 26, 2003 order, and in that October 16, 2003 order the FERCchanged how certain power sales made to the CAISO were to be treated. MirantAmericas Energy Marketing estimates that the effect of the October 16,2003 order will be to increase the net amounts owed to Mirant Americas EnergyMarketing by $27 million. On May 12, 2004, the FERC issued an orderon rehearing of the October 16, 2003 order that further modified howcertain power sales made to the CAISO are to be treated and that may reducesignificantly the potential benefit to Mirant Americas Energy Marketing of theOctober 16, 2003 order. In another order issued May 12, 2004, theFERC also further refined the methodology to be used to determine the costs ofgas that a generator can recover where it can demonstrate that it paid a higherprice for gas than the proxy price for gas previously adopted by the FERC inits March 23, 2003 order, and those changes may have the effect ofreducing the costs that Mirant Americas Energy Marketing is able to recover.Mirant Americas Energy Marketing sought rehearing of the May 12, 2004order addressing the recovery of fuel costs, but the FERC denied that requestfor rehearing on September 24, 2004. Mirant Americas Energy Marketing isunable at this time to quantify further the impact of the May 12, 2004orders.

The amount owed to Mirant Americas Energy Marketingfrom sales made to either the CAISO or the Cal PX, the amount of any refundthat Mirant Americas Energy Marketing might be determined to owe, and whetherMirant Americas Energy Marketing may have any refund obligation with respect tosales made to the DWR may be affected materially by the ultimate resolution ofthe issues described above related to which gas indices should be used incalculating the mitigated market clearing prices, allegations of marketmanipulation, whether the Refund Period should include periods prior toOctober 2, 2000, and whether the sales of electricity potentially subjectto refund should include sales made to the DWR.

In the July 25, 2001 order, the FERC also orderedthat a preliminary evidentiary proceeding be held to develop a factual recordon whether there had been unjust and unreasonable charges for spot marketbilateral sales in the Pacific Northwest from December 25, 2000 throughJune 20, 2001. In that proceeding, the California Attorney General, theCPUC and the EOB filed to recover certain refunds from parties, includingMirant Americas Energy Marketing, for bilateral sales of electricity to the DWRat the California/Oregon border, claiming that such sales took place in thePacific Northwest. The refunds sought from Mirant Americas Energy Marketingtotaled approximately $90 million. If Mirant Americas Energy Marketingwere required to refund such amounts, subsidiaries of Mirant Americas Generationcould be required under inter-company agreements with Mirant Americas EnergyMarketing to refund amounts previously received from Mirant Americas EnergyMarketing pursuant to sales made on their behalf by Mirant Americas EnergyMarketing during the refund period. In addition, these Mirant AmericasGeneration subsidiaries would be owed amounts for refunds received by MirantAmericas Energy Marketing related to purchases made on their behalf by MirantAmericas Energy Marketing from other sellers in the Pacific Northwest. In anorder issued June 25, 2003, the FERC ruled that no refunds were owed andterminated the proceeding. On November 10, 2003, the FERC denied requestsfor rehearing filed by various parties. Various parties have appealed theFERC’s decision to the Ninth Circuit.

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On September 9, 2004 the Ninth Circuit reversedthe FERC’s dismissal of a complaint filed**by theCalifornia Attorney General in 2002 that sought refunds for transactionsconducted in markets administered by the CAISO and the Cal PX outside theRefund Period set by the FERC and for transactions between the DWR and variousowners of generation and power marketers, including Mirant Americas EnergyMarketing and subsidiaries of Mirant Americas Generation. The Ninth Circuitremanded the proceeding to the FERC for it to determine what remedies,including potential refunds, are appropriate where entities, including MirantAmericas Energy Marketing, purportedly did not comply with certain filingrequirements for transactions conducted under market-based rate tariffs. TheFERC’s actions on remand could materially increase the potential exposure ofMirant Americas Energy Marketing to liability for refunds in the proceedingsdescribed above relating to sales made to the CAISO or the Cal PX, includingsales occurring before October 2, 2000, bilateral sales to DWR andbilateral sales in the Pacific Northwest. On October 25, 2004, MirantAmericas Energy Marketing and other defendants filed a petition for rehearingwith the Ninth Circuit.

As discussed below under “California Settlement,” onceeffective, it will result in the release of most of Mirant Americas EnergyMarketing’s potential liability in the FERC Refund Proceedings and the otherFERC proceedings described in this section. Under the California Settlement,the California Parties will release Mirant and its subsidiaries from anyliability to the California Parties related to sales of electricity and naturalgas in the western markets from January 1, 1998 through July 14,2003, including any claims for refunds in the FERC Refund Proceedings or in anyproceedings conducted by FERC as a result of the Ninth Circuit’s ruling withrespect to the complaint filed by the California Attorney General. Also, theCalifornia Parties will assume the obligation of Mirant Americas EnergyMarketing to pay any refunds determined by the FERC to be owed by MirantAmericas Energy Marketing to other parties for transactions in the CAISO andCal PX markets during the Refund Period. Some of the consideration to bereceived by the California Parties under the settlement will be available toother market participants that choose to opt into the settlement. Any marketparticipant that elects to opt into the settlement will give releases ofliability to Mirant Americas Energy Marketing that are the same as those givenby the California Parties. Subject to applicable bankruptcy law, however,Mirant Americas Energy Marketing will continue to be liable for any refundsthat FERC determines it to owe (1) to participants in the Cal PX and CAISOmarkets that are not California Parties (or that do not elect to opt into thesettlement) for periods outside of the Refund Period and (2) toparticipants in bilateral transactions with Mirant Americas Energy Marketingthat are not California Parties (or that do not elect to opt into thesettlement).

*FERCShow Cause Proceeding Relating to Trading Practices:  *OnJune 25, 2003, the FERC issued a show cause order (the “Trading PracticesOrder”) to more than fifty parties, including Mirant Americas Energy Marketingand subsidiaries of Mirant Americas Generation, that a FERC staff report issuedon March 26, 2003 identified as having potentially engaged in one or moretrading strategies of the type employed by Enron Corporation and its affiliates(“Enron”), as described in the Enron memos released by the FERC in May 2002.The Trading Practices Order identified certain specific trading practices thatthe FERC indicated could constitute gaming or anomalous market behavior inviolation of the CAISO and Cal PX tariffs. The Trading Practices Order requiresthe CAISO to identify transactions between January 1, 2000 and June 20,2001 that may involve the identified trading strategies, and then requires theapplicable sellers involved in those transactions to demonstrate why thosetransactions were not violations of the Cal PX and CAISO tariffs. On September 30,2003, the Mirant entities filed with the FERC for approval of a settlementagreement (the “Trading Settlement Agreement”) entered into between certainMirant entities and the FERC Trial Staff, under which Mirant Americas EnergyMarketing would pay $332,411 to settle the show cause proceeding, except forthe issue related to selling of ancillary services, which is discussed below.In a November 14, 2003 order in a different proceeding, the FERC ruledthat certain allegations of improper trading conduct with respect to theselling of ancillary services during 2000 should be resolved in the show causeproceeding. On December 19, 2003, the Mirant entities filed with the FERCfor approval of an amendment to the Trading Settlement Agreement reached withthe FERC Trial Staff with respect to 

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the sale of ancillaryservices under which the FERC would have an allowed unsecured claim in MirantAmericas Energy Marketing’s bankruptcy proceeding for $3.67 million insettlement of the allegations with respect to the sale of ancillary services(the “Ancillary Amount”). That settlement must be approved by the FERC and theBankruptcy Court to become effective. The Mirant entities are in the process ofobtaining FERC approval and will seek approval from the Bankruptcy Courtthereafter. On March 11, 2004, the ALJ recommended that the FERC approvethe settlement, finding that the settlement amounts were reasonable. The ALJ,however, suggested that approval of the settlement be conditioned on theAncillary Amount being treated as an administrative claim or a setoff ratherthan as an allowed pre-petition claim.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the CaliforniaParties withdrawing their opposition to the Trading Settlement Agreement asamended and supporting approval of the Trading Settlement Agreement as proposedby the Mirant entities that are parties to the Trading Settlement Agreement andthe FERC Trial Staff without change or modification.

*FERCInvestigation Relating to Bidding:  *On June 25,2003, the FERC issued an order (the “Bidding Order”) initiating aninvestigation by its staff into bidding practices in the Cal PX and CAISOmarkets between May 1, 2000 and October 1, 2000 of more than fiftyparties, including Mirant Americas Energy Marketing. These entities werepreviously identified in a report issued by the FERC Staff on March 26,2003 as having bid generation resources to the Cal PX and CAISO at pricesunrelated to costs. The Bidding Order requires those entities, including MirantAmericas Energy Marketing, to demonstrate why bids in the Cal PX and CAISOmarkets from May 1, 2000 through October 1, 2000 that were in excessof $250 per MWh did not constitute a violation of the CAISO and Cal PX tariffs.If the FERC finds that Mirant Americas Energy Marketing engaged in biddingpractices that violated the Cal PX or CAISO tariffs between May 1, 2000through October 1, 2000, the FERC could require the disgorgement ofprofits made as a result of those bids and could impose other non-monetarypenalties. While Mirant Americas Energy Marketing believes its biddingpractices were legitimate and that it did not violate the appropriate tariffs,the standards by which the FERC will ultimately judge Mirant Americas EnergyMarketing ‘s bidding practices are unclear. Depending on the standards appliedby the FERC and if Mirant Americas Energy Marketing is found by the FERC tohave violated the Cal PX or CAISO tariffs, the amount of any disgorgement ofprofits required or other remedy imposed by the FERC could have a materialadverse effect on the Company’s consolidated financial position, results ofoperations or cash flows.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the terminationof the FERC’s investigation under the Bidding Order of Mirant Americas EnergyMarketing’s bidding practices.

*DWRPower Purchases:  *On May 22, 2001, MirantAmericas Energy Marketing entered into a 19-month agreement with the DWRto provide the State of California with approximately 500 MW of electricityduring peak hours through December 31, 2002 (the “DWR Contract”). On February 25,2002, the CPUC and the EOB filed separate complaints at the FERC against MirantAmericas Energy Marketing and other sellers of energy under long-termagreements with the DWR, alleging that the terms of these contracts were unjustand unreasonable and that the contracts should be abrogated or the prices underthe contracts should be reduced. The complaints allege that the prices the DWRwas forced to pay pursuant to these long-term contracts were unreasonable dueto dysfunctions in the California market and the alleged market power of thesellers. On June 26, 2003, the FERC issued an order dismissing thecomplaints filed by the CPUC and the EOB against Mirant Americas EnergyMarketing. On November 10, 2003, the FERC denied motions for rehearingfiled by the CPUC and the EOB. The CPUC and EOB have appealed the FERC’sdecision to the Ninth Circuit.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in the release ofMirant Americas Energy Marketing by the DWR and the other California 

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Parties of any liabilitywith respect to the DWR Contract and the dismissal by the CPUC and the EOB oftheir appeal of the FERC’s decision dismissing their complaints.

*Reliability Must Run Agreements Proceeding*.   Certainof the generating facilities acquired by subsidiaries of Mirant AmericasGeneration from PG&E are operated subject to reliability-must-runagreements (“RMR Agreements”), which those subsidiaries assumed from PG&E. Theseagreements allow the CAISO to require the Mirant Americas Generationsubsidiaries, under certain conditions, to operate these facilities to supportthe California electric transmission system. The rates that the Mirant AmericasGeneration subsidiaries could charge the CAISO under those agreements, wherethey were also making sales into the market and were retaining the revenuesfrom those sales, were the subject of an ongoing disputed rate proceedingbefore the FERC at the time of the acquisition of the plants from PG&E andwere being collected subject to refund. For the plants that are subject to theRMR Agreements and from which the Mirant Americas Generation subsidiaries haveexercised their rights to also make market sales, the Mirant AmericasGeneration subsidiaries have been collecting from the CAISO since April 1999an amount equal to 50% of the annual fixed revenue requirement (the “AnnualRequirement”) of those plants. The amounts the Mirant Americas Generationsubsidiaries collect from the CAISO are subject to refund pending final reviewand approval by the FERC. While the CAISO is the party to the RMR Agreementswith the Mirant Americas Generation subsidiaries, the CAISO’s obligations underthose agreements are funded by PG&E, and PG&E is the real party ininterest with respect to any refunds owed by the Mirant Americas Generationsubsidiaries for sales made previously under those agreements. In June 2000,the ALJ issued a decision finding that the amount the Mirant AmericasGeneration subsidiaries should be allowed to charge the CAISO for such plantswas approximately 31⁄2% on average of the Annual Requirement. In July 2000,the Mirant Americas Generation subsidiaries sought review by the FERC of theALJ decision, and a decision is pending at the FERC.

The Mirant Americas Generation subsidiaries recognizerevenue related to these agreements based on the rates ruled to be reasonableby the ALJ. If the Mirant Americas Generation subsidiaries are unsuccessful inseeking modification of the ALJ’s decision by the FERC, they will be requiredto refund amounts collected in excess of those rates for the period from June 1,1999. For the Potrero plant and Pittsburg Units 1 through 4 the period forwhich such refunds would be owed would run through December 31, 2001, forMirant America Generation’s other California plants except PittsburgUnit 5 the refund period would run through December 31, 2002, and forPittsburg Unit 5 the refund period would run through December 31,2003. Amounts collected in excess of thoserates and other significantly smaller amounts collected under the RMRAgreements that are also subject to refund due to other issues pending at theFERC totaled $293 million, of which $288 million is included inliabilities subject to compromise and $5 million is deferred and includedin revenues subject to refund in the accompanying consolidated balance sheet asof December 31, 2004 and December 31, 2003. In addition, MirantAmericas Generation records accrued interest on such amounts, which amounted to$42 million and is included in liabilities subject to compromise in theaccompanying consolidated balance sheets as of December 31, 2004 and December 31,2003, respectively.

As discussed below under “California Settlement,” ifthe California Settlement becomes effective, it will result in PG&Ereleasing the Mirant Americas Generation subsidiaries from any potential refundliability under the RMR Agreements for the period prior to September 30,2004 in return for certain consideration as described below. In addition, theCAISO has separately agreed with Mirant to release its claims for refunds withrespect to the RMR Agreements for the period through September 30, 2004upon the California Settlement becoming effective.

*California Settlement.  *On January 14,2005,**Mirant and certain of its subsidiariesentered into the California Settlement with the California Parties and theOffice of Market Oversight and Investigations of the FERC settling a variety ofdisputed matters described above. The Mirant entities that are parties to theCalifornia Settlement are Mirant, Mirant Americas Inc., Mirant Americas EnergyMarketing, Mirant 

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Americas Generation,Mirant California Investments, Inc., Mirant California, LLC, Mirant Delta,LLC, Mirant Potrero, LLC, Mirant Special Procurement, Inc., MirantServices, LLC, and Mirant Americas Development, Inc. (collectively, the “MirantSettling Parties”). The “California Parties” are PG&E, SCE, San Diego Gasand Electric Company, the CPUC, the DWR, the EOB and the Attorney General ofthe State of California. The effectiveness of the California Settlement isconditioned upon its approval by the CPUC, the Bankruptcy Court, the bankruptcycourt having jurisdiction over PG&E’s bankruptcy proceedings initiated in2001, and the FERC. While CPUC has approved the California Settlement, assignified by its execution of the California Settlement, the other approvalshave not yet been obtained.

If the California Settlement becomes effective, (1) MirantAmericas Energy Marketing and the other Mirant Settling Parties will assign tothe California Parties all receivables owed to Mirant Americas Energy Marketingfor transactions in the markets administered by the Cal PX or the CAISO for theperiod January 1, 2000 through June 20, 2001, which are currentlyestimated by the parties to the California Settlement to be approximately $283million, and (2) the California Parties will receive an allowed, unsecuredclaim against Mirant Americas Energy Marketing in its Chapter 11 case for $175million and the DWR will receive an additional allowed, unsecured claim againstMirant Americas Energy Marketing of $2.25 million. In return, the CaliforniaParties will release all claims they may have against the Mirant SettlingParties related to sales of electricity or natural gas at wholesale in westernmarkets in the period from January 1, 1998 through July 14, 2003,including all such claims filed by the California Parties in the Mirant Debtors’Chapter 11 cases, in proceedings currently pending before the FERC, or in fourpending suits filed by the California Attorney General. Mirant estimates that,excluding duplicative claims, this settlement will compromise the bulk of theCalifornia energy market claims at issue in the FERC Refund Proceedings. Also,the California Parties will assume Mirant Americas Energy Marketing’sobligation to pay any refunds determined by the FERC to be owed by MirantAmericas Energy Marketing to other parties for transactions in the CAISO andCal PX markets during the Refund Period. Subject to applicable bankruptcy law,Mirant Americas Energy Marketing will continue to be liable for any refundsthat the FERC determines it to owe to (1) participants in the Cal PX orCAISO markets other than the California Parties for periods outside the RefundPeriod or (2) parties with which Mirant Americas Energy Marketing engagedin bilateral electricity or natural gas transactions other than the CaliforniaParties.

Some of the consideration to be received by theCalifornia Parties under the California Settlement will be available to othermarket participants that choose to opt into the California Settlement. Anymarket participant that elects to opt into the California Settlement will givereleases of liability to the Mirant Settling Parties that are the same as thosegiven by the California Parties. In addition to the claims filed by theCalifornia Parties seeking to recover refunds from Mirant Americas EnergyMarketing and other Mirant entities for sales of electricity made by MirantAmericas Energy Marketing into the CAISO and Cal PX markets in 2000 and 2001,the CAISO and the Cal PX have filed claims against Mirant Americas EnergyMarketing and other Mirant Settling Parties seeking to recover refunds onbehalf of participants in the markets for which they were responsible. Whilethe California Settlement will not result in the withdrawal of the claims filedin the Chapter 11 cases by the CAISO or the Cal PX, the FERC’s approval of theCalifornia Settlement (if obtained) will, upon the California Settlementbecoming effective, constitute the FERC’s direction to the CAISO and the Cal PXto conform their books and records to the terms of the settlement and towithdraw with prejudice all claims filed by them in the Chapter 11 cases thatseek to recover amounts or otherwise obtain relief on behalf of, or for thebenefit of, any of the California Parties or any other market participants thatopt into the California Settlement. In addition, the CAISO has separatelyagreed with Mirant to release its claims upon the California Settlementbecoming effective. The California Parties also release the Mirant SettlingParties from any liability or refund claims related to the DWR Contract,including claims asserted in complaints filed by CPUC and EOB with the FERC in February 2002.The FERC’s approval of the California Settlement, under its terms, will alsohave the effect, once the California Settlement becomes effective, ofterminating any pending investigations by the 

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FERC of the conduct of theMirant Settling Parties in the western energy markets in 2000 and 2001,including the pending investigation pursuant to the Bidding Order.

The California Settlement will also resolve all claimsasserted by PG&E against Mirant Delta,, Mirant Potrero, and the otherMirant Settling Parties in the Chapter 11 cases or in proceedings before theFERC that relate to refunds potentially owed as described under “Reliability-Must-RunAgreements Proceeding” above. Under the California Settlement, PG&E willrelease Mirant Delta and Mirant Potrero from any potential refund liabilityunder the RMR Agreements for the period prior to September 30, 2004, andthe claims filed by PG&E in the Chapter 11 cases seeking to recover refundsfrom Mirant Delta and Mirant Potrero for sales made under the RMR Agreementswill be withdrawn with prejudice. Although the California Settlement will notresult in the withdrawal of the claims filed in the Chapter 11 cases by theCAISO, under the terms of the California Settlement, the FERC’s approval of theCalifornia Settlement will constitute its direction to CAISO to conform itsbooks and records to the terms of the California Settlement and to withdrawwith prejudice all claims filed by it in the Chapter 11 cases that seek torecover amounts related to sales made under the RMR Agreements in the periodprior to September 30, 2004. In addition, the CAISO has separately agreedwith Mirant to release its claims upon the California Settlement becomingeffective.

In return for the releases it grants to the MirantSettling Parties described in the previous paragraph, PG&E will receiveallowed, unsecured claims against Mirant Delta that will receive a distributionof proceeds of $63 million, and either (1) the partially constructedContra Costa 8 project, which is a planned 530 MW combined cycle generatingfacility, and related equipment (collectively, the “CC8 Assets”) will betransferred to PG&E or (2) PG&E will receive additionalalternative consideration in an amount of as much as $85 million (the “CC8Alternative Consideration”). If the Mirant Settling Parties and PG&E areunable by April 30, 2005 to agree upon definitive agreements for thetransfer of the CC8 Assets to PG&E, or if any approval of the BankruptcyCourt required for the transfer of the CC8 Assets to PG&E is not obtained,the CC8 Alternative Consideration is to be $85 million. Once such definitiveagreements have been executed and any such required approval by the BankruptcyCourt of the transfer of the CC8 Assets has been obtained, the CC8 AlternativeConsideration is reduced to $70 million.

To fund the CC8 Alternative Consideration, PG&Ewill receive an allowed, unsecured claim against Mirant Delta that will receivea distribution of either $85 million or $70 million depending on the maximumCC8 Alternative Consideration at the time of such distribution. PG&E willliquidate any securities received as part of such distribution and place thenet resulting amount plus any cash received into an escrow account. To theextent that the net amount resulting from the liquidation of the securitiesreceived by PG&E plus any cash received by it is less than the CC8Alternative Consideration, the difference will be made up by PG&Ewithholding and paying into the escrow account amounts it owes to Mirant Deltaover a three month period under the power purchase agreement described below orby payments from Mirant Delta or Mirant Americas Generation. If the transfer ofthe CC8 Assets to PG&E does not occur on or before June 30, 2008, orif certain specified events occur prior to that date, such as the failure ofthe Mirant Settling Parties and PG&E to execute definitive agreements forthe transfer of the CC8 Assets or the CPUC fails to approve PG&E’sacquisition of the CC8 Assets, then the CC8 Alternative Consideration is to bepaid to PG&E and the Mirant Settling Parties will retain the CC8 Assets. IfPG&E closes on its acquisition of the CC8 Assets, the funds in the escrowaccount will be paid to Mirant Delta.

PG&E also has entered into two power purchase agreementswith Mirant Delta and Mirant Potrero that will allow PG&E to dispatch andpurchase the power output of all units of the generating plants owned by thoseentities that have been designated by the CAISO as RMR units under the RMRAgreements. The first agreement is for 2005 and will be effective regardless ofwhether the California Settlement becomes effective. The second agreement willbe for 2006 through 2012 and will become effective only if the CaliforniaSettlement becomes effective. If the California Settlement has not become 

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effective by January 1,2006 and has not been terminated, the first power purchase agreement will beextended through December 31, 2006 and the second agreement will start January 1,2007 if the settlement becomes effective.

Under the California Settlement, PG&E and MirantDelta also are to negotiate by April 30, 2005 an agreement (the “OptionAgreement”) under which PG&E would have separate options to purchase eachof Mirant Delta’s existing Contra Costa generating plant and its existingPittsburg generating plant, in both cases once no unit at the plant hasoperated for a certain period of years. The price at which each plant could bepurchased pursuant to the option would be equal to the amount of certaincapital costs not recovered by Mirant Delta under the terms of the RMRAgreement applicable to that plant at the time of the exercise of the option. IfMirant Delta and PG&E do not reach agreement on the Option Agreement by April 30,2005, or if PG&E cannot obtain CPUC approval of the Option Agreement or itsexercise of its rights thereunder, Mirant Delta and the other Mirant SettlingParties will have no further obligations to PG&E with respect to the OptionAgreement or the rights it was to provide to PG&E.

*Accounting Impact of CaliforniaSettlement**.  ***At December 31,2004, the Company had recorded receivables and related reserves associated withamounts due to Mirant Americas Energy Marketing from the CAISO and Cal PXrelated to the period from October 2000 to June 2001 and reservesrelated to refunds under the PMR Agreements in amounts that substantiallycorrespond to the claims and other consideration contemplated by the CaliforniaSettlement. At this time, the Company anticipates that the CaliforniaSettlement will ultimately result in a small net gain.

***Shareholder-Bondholder Litigation***

*Mirant Securities Consolidated Action.  *Twentylawsuits have been filed since May 2002 against Mirant and four of itsofficers alleging, among other things, that the defendants violated federalsecurities laws by making material misrepresentations and omissions to theinvesting public regarding Mirant’s business operations and future prospectsduring the period from January 19, 2001 through May 6, 2002 due topotential liabilities arising out of its activities in California during 2000and 2001. The complaints seek unspecified damages, including compensatorydamages, and the recovery of reasonable attorneys’ fees and costs. These suitshave been consolidated into a single action.

In November 2002, the plaintiffs filed an amendedcomplaint that added as defendants Southern, the directors of Mirantimmediately prior to its initial public offering of stock, and various firmsthat were underwriters for the initial public offering by the Company. Inaddition to the claims set out in the original complaint, the amended complaintasserts claims under the Securities Act of 1933, alleging that the registrationstatement and prospectus for the initial public offering of Mirant’s stockmisrepresented and omitted material facts. On July 14, 2003, the districtcourt dismissed the claims asserted by the plaintiffs based on the Company’sCalifornia business activities but allowed the case to proceed on theplaintiffs’ other claims. This action is stayed as to Mirant by the filing ofits Chapter 11 proceeding. On November 19, 2003, the Bankruptcy Courtentered an order staying this action also with respect to the other defendantsto avoid the suit’s impeding Mirant’s ability to reorganize or having anegative effect upon Mirant’s assets. The Bankruptcy Court has modified thestay to allow the plaintiffs to proceed with discovery of documentary materialsfrom Mirant and the other defendants. On December 11, 2003, the plaintiffsfiled a proof of claim against the estate of Mirant, which was subsequentlywithdrawn on or about October 10, 2004. Because of the stay applicable tothe litigation, Mirant has not yet been released as a defendant in theconsolidated lawsuits.

Under a master separation agreement between Mirant andSouthern, Southern is entitled to be indemnified by Mirant for any lossesarising out of any acts or omissions by Mirant and its subsidiaries in theconduct of the business of Mirant and its subsidiaries. The underwritingagreements between Mirant and the various firms added as defendants that wereunderwriters for the initial public offering by the 

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Company also provide forMirant to indemnify such firms against any losses arising out of any acts oromissions by Mirant and its subsidiaries.

*Shareholder Derivative Litigation.  *Fourpurported shareholders’ derivative suits have been filed against Mirant, itsdirectors and certain officers of the Company. Two of those suits have beenconsolidated. These lawsuits allege that the directors breached their fiduciaryduty by allowing the Company to engage in alleged unlawful or improperpractices in the California energy markets in 2000 and 2001. The Companypractices alleged in these lawsuits largely mirror those alleged with respectto the Company’s activities in California in the shareholder litigationdiscussed above. One suit also alleges that the defendant officers engaged ininsider trading. The complaints seek unspecified damages on behalf of theCompany, including attorneys’ fees, costs and expenses and punitive damages.These actions are stayed as to Mirant by the filing of its Chapter 11proceeding. The plaintiffs have not filed a claim in the Bankruptcy Courtagainst the Company. On November 19, 2003, the Bankruptcy Court entered anorder staying these actions also with respect to the individual defendants toavoid the suits impeding Mirant’s ability to reorganize or having a negativeeffect upon Mirant’s assets. On December 8, 2003, the court in theCichocki suit took notice of the Bankruptcy Court’s Order dated November 19,2003 staying the litigation and administratively closed the action.

*ERISA Litigation.  *On April 17,2003 and June 3, 2003, purported class action lawsuits alleging violationsof the Employee Retirement Income Security Act (“ERISA”) were filed in theUnited States District Court for the Northern District of Georgia (the “ERISALitigation”). The ERISA Litigation names as defendants Mirant Corporation,certain of its current and former officers and directors, and Southern. Theplaintiffs, who seek to represent a putative class of participants andbeneficiaries of Mirant’s 401(k) plans (the “Plans”), allege thatdefendants breached their duties under ERISA by, among other things, (1) concealinginformation from the Plans’ participants and beneficiaries; (2) failing toensure that the Plans’ assets were invested prudently; (3) failing tomonitor the Plans’ fiduciaries; and (4) failing to engage independentfiduciaries to make judgments about the Plans’ investments. The plaintiffs seekunspecified damages, injunctive relief, attorneys’ fees and costs. On September 2,2003, the District Court issued an order consolidating the two suits. On September 23,2003, the plaintiffs filed an amended and consolidated complaint. The amendedand consolidated complaint asserted similar factual allegations as thepreviously filed lawsuits and added as defendants T. Rowe Price Trust Companyand certain additional current and former officers of the Company. Theconsolidated action is stayed as to Mirant by the filing of its Chapter 11proceeding. On November 19, 2003, the Bankruptcy Court entered an orderstaying this action also with respect to the other defendants to avoid the suitimpeding the ability of Mirant to reorganize or having a negative effect uponMirant’s assets. By agreement, however, the suit has been allowed to proceedthrough the filing of, and ruling by the district court upon, motions todismiss. On January 9, 2004, T. Rowe Price Trust Company answered theamended and consolidated complaint. All other defendants filed motions on thatdate seeking dismissal of the plaintiffs’ claims for failure to state a claimupon which relief can be granted. On February 19, 2004, the plaintiffsdismissed their claims against Southern without prejudice. On June 14,2004, the plaintiffs filed a motion seeking to amend their consolidatedcomplaint to add as defendants Mirant Services, LLC and its board of managers.

On August 4, 2004, the United States DistrictCourt for the Northern District of Georgia entered an order staying the ERISALitigation until the Bankruptcy Court lifts the stays resulting from the filingof Mirant’s bankruptcy proceedings and the order entered by the BankruptcyCourt on November 19, 2003 staying the action with respect to the otherdefendants. In the order issued August 4, 2004, the district court alsodenied the motions to dismiss filed by various defendants, including Mirant,and the motion filed by the plaintiffs seeking to amend their consolidatedcomplaint to add as defendants Mirant Services, LLC and its board of managers.With respect to both motions, the district court granted the party filing themotion leave to refile the motion once the stays have been lifted by theBankruptcy Court.

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In December 2003,attorneys purporting to act on behalf of the plaintiffs in the ERISA Litigationfiled proofs of claim against the Mirant Debtors’ estates, totalingapproximately $50 million (the “Brown & Waller Claims”). On October 18,2004, the Mirant Debtors objected to the Brown & Waller Claims. Theparties recently announced to the Bankruptcy Court that they have settled theBrown & Waller Claims, subject to Bankruptcy Court approval. Under theproposed settlement agreement, the claimants agreed to limit their recoveryagainst the Mirant Debtors and any related defendants in the ERISA Litigationto the proceeds paid or payable under certain insurance policies issued toSouthern Company and Mirant. The Brown & Waller Claims in thebankruptcy proceedings will be amended to be for a zero dollar amount, and theparties agreed that the Brown & Waller claims will not be furtheramended.

*Mirant Americas GenerationBondholder Suit.  *On June 10, 2003, certain holdersof senior notes of Mirant Americas Generation maturing after 2006 filed acomplaint in the Court of Chancery of the State of Delaware*, CaliforniaPublic Employees’ Retirement System, et al. v. Mirant Corporation, et al.,*that named as defendants Mirant, Mirant Americas, Inc, Mirant AmericasGeneration, certain past and present Mirant directors, and certain past andpresent Mirant Americas Generation managers. Among other claims, the plaintiffsassert that a restructuring plan pursued by the Company prior to its filing apetition for reorganization under Chapter 11 of the Bankruptcy Code was inbreach of fiduciary duties allegedly owed to them by Mirant, Mirant Americas, Inc.and Mirant Americas Generation’s managers. In addition, plaintiffs challengecertain dividends and distributions made by Mirant Americas Generation.Plaintiffs seek damages in excess of one billion dollars. Mirant has removedthis suit to the United States District Court for the District of Delaware. Thisaction is stayed with respect to the Mirant entities that are defendants by thefiling of the Chapter 11 proceedings of these entities. On November 19,2003, the Bankruptcy Court entered an order staying this action also withrespect to the individual defendants to avoid the suit impeding the ability ofthe Mirant Debtors to reorganize or having a negative effect upon the assets ofthe Mirant Debtors. The committee representing unsecured creditors of MirantAmericas Generation filed a motion in Mirant’s bankruptcy proceedings seekingto pursue claims against Mirant, Mirant Americas, Inc. certain past andpresent Mirant directors, and certain past and present Mirant AmericasGeneration managers similar to those asserted in this suit. The BankruptcyCourt ruled that while the committee has standing to assert claims on behalf ofthe estate of Mirant Americas Generation, no such claims could be filed withoutthe Bankruptcy Court’s approval and no motions seeking such approval could befiled at least through April 2004. No such motion has been filed with theBankruptcy Court since April 2004, and the Bankruptcy Court has notauthorized any such litigation at this time.

*Mirant Americas GenerationSecurities Class Action.  *On June 11, 2003, apurported class action lawsuit alleging violations of Sections 11 and 15 of theSecurities Act of 1933 was filed in the Superior Court of Fulton County,Georgia entitled *Wisniak v. Mirant Americas Generation, LLC,et al*. The lawsuit names as defendants Mirant Americas Generationand certain current and former officers and managers of Mirant AmericasGeneration. The plaintiff seeks to represent a putative class of all personswho purchased debt securities of Mirant Americas Generation pursuant to ortraceable to an exchange offer completed by Mirant Americas Generation in May 2002in which $750 million of bonds registered under the Securities Act wereexchanged for $750 million of previously issued senior notes of MirantAmericas Generation. The plaintiff alleges, among other things, that MirantAmericas Generation’s restatement in April 2003 of prior financialstatements rendered the registration statement filed for the May 2002exchange offer materially false. The complaint seeks damages, interest andattorneys’ fees. The defendants have removed the suit to the United StatesDistrict Court for the Northern District of Georgia. This action is stayed asto Mirant Americas Generation by the filing of its Chapter 11 proceeding. On November 19, 2003,the Bankruptcy Court entered an order staying this action also with respect tothe individual defendants to avoid the suit impeding the ability of MirantAmericas Generation to reorganize or having a negative effect upon its assets.On December 8, 2003, the district court took notice of the BankruptcyCourt’s Order dated November 19, 2003 staying the litigation andadministratively closed the action. On December 16, 2003, the plaintiffdismissed Mirant Americas Generation as a defendant, 

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without prejudice,and filed a proof of claim against Mirant Americas Generation in the bankruptcyproceedings asserting the same claims set forth in the lawsuit.

Mirant Americas Generationand the plaintiff have entered into a stipulation of settlement of the Wisniaksuit and the claim filed against Mirant Americas Generation that was approvedby the Bankruptcy Court on January 19, 2005. Under the terms of thestipulation of settlement, the plaintiff will seek certification of a class bythe district court that will receive $2.25 million to be paid by insurers for MirantAmericas Generation, and an allowed, unsecured claim for $2 million againstMirant subordinated to the claims of its other unsecured creditors. Members ofthe plaintiff class will have the opportunity to opt out of the settlement, andif class members who choose to opt out own in the aggregate more than 1% of theMirant Americas Generation bonds that are the subject of the suit, then theMirant defendants have the option to withdraw from the settlement. Thestipulation of settlement must also be approved by the district court to becomeeffective.

***U.S. GovernmentInquiries***

*SEC Investigation:  *InAugust 2002, Mirant received a notice from the Division of Enforcement ofthe Securities and Exchange Commission (“SEC”) that it was conducting aninvestigation of Mirant. The Division of Enforcement has asked for informationand documents relating to various topics such as accounting issues (includingaccounting issues announced by Mirant on July 30, 2002 and August 14,2002), energy trading matters (including round trip trades), Mirant’saccounting for transactions involving special purpose entities, and informationrelated to shareholder litigation. In late June 2003, the Division ofEnforcement advised Mirant that its investigation of Mirant had become a formalinvestigation in February 2003. Mirant intends to continue to cooperatefully with the SEC.

*Department of JusticeInquiries:  *In 2002 the Company was contacted bythe DOJ regarding the Company’s disclosure of accounting issues, energy tradingmatters and allegations contained in the amended complaint discussed above inMirant Securities Consolidated Action that Mirant improperly destroyed certainelectronic records related to its activities in California. The Company hasbeen asked to provide copies of the same documents requested by the SEC intheir inquiry described above in SEC Investigation, and the Company intends tocontinue to cooperate fully with the DOJ. The DOJ has advised Mirant that itdoes not intend to take further action with respect to the allegations ofimproper destruction of electronic records.

In November 2002,Mirant received a subpoena from the DOJ, acting through the United StatesAttorney’s office for the Northern District of California, requestinginformation about its activities and those of its subsidiaries for the periodsince January 1, 1998. The subpoena requested information related to theCalifornia energy markets and other topics, including the reporting ofinaccurate information to the trade press that publish natural gas orelectricity spot price data. The subpoena was issued as part of a grand juryinvestigation. Mirant has continued to receive additional requests forinformation from the United States Attorney’s office, and it intends tocontinue to cooperate fully with the United States Attorney’s office in thisinvestigation.

*CFTC Inquiry:  *In 2002,the Commodity Futures Trading Commission (“CFTC”) asked Mirant Americas EnergyMarketing for information about certain buy and sell transactions occurringduring the period from January 1, 1999 through June 17, 2002. MirantAmericas Energy Marketing provided information regarding such trades to theCFTC, none of which it considers to be wash trades. In March 2003, MirantAmericas Energy Marketing received a subpoena from the CFTC requesting avariety of documents and information related to Mirant Americas EnergyMarketing’s trading of electricity and natural gas and its reporting oftransactional information to energy industry publications that prepare priceindices for electricity and natural gas in the period from January 1, 1999through the date of the subpoena. In December 2004, Mirant and MirantAmericas Energy Marketing entered into a settlement with the CFTC that resolvesthe CFTC’s inquiry into whether Mirant Americas Energy Marketing misrepresented

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natural gas tradinginformation in 2000 and 2001. Pursuant to the settlement, Mirant and MirantAmericas Energy Marketing consented to the entry of an order by the CTFC inwhich it makes findings, which are neither admitted or denied by Mirant andMirant Americas Energy Marketing, that (1) from January 2000 through December 2001,certain Mirant Americas Energy Marketing natural gas traders (i) knowinglyreported inaccurate price, volume, and/or counterparty information regardingnatural gas cash transactions to publishers of natural gas indices; and (ii) inaccuratelyreported to index publishers transactions observed in the market as MirantAmericas Energy Marketing transactions and (2) from January to October 2000,certain Mirant Americas Energy Marketing west region traders knowinglydelivered the false reports in an attempt to manipulate the price of naturalgas. Under the settlement, the CFTC received a subordinated allowed, unsecuredclaim against Mirant Americas Energy Marketing of $12.5 million in the Chapter11 proceedings.

*Department of LaborInquiries:  *On August 21, 2003, the Companyreceived a notice from the Department of Labor (the “DOL”) that it wascommencing an investigation pursuant to which it was undertaking to reviewvarious documents and records relating to the Mirant Services Employee SavingsPlan and the Mirant Services Bargaining Unit Employee Savings Plan. The DOL hasinterviewed Mirant personnel regarding those plans. The Company intends tocontinue to cooperate fully with the DOL.

***PEPCO Litigation***

In 2000, Mirant purchasedcertain power generating assets and certain other assets from PEPCO, includingcertain power purchase agreements (“PPAs”). Under the terms of the AssetPurchase and Sale Agreement (the “APSA”) Mirantand PEPCO entered into a contractual arrangement (the “Back-to-Back Agreement”)with respect to certain PPAs, including PEPCO’s long-term PPAs with Ohio EdisonCompany and Panda-Brandywine L.P. (“Panda”) under which (1) PEPCOagreed to resell to Mirant all “capacity, energy, ancillary services and otherbenefits” to which it is entitled under those agreements; and (2) Mirantagreed to pay PEPCO each month all amounts due from PEPCO to Panda or OhioEdison for the immediately preceding month associated with such capacity,energy, ancillary services and other benefits. The Panda and Ohio EdisonPPAs run until 2021 and 2005, respectively. Under the Back-to-Back Agreement,Mirant is obligated to purchase power from PEPCO at prices that aresignificantly higher than existing market prices for power.

*Back-to-Back Agreement Litigation.  *OnAugust 28, 2003, the Mirant Debtors filed a motion in the bankruptcyproceedings to reject the Back-to-Back Agreement (the “Rejection Motion”),along with an adversary proceeding to enjoin PEPCO and the FERC from takingcertain actions against the Mirant Debtors (the “Injunction Litigation”). On October 9,2003, the United States District Court for the Northern District of Texasentered an order that had the effect of transferring to that court from theBankruptcy Court the motion filed by the Mirant Debtors seeking to reject theBack-to-Back Agreement and the Injunction Litigation. In December 2003,the district court denied the Rejection Motion and, thereafter, dismissed theInjunction Litigation. The district court ruled that the Federal Power Act preemptsthe Bankruptcy Code and that a bankruptcy court cannot affect a matter withinthe FERC’s jurisdiction under the Federal Power Act, including the rejection ofa wholesale power purchase agreement regulated by the FERC.

The Mirant Debtorsappealed the district court’s orders to the United States Court of Appeals forthe Fifth Circuit (the “Fifth Circuit”). The Fifth Circuit reversed thedistrict court’s decision, holding that the Bankruptcy Code authorizes adistrict court (or bankruptcy court) to reject a contract for the sale ofelectricity that is subject to the FERC’s regulation under the Federal PowerAct as part of a bankruptcy proceeding and that the Federal Power Act does notpreempt that authority. The Fifth Circuit remanded the proceeding to thedistrict court for further action on that motion. The Fifth Circuit indicatedthat on remand the district court could consider applying a more rigorousstandard than the business judgment standard typically applicable to contractrejection decisions by debtors in bankruptcy, which more rigorous standardwould take into account the public interest in the transmission and sale ofelectricity.

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On December 9, 2004,the district court held that the Back-to-Back Agreement was a part of and notseverable from, and therefore could not be rejected apart from, the APSA. Thedistrict court also noted that if the Fifth Circuit overturned the districtcourt’s ruling with respect to severability, the Back-to-Back Agreement shouldbe rejected only if Mirant can prove that the Back-to-Back Agreement burdensthe bankrupt estates; that, after scrutiny and giving significant weight to thecomments of the FERC relative to the effect of rejection on the publicinterest, the equities balance in favor of rejecting the Back-to-BackAgreement; and that rejection of the Back-to-Back Agreement would further theChapter 11 goal of permitting the successful rehabilitation of the MirantDebtors. The Mirant Debtors have appealed the district court’s December 9,2004, decision to the Fifth Circuit and requested that the Fifth Circuit hearthis appeal on an expedited basis. On March 8, 2005, the Fifth Circuit denied Mirant’srequest to have the appeal expedited.

On January 21, 2005,the Mirant Debtors filed a motion in the bankruptcy proceedings to reject theAPSA, including the Back-to-Back Agreement but not including other agreementsentered into between Mirant and its subsidiaries and PEPCO under the terms ofthe APSA (the “Second Rejection Motion”). On February 10, 2005, PEPCOfiled a motion requesting the district court to assert jurisdiction over and rule uponthe Second Rejection Motion rather than having the Bankruptcy Court rule onthat motion, arguing that the motion required the consideration of laws otherthan the Bankruptcy Code. On March 1, 2005, the district court ruledthat it would withdraw the reference to the Bankruptcy Court of the MirantDebtors’ January 21, 2005 motion seeking to reject the APSA and woulditself hear that motion. 

*Suspension of PEPCO Back-to-BackPayments.  *On December 9, 2004, in an effort tohalt excessive out-of-market payments under the Back-to-Back Agreement whileawaiting resolution of issues related to the potential rejection of theBack-to-Back Agreement (but prior to notice of entry of the district court’sorder of December 9, 2004), Mirant filed a notice in the Bankruptcy Courtthat Mirant was suspending further payments to PEPCO under the Back-to-BackAgreement absent further order of the court (the “Suspension Notice”). On December 10,2004, in response to the Suspension Notice, PEPCO filed a motion in thedistrict court seeking a temporary restraining order and injunctive relief torequire Mirant to perform under the Back-to-Back Agreement (the “InjunctiveRelief Motion”). On December 13, 2004, the district court issued an orderreferring the Injunctive Relief Motion to the Bankruptcy Court. On December 21,2004, the Bankruptcy Court issued an order denying the temporary restrainingorder sought by PEPCO.

On December 14, 2004,PEPCO filed the following additional litigation: (i) a motion seekingrelief from the automatic stay provision of Bankruptcy Code section 362(a) topermit PEPCO to terminate performance under the APSA (the “Lift Stay Motion”); (ii) amotion to compel the Mirant Debtors to pay, as administrative expenses,payments that had been suspended under the Back-to-Back Agreement (the “AdministrativeExpense Motion”); and (iii) an adversary proceeding seeking to compel theMirant Debtors to make payments under the Back-to-Back Agreement (the “PEPCOLawsuit”). On December 16, 2004, PEPCO filed a motion requesting thedistrict court to withdraw the reference to the Bankruptcy Court with respectto the litigation filed by PEPCO on December 14, 2004, as well as theInjunctive Relief Motion (the “Second Withdrawal Motion”). On January 4,2005, the district court denied the Second Withdrawal Motion in its entirety.On January 19, 2005, the Bankruptcy Court entered an order embodying aruling made orally by the Court on January 14, 2005, in which it deniedthe Lift Stay Motion and the Administrative Expense Motion, but required theMirant Debtors to pay amounts due under the Back-to-Back Agreement in January 2005and thereafter until (i) the Mirant Debtors filed a motion to reject the APSA,(ii) the Fifth Circuit issued an order reversing the district court’s order ofDecember 9, 2004 denying the motion to reject the Back-to-Back Agreement, or(iii) the Mirant Debtors were successful in having the obligations under theBack-to-Back Agreement recharacterized as debt obligations. PEPCO filed anappeal of the Bankruptcy Court’s January 19 order. On March 1, 2005,the district court ordered the Mirant Debtors to pay PEPCO all past-due, unpaidobligations under the Back-to-Back Agreement by March 10, 2005, withdrewthe reference to the Bankruptcy Court of the 

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AdministrativeExpense Motion, and dismissed PEPCO’s appeal of the January 19 orderdenying the Administrative Expense Motion as moot. The Mirant Debtors on March 4,2005 filed a motion requesting the district court to reconsider its order of March 1,2004 or alternatively to stay that order while the Mirant Debtors appeal it tothe Fifth Circuit. On March 7, 2005, the district court modified the March 1order to require PEPCO to file a response to the Mirant Debtors’ motion forreconsideration by March 14 and to delay until March 18, 2005, thedate by which the Mirant Debtors are to pay past-due, unpaid obligations underthe Back-to-Back Agreement.

*Potential Adjustment Related toPanda Power Purchase Agreement.  *At the time of theacquisition of the Mirant Mid-Atlantic assets from PEPCO, Mirant also enteredinto an agreement with PEPCO that, as subsequently modified, provided that theprice paid by Mirant for its December 2000 acquisition of PEPCO assetswould be adjusted if by March 19, 2005 a binding court order has beenentered finding that the Back-to-Back Agreement violates PEPCO’s power purchaseagreement with Panda (“Panda PPA”) as a prohibited assignment, transfer ordelegation of the Panda PPA or because it effects a prohibited delegation ortransfer of rights, duties or obligations under the Panda PPA that is notseverable from the rest of the Back-to-Back Agreement. If a court order isentered that triggers the purchase price adjustment, the amount of theadjustment is to be negotiated in good faith by the parties or determined bybinding arbitration so as to compensate PEPCO for the termination of thebenefit of the Back-to-Back Agreement while also holding Mirant economicallyindifferent from such court order. Panda initiated legal proceedings in 2000asserting that the Back-to-Back Agreement violated provisions in the Panda PPAprohibiting PEPCO from assigning the Panda PPA or delegating its duties underthe Panda PPA to a third party without Panda’s prior written consent. On June 10,2003, the Maryland Court of Appeals, Maryland’s highest court, ruled that theassignment of certain rights and delegation of certain duties by PEPCO toMirant did violate the non-assignment provision of the Panda PPA and wasunenforceable. The court, however, left open the issues whether the provisionsfound to violate the Panda PPA could be severed and the rest of theBack-to-Back Agreement enforced and whether Panda’s refusal to consent to theassignment of the Panda PPA by PEPCO to Mirant was unreasonable and violatedthe Panda PPA. If the June 10, 2003 decision by the Maryland Court ofAppeals or a subsequent decision addressing the Back-to-BackAgreement is determined to have triggered the adjustment to the purchase pricepaid by Mirant to PEPCO, such adjustment would not be expected to have amaterial adverse effect on the Company’s financial position or results ofoperations.

***Enron BankruptcyProceedings***

Since December 2,2001, Enron and a number of its subsidiaries have filed for bankruptcy. As of December 31,2004, the total amount owed to Mirant by Enron was approximately$69 million. Mirant has filed formal claims in the Enron bankruptcyproceedings. Mirant has recorded an allowance for potential bad debts of$64 million as of December 31, 2004. Due to the approval of Enron’splan of reorganization in the third quarter of 2004 and the status of theCompany’s claims against Enron, the Company reduced its allowance by $10million in the third quarter of 2004. This amount is reflected as a reductionof operations and maintenance expense in the consolidated statements ofoperations for the year ended December 31, 2004.

***EcoElectricaLitigation***

In March 2002, twosubsidiaries of Edison International (collectively “EME”) filed suit allegingMirant breached its agreement to purchase EME’s 50% interest in EcoElectricaHoldings Ltd., the owner of a 540 MW cogeneration facility in Puerto Rico.On April 29, 2003, EME amended its complaint to assert additional claimsfor fraudulent misrepresentation and concealment, conspiracy to defraud, andnegligent misrepresentation. EME seeks compensatory damages in excess of$50 million, punitive and exemplary damages of an unspecified amount,interest and attorneys’ fees. EME has filed proofs of claim in the bankruptcyproceedings against Mirant and certain of its subsidiaries seeking damagesbased on the 

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sameallegations. Mirant has entered into a settlement in principle with EME thatwill result in EME receiving an allowed, unsecured claim against Mirant for $7million. That settlement is currently being documented and is subject to theapproval of the Bankruptcy Court.

At the same time Mirantand its subsidiaries entered into the contract with EME, they entered into aseparate agreement with a subsidiary of Enron Corporation (“Enron”) to purchasean additional 47.5% ownership interest in EcoElectrica. That purchase also wasnot completed, and the Enron subsidiary has filed claims against Mirant in itsChapter 11 proceeding asserting damages for breach of the purchase agreementwith Enron. Mirant has entered into a settlement in principle with Enron thatwill result in Enron receiving an allowed, unsecured claim against Mirant for$12.25 million. That settlement is currently being documented and is subject tothe approval of the Bankruptcy Court and of the United States Bankruptcy Courtfor the Southern District of New York, before which Enron’s bankruptcyproceedings are pending.

***EnvironmentalLiabilities***

*EPA Information Request.  *InJanuary 2001, the Environmental Protection Agency (the “EPA”) issued arequest for information to Mirant concerning the air permitting and airemission control implications under the EPA’s new source review regulationspromulgated under the Clean Air Act (“NSR”) of past repair and maintenanceactivities at Mirant Potomac River, LLC’s Potomac River plant in Virginia andMirant Americas Generation’s Chalk Point, Dickerson and Morgantown plants inMaryland. The requested information concerns the period of operations thatpredates the Company’s ownership and lease of the plants. Mirant has respondedfully to this request. Under the sales agreement with PEPCO for those plants,PEPCO is responsible for fines and penalties arising from any violationassociated with historical operations prior to Mirant’s acquisition of theplants. If a violation is determined to have occurred at any of the plants, theMirant entity owning the plant may be responsible for the cost of purchasingand installing emission control equipment, the cost of which may be material.If such violation is determined to have occurred after Mirant acquired theplants or, if occurring prior to the acquisition, is determined to constitute acontinuing violation, the Mirant entity owning the plant at issue would also besubject to fines and penalties by the state or federal government for theperiod subsequent to its acquisition of the plant, the cost of which may bematerial.

*Potomac River Notice of Violation.  *OnSeptember 10, 2003, the Virginia Department of Environmental Quality (“Virginia DEQ”) issued a Notice of Violation (“NOV”) to Mirant Potomac River,LLC (“Mirant Potomac”) alleging that it violated its Virginia Stationary SourcePermit to Operate by emitting nitrogen oxide (“NOx”) in excess of the “cap”established by the permit for the 2003 summer ozone season. Mirant Potomacresponded to the NOV, asserting that the cap is unenforceable and that it cancomply through the purchase of emissions credits and raising other equitabledefenses. Virginia’s civil enforcement statute provides for injunctive reliefand penalties. On January 22, 2004, the EPA issued an NOV to MirantPotomac alleging the same violation of its Virginia Stationary Source Permit toOperate as set out in the NOV issued by the Virginia DEQ. On September 27,2004, Mirant Potomac, Mirant Mid-Atlantic, the Virginia DEQ, the MarylandDepartment of the Environment, the DOJ and the EPA entered into, and filed forapproval with the United States District Court for the Eastern District ofVirginia, a consent decree that, if approved, will resolve Mirant Potomac’spotential liability for matters addressed in the NOVs previously issued by theVirginia DEQ and the EPA. The consent decree requires Mirant Potomac and MirantMid-Atlantic to install pollution control equipment at Mirant Potomac’s PotomacRiver plant and at the Morgantown plant leased by Mirant Mid-Atlantic inMaryland; to comply with declining system-wide ozone season NOx emissions capsfrom 2004 through 2010; to comply with system-wide annual NOx emissions capsstarting in 2004; to meet seasonal system average emissions rate targets in2008; and to pay civil penalties and perform supplemental environmentalprojects in and around the Potomac River plant expected to achieve additionalenvironmental benefits. Except for the installation of the controls planned forthe Potomac River units and the installation of selective catalytic reduction 

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(“SCR”) orequivalent technology at Mirant Mid-Atlantic’s Morgantown Units 1 and 2 in 2007and 2008, the consent decree does not obligate the Mirant entities to installspecifically designated technology, but rather to reduce emissions sufficientlyto meet the various NOx caps. Moreover, as to the required installations ofSCRs at Morgantown, Mirant Mid-Atlantic may choose not to install thetechnology by the applicable deadlines and leave the units off eitherpermanently or until such time as the SCRs are installed. The aggregate amountof the civil penalties to be paid and costs to be incurred by Mirant Potomacfor the supplemental environmental projects is $1.5 million. The consent decreeis subject to the approval of the district court and the Bankruptcy Court.

*Mirant Potomac Downwash Study.  *OnSeptember 23, 2004, the Virginia DEQ and Mirant Potomac entered into anorder by consent with respect to the Potomac River plant under which MirantPotomac agrees to perform a modeling analysis to assess the effect of “downwash”from the plant (1) on ambient concentrations of sulfur dioxide (“SO2”), nitrogendioxide (“NO2”), carbon monoxide (“CO”) and particulate matter less than orequal to 10 micrometers (“PM10”) for comparison to the applicable nationalambient air quality standards (“NAAQS”) and (2) on ambient concentrationsof mercury for comparison to Virginia Standards of Performance for ToxicPollutants. Downwash is the effect that occurs when aerodynamic turbulenceinduced by nearby structures causes pollutants from an elevated source, such asa smokestack, to be mixed rapidly toward the ground resulting in higher groundlevel concentrations of pollutants. If the modeling analysis indicates thatemissions from the facility may cause exceedances of the NAAQS for SO2, NO2, COor PM10, or exceedances of mercury compared to Virginia Standards of Performancefor Toxic Pollutants, the consent order requires Mirant Potomac to submit tothe Virginia DEQ a plan and schedule to eliminate and prevent such exceedanceson a timely basis. Upon approval by the Virginia DEQ of the plan and schedule,the approved plan and schedule is to be incorporated by reference into theconsent order. The financial and operational implications of the results of thedownwash study are not known at this time. However, to the extent that thedownwash study indicates that emissions from the Potomac River plant exceedeither the NAAQS or the Virginia Standards of Performance for Toxic Pollutants,the remedial actions required could include material modifications to the plantor to its operation.

*Mirant NY-Gen Pipeline Leak.  *MirantNY-Gen, LLC discovered a leaking underground pipeline at the Hillburngenerating facility in Ramapo, New York. The underground line was used forsupplying kerosene fuel to the gas turbines located on site. After testing in December 2003revealed a potential leak, the line was removed from service and plans wereundertaken to excavate and sample portions of the line to determine the extentof the line damage and the possible soil contamination. In the summer of 2004soil contamination was discovered and a subsequent testing of portions of theline revealed a small hole. Currently, investigations are continuing todetermine the extent of contamination and possible remedial activities to cleanup the area. Due to the ongoing evaluation to determine the extent of thecontamination, the cost of remediation is unknown at this time.

*New York Opacity.  *OnOctober 20, 2004, the New York State Department of Environmental AffairsRegion 3 Staff filed a complaint against Mirant Bowline, Mirant Lovett andMirant New York with the New York Department of Environmental Conservation. Thecomplaint alleges that the generating facilities owned by Mirant Bowline andMirant Lovett violated Article 19 of New York’s Environmental ConservationLaw and regulations promulgated pursuant to that law by violating opacitystandards set for smoke emissions on more than one hundred occasions betweenthe second quarter of 2002 and the first quarter of 2004. The complaint seeks acease and desist order and fines of $1.96 million against the Mirantdefendants.

***New York TaxProceedings***

Mirant Americas Generation’ssubsidiaries that own generating plants in New York are or were (in the settledproceedings discussed below) the petitioners in forty-one proceedings (“TaxCertiorari Proceedings”) initially brought in various New York state courtschallenging the assessed value of those 

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generatingplants determined by their respective local taxing authorities. Mirant Bowlinehas challenged the assessed value of the Bowline generating facility and theresulting local tax assessments paid for tax years 1995 through 2003. MirantBowline succeeded to rights held by Orange & Rockland Utilities, Inc.for the tax years prior to its acquisition of the Bowline Plant in 1999 underits agreement with Orange & Rockland for the purchase of that plant.Mirant Lovett has initiated proceedings challenging the assessed value of theLovett facility for each of the years 2000 through 2003. Mirant NY-Gen, LLC (“MirantNY-Gen” and collectively with Mirant Bowline and Mirant Lovett, the “NewYork Debtors”) has settled its tax certiorari proceedings with respect to thecombustion turbine and hydroelectric facilities it owns for each of the years2000 through 2003. If the remaining Tax Certiorari Proceedings result in areduction of the assessed value of the generating facility at issue in eachproceeding, the New York Debtor owning the facility would be entitled to arefund with interest of any excess taxes paid for those tax years.

On September 30,2003, the Mirant Debtors filed a motion (the “Tax Determination Motion”) withthe Bankruptcy Court requesting that it determine what the property taxliability should have been for the Bowline generating facility in each of theyears 1995 through 2003, for the Lovett generating facility in each of theyears 2000 through 2003, for generating facilities owned by Mirant NY-Gen ineach of the years 2000 through 2003. The bases for the relief requested in theTax Determination Motion on behalf of each of the New York Debtors were thatthe assessed values of generating facilities located in New York made by therelevant taxing authorities had no justifiable basis and were far in excess oftheir actual value. The local taxing authorities have opposed the TaxDetermination Motion, arguing that the Bankruptcy Court either lacksjurisdiction over the matters addressed by the Tax Determination Motion orshould abstain from addressing those issues so that they can be addressed bythe state courts in which the Tax Certiorari Proceedings described in thepreceding paragraph were originally filed.

Collectively, the New YorkDebtors have not paid approximately $62 million assessed by local taxingauthorities on the Bowline and Lovett generating facilities for 2003, whichfell due on September 30, 2003 and January 30, 2004, andapproximately $53 million assessed by local taxing authorities on thegenerating facilities for 2004 that fell due on September 30, 2004 and January 30,2005, in order to preserve their respective rights to offset the overpaymentsof taxes made in earlier years against the sums payable on account of currenttaxes. The failure to pay the taxes due on September 30, 2003, January 30,2004, September 30, 2004 and January 30, 2005 could subject Mirant Bowlineand Mirant Lovett to additional penalties and interest.

Over the past year, all ofthe tax certiorari proceedings related to the generating facilities owned byMirant NY-Gen have been resolved on terms favorable to the New York Debtors,but the tax certiorari proceedings related to the Bowline and Lovett generatingfacilities remain unresolved.

***Utility Choice Suit***

On February 18, 2005,two providers of electricity at retail in Texas, Utility Choice, L.P. and CirroGroup, Inc., filed a suit in the United States District Court for theSouthern District of Texas, entitled Utility Choice, L.P., et al. v. TXU Corp.,et al., against numerous owners of generating facilities and power marketers inTexas, including Mirant Americas Energy Marketing, Mirant Americas Development, Inc.,and two subsidiaries of Mirant Americas Generation owning generating facilitiesin Texas. The plaintiffs allege that the defendants, including the Mirantdefendants, acting individually and in collusion with each other, engaged invarious types of unlawful manipulation of the short term and bilateralwholesale power markets in the Electric Reliability Council of Texas regionbeginning in 2001 and continuing to the period immediately prior to the filingof the suit that caused the plaintiffs to pay significantly higher prices forpower they purchased and to incur other significant costs. The types of conductthat the plaintiffs allege were engaged in by the defendants, including theMirant defendants, include submitting false schedules and bids, “hockey stick”bidding, withholding generation resources from the market and biddinggeneration resources at artificially high prices, in each case with the intentto create artificially high market 

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prices.The complaint asserts various causes of action, including without limitationclaims under the federal and Texas antitrust acts and the federal RacketeerInfluenced and Corrupt Organizations (RICO) Act, as well as state law claimsfor fraud, negligent misrepresentation, and promissory estoppel. The plaintiffsseek lost profits and other compensatory damages of an unspecified amount,treble damages, exemplary damages and attorneys’ fees.

***City of AlexandriaZoning Action***

On December 18, 2004,the City Council for the City of Alexandria, Virginia (the “City Council”)adopted certain zoning ordinance amendments recommended by the City PlanningCommission that result in the zoning status of Mirant Potomac’s generatingplant being changed from “noncomplying use” to “nonconforming use subject toabatement.” Under the nonconforming use status, unless Mirant Potomac appliesfor and is granted a special use permit for the plant during the seven-yearabatement period, the operation of the plant must be terminated within aseven-year period, and no alterations that directly prolong the life of theplant will be permitted during the seven-year period. Typically, the City Councilgrants special use permits with various conditions and stipulations as to thepermitted use.

At its December 18,2004, meeting, the City Council also approved revocation of two special usepermits issued in 1989 (the “1989 SUPs”), one applicable to the administrativeoffice space at Mirant Potomac’s plant and the other for the plant’stransportation management plan. Under the terms of the approved action, therevocation of the 1989 SUPs will take effect 120 days after the City Councilrevocation, provided, however, that if Mirant Potomac files an application fora special use permit for the entire plant operations within such 120-dayperiod, the effective date of the revocation of the 1989 SUPs will be stayeduntil final decision by the City Council on such applications. The approvedaction further provides that if such special use permit application is approvedby the City Council, revocation of the 1989 SUPs will be dismissed as moot, andif the City Council does not approve the application, the revocation of the1989 SUPs will become effective and the plant will be considered an illegaluse.

On January 18, 2005,Mirant Potomac and Mirant Mid-Atlantic filed a complaint against the City ofAlexandria and the City Council in the Circuit Court for the City of Alexandria.The complaint seeks to overturn the actions taken by the City Council on December 18,2004 changing the zoning status of Mirant Potomac’s generating plant andapproving revocation of the 1989 SUPs, on the grounds that those actions violatedfederal, state and city laws. The complaint asserts, among other things, thatthe actions taken by the City Council constituted unlawful spot zoning, werearbitrary and capricious, constituted an unlawful attempt by the City Councilto regulate emissions from the plant, and violated Mirant Potomac’s due processrights. Mirant Potomac and Mirant Mid-Atlantic request the court to enjoin theCity of Alexandria and the City Council from taking any enforcement actionagainst Mirant Potomac or from requiring it to obtain a special use permit forthe continued operation of its generating plant.

***Other Legal Matters***

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

***Tax Matters***

The Company has contingentliabilities relating to taxes arising in the ordinary course of business. TheCompany periodically assesses its contingent liabilities in connection withthese matters based upon the latest information available. For those matterswhere it is probable that a loss has been incurred and the loss or range ofloss can be reasonably estimated, a liability is recorded on the consolidatedfinancial statements. As additional information becomes available, theassessment and estimates of such liabilities are adjusted accordingly.

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**16.   Commitments and Contingencies**

Mirant has made firmcommitments to buy materials and services in connection with its ongoingoperations and has made financial guaranteesrelative to some of its investments.

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

In order to sell power and purchase fuel in theforward markets and perform other energy trading and marketing activities, theCompany often is required to provide trade credit support to its counterpartiesor make deposits with brokers. In addition, the Company often is required toprovide trade credit support for access to the transmission grid, toparticipate in power pools, to fund debt service reserves and for otheroperating activities. Trade credit support includes cash collateral, letters ofcredit and financial guarantees. In the event of default by the Company, thecounterparty can draw on a letter of credit or apply cash collateral held tosatisfy the existing amounts outstanding under an open contract. The Company’soutstanding issued letters of credit totaled $242 million as of December 31,2004, of which $205 million were issued under pre-petition creditfacilities and the remaining $37 million were issued under the DIPFacility. Upon their expiration in 2005, these letters of credit may be renewedor replaced with another form of credit support to the counterparty, ifrequired, or under certain circumstances, the letters of credit could bepartially or fully drawn upon by the counterparty.

Followingis a summary of cash collateral posted with counterparties and brokers andletters of credit issued as of December 31, 2004 and 2003 (in millions):
| ** **                                                | ** ** | **As of December 31,**                    | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                | ** ** | **    2004    ** | ** ** | **     2003     ** | ** ** |
| Cash collateral  posted—energy trading and marketing |       |                                                     | $          | 392 |   |   |   | $ | 347 |   |   |
| Cash collateral  posted—debt service reserve         |       |                                                     | 210        |   |   |   | 54 |   |   |
| Cash collateral  posted—other operating activities   |       |                                                     | 63         |   |   |   | 5 |   |   |
| Letters of  credit—energy trading and marketing(1)   |       |                                                     | 160        |   |   |   | 270 |   |   |
| Letters of  credit—debt service reserve(1)           |       |                                                     | 74         |   |   |   | 234 |   |   |
| Letters of  credit—other operating activities(1)     |       |                                                     | 8          |   |   |   | 97 |   |   |
| Total                                                     |       |                                                     | $          | 907 |   |   |   | $ | 1,007 |   |   |

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(1)          The amounts above represent letters of creditissued under Mirant Corporation credit facilities. There are additional lettersof credit issued under local credit facilities at some of our internationalsubsidiaries that are not included in the amounts above.

***Contractual Obligations***

As of December 31,2004, Mirant has the following annual commitments under various agreements (inmillions):
| **Fiscal Year Ended:**          | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Long-term  service agreements             |       | 26         |       | 32       |       | 36       |       | 46       |       | 44       |       |     | 426        |           |       | 610       |       |
| Fuel and  transportation commitments      |       | 335        |       | 252      |       | 111      |       | 4        |       | 4        |       |     | 35         |           |       | 741       |       |
| Operating leases                          |       | 147        |       | 145      |       | 144      |       | 150      |       | 166      |       |     | 2,029      |           |       | 2,781     |       |
| Power purchase  agreements (Note 17) |       | 211        |       | 52       |       | 52       |       | 52       |       | 52       |       |     | 625        |           |       | 1,044     |       |
| Total minimum  payments                   |       | $          | 719        |     | $          | 481      |       | $        | 343        |     | $          | 252      |       | $              | 266        |      |       | $ | 3,115 |   |   | $ | 5,176 |   |
|                                           |            |            |            |          |            |          |            |          |            |          |            |          |            |                |            |           |            |  |  |  |  |  |  |  |  |  |

 

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Mirant is in the processof evaluating all of the Mirant Debtors executory contracts in order todetermine which contracts will be assumed, assumed and assigned, or rejected.Once the evaluation is complete with respect to each particular contract, theCompany expects to file an appropriate motion with the Bankruptcy Court seekingapproval to assume or reject the contract. The court will then determine togrant or deny such motions. See Note 3 for a discussion of Mirant’srejected contracts.

*Long-Term ServiceAgreements*

As of December 31, 2004, the total estimatedcommitments for long-term service agreements (“LTSAs”) associated with turbinesinstalled or in storage were approximately $610 million. These commitments arepayable over the terms of the respective agreements, which range from ten totwenty years. These agreements have terms that allow for cancellation of thecontract by the Company upon the occurrence of several major events during theterm of the contracts. Estimates for future commitments for the LTSAs are basedon the stated payment terms in the contracts at the time of execution. Thesepayments are subject to an annual inflationary adjustment. If the Company wereto cancel these contracts due to the aforementioned major events, the estimatedcommitments for the remaining LTSAs would be reduced.

As part of the Chapter 11 process, Mirant rejected itsLTSAs and entered into new agreements on June 16, 2004 related to certainof its combustion turbine generation facilities. The new agreements providemore favorable terms, including reduced pricing and increased flexibility tomodify terms based upon market conditions. Under the terms of the previousLTSAs, Mirant had prepaid future maintenance services at certain generatingfacilities. The Company recognized a $33 million charge in reorganizationitems, net in the consolidated statement of operations for the year ended December 31,2004 as a result of forfeited prepayments and impairments of certain purchasedintangible assets related to the previous LTSAs.

Also as part of theChapter 11 process, Mirant rejected its LTSA associated with the Wrightsvillegeneration facility on September 30, 2004. The Company recognized a $3million charge in reorganization items, net for the year ended December 31,2004 for forfeited prepayments and the expected cost of settling the vendor’sclaim as a result of the contract rejection.

*Fuel andTransportation Commitments*

In April 2002, Mirant Mid-Atlantic entered into along-term fuel purchase agreement. The fuel supplier converts coal feedstockreceived at the Company’s Morgantown facility into a synthetic fuel. Under theterms of the agreement, Mirant Mid-Atlantic is required to purchase a minimumof 2.4 million tons of fuel per annum through December 2007. Minimumpurchase commitments became effective upon the commencement of the syntheticfuel plant operation at the Morgantown facility in July 2002. The purchaseprice of the fuel varies with the delivered cost of the coal feedstock. Basedon current coal prices, it is expected that as of December 31, 2004, totalestimated minimum commitments under this agreement were $320 million.

In addition to the coalcommitment described above, Mirant has approximately $326 million inpurchase commitments related to an arrangement between Mirant Americas EnergyMarketing and the synthetic fuel supplier whereby the synthetic fuel supplieris required to purchase coal directly from the coal supplier. Mirant AmericasEnergy Marketing’s minimum coal purchase commitments are reduced to the extentthat the synthetic fuel supplier purchases coal under this arrangement.. As of December 31,2004, Mirant has approximately $95 million in purchase commitments under fuelpurchase and transportation agreements, which are in effect through 2029.

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*Operating Leases*

Mirant Mid-Atlantic leases the Morgantown andDickerson baseload units and associated property through 2034 and 2029,respectively. As of December 31, 2004, the total notional minimum leasepayments for the remaining life of the leases was approximately $2.5 billion.Rent expenses associated with the Morgantown and Dickerson operating leasestotaled approximately $103 and $96 million for the years ended December 31,2004 and 2003, respectively. Mirant Mid-Atlantic remitted all required leasepayments through December 31, 2004.

These leases are part of a leveraged leasetransaction. Three series of certificates were issued and sold pursuant to a Rule 144Aoffering and, subsequently, exchanged for certificates issued pursuant to anexchange offer registered under the Securities Act of 1933 (the “Securities Act”).These certificates are interests in pass through trusts that hold the lessornotes issued by the owner lessors. Mirant Mid-Atlantic pays rent to anindenture trustee, who in turn makes payments of principal and interest to thepass through trusts and remits remaining balances to the lessors for thebenefit of the owner participants. As of August 27, 2003, MirantMid-Atlantic had less than 300 holders of record. Therefore, MirantMid-Atlantic notified the SEC that it would no longer be a voluntary reportingentity under the Securities Act of 1934 (the “Exchange Act”). Under the termsof the leases, Mirant Mid-Atlantic is required to amend the rent schedule tothe leases to reflect an increase in rental payments commensurate with the 0.5%increase in interest on the lessor notes that is payable by the lessors so longas Mirant Mid-Atlantic is not a reporting entity under the Exchange Act. On September 15,2004, the Bankruptcy Court granted a motion filed by the respective landlordsfor the leased assets seeking to compel Mirant Mid-Atlantic to pay theincremental rent. On September 25, 2004, the Debtors filed a motion forrehearing with respect to the order compelling Mirant Mid-Atlantic to pay theincremental rent, which was denied on October 28, 2004. MirantMid-Atlantic appealed that decision of the Bankruptcy Court on November 5,2004.  No hearing on the appeal has beenscheduled with the District Court at this time. If Mirant Mid-Atlantic were tocontinue its status as not being a voluntary reporting entity under theExchange Act for the remainder of the terms of the leveraged leases, theadditional rent expense would be approximately $54 million over theremaining terms of the leases as of December 31, 2004. As a result of theBankruptcy Court’s granting the motion compelling Mirant Mid-Atlantic to paythe incremental rent, Mirant Mid-Atlantic recognized additional operations andmaintenance expense of approximately $7 million for year ended December 31,2004 in the consolidated statements of operations.

On August 31, 2004, Mirant Mid-Atlantic andcertain other Debtors filed a complaint with the Bankruptcy Court commencing anadversary proceeding seeking to recharacterize its obligations under itsleveraged lease financing as indebtedness, and seeking other declaratory reliefrelating to the impact of the leases on Mirant Mid-Atlantic if the leases arenot recharacterized. Resolution of those additional issues raised in thecomplaint are necessary to the decision whether to assume or reject the leasesif the leases are determined to be “true leases” rather than a financingarrangement. In the event the Bankruptcy Court recharacterizes the leases asindebtedness, the treatment of the resulting indebtedness would be addressed ina proposed Plan of reorganization of Mirant Mid-Atlantic. Thisrecharacterization may require the Company to re-evaluate the accounting forthe leases and record the indebtedness as a pre-petition liability on theCompany’s consolidated balance sheets. The Company then also would record theleased assets in property, plant and equipment. In the event the leases arefound to be true leases and it is determined that the leases should be assumedor should be assumed and assigned, Mirant Mid-Atlantic would require BankruptcyCourt approval to do so and, subject to certain exceptions set forth in theBankruptcy Code would need to cure certain of the existing defaults under theleases (unless such defaults are duly waived by the requisite owner lessors andcertificate holders). If Mirant Mid-Atlantic cannot assume the leases or  if, subject to Bankruptcy Court approval,Mirant Mid-Atlantic determines in its business judgment that the leases shouldbe rejected, the owner lessors would be entitled to a return of the leasedassets and a claim for damages, if any, arising from such rejection, subject tothe limitation on allowed claims under 

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Section 502(b)(6) ofthe Bankruptcy Code applicable to leases of real property. Any claims arisingon account of rejection would be subject to compromise in Mirant Mid-Atlantic’sChapter 11 case. The impact of any of these events would be reflected in Mirant’sfinancial statements if and when the events occur.

On October 22, 2004 the owner lessors and theindenture trustee for the certificate holders each filed separate motions todismiss the entire Chapter 11 case of Mirant Mid-Atlantic, alleging that MirantMid-Atlantic is solvent and that the Chapter 11 filing with respect toMirant Mid-Atlantic was in “bad faith.” The motions were denied following ahearing on January 6, 2005. The owner lessors and indenture trustee forthe certificate holders have sought leave to appeal that decision. In theunlikely event that the owner lessors and the indenture trustee are successfulon appeal, then the Chapter 11 case of Mirant Mid-Atlantic would be dismissedas would be the complaint filed by Mirant Mid-Atlantic on August 31, 2004(as subsequently amended) and it would be unlikely that Mirant Mid-Atlanticcould recharacterize the leveraged lease transaction as a financing, or rejectthe leases and receive the benefit of the cap on damages in Section 502(b)(6) ofthe Bankruptcy Code.

In a second set of motions filed on October 25,2004, the owner lessors and the indenture trustee for the certificate holderseach moved to dismiss all the claims for relief contained in  the complaint filed on August 31, 2004other than the claim seeking recharacterization on the grounds that theadditional claims for relief were premature and were seeking “advisory opinions”which courts are not free to give. The hearing on these two motions occurred onJanuary 6, 2005. The Bankruptcy Court denied the motions in part andgranted them in part, allowing certain of the claims for relief that werechallenged by the owner lessors and the indenture trustee to proceed, while otherswere dismissed without prejudice to being refiled in the future. Therefore, theDebtors who were plaintiffs in the original complaint filed an amendedcomplaint on February 9, 2005. Trial is scheduled to begin on March 29,2005.

As a result of Mirant Mid-Atlantic’s bankruptcyfiling, a lease event of default has occurred under the leases. The leasesprovide that, upon a lease event of default, the owner lessors’ remediesinclude (1) terminating the leases and repossessing the leased assets, (2) sellingtheir interests in the leased assets, (3) demanding payment by MirantMid-Atlantic of the excess, if any, of the termination value over the fairmarket sales value of the leased assets or the discounted fair market rentalvalue of the leased assets and (4) demanding payment of the terminationvalue mitigated by a sale of the leased assets for the account of MirantMid-Atlantic. The termination value for the leases was approximately$1.4 billion at December 31, 2004 and generally decreases over time.The ability of the owner lessors to exercise their remedies under the leases iscurrently stayed as a result of Mirant Mid-Atlantic’s Chapter 11 filing.

Mirant has commitments under other operating leaseswith various terms and expiration dates. Minimum lease payments undernon-cancelable operating leases approximate $40 million in 2005,$40 million in 2006, $32 million in 2007, $30 million in 2008,$23 million in 2009 and $159 million thereafter. Expenses associatedwith these commitments totaled approximately $45 million, $37 millionand $53 million during 2004, 2003 and 2002, respectively.

See Note 3 for discussionof a contractual obligation relating to the sale of an asset that has beenreclassified as liabilities subject to compromise.

**17.**   Power Purchase Agreementsand Obligations Under Energy Delivery and Purchase Commitments

Under the asset purchase and sale agreement for thePEPCO generating assets, Mirant assumed and recorded net obligations ofapproximately $2.4 billion representing the estimated fair value (at thedate of acquisition) of out-of-market energy delivery and power purchaseagreements (“PPAs”), which consisted of five PPAs and two transition poweragreements (“TPAs”). The estimated fair value of the contracts was derivedusing forward prices obtained from brokers and other external sources in themarket place including brokers and trading platforms/exchanges such as NYMEXand estimated load information.

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The PPAs are for a total capacity of 735 MW and expireover periods through 2021. Upon adoption of SFAS No. 133 on January 1,2001, each PPA contract was evaluated to determine whether it met thedefinition of a derivative contract under the standard. PPAs determined to bederivative instruments are recorded on the balance sheet at fair value, withchanges in fair value recorded currently in generation revenue. The Companyrecognized $168 million, $171 million and $35 million of unrealizedgains during 2004, 2003 and 2002, respectively, in connection with the PPAs. AtDecember 31, 2004, the estimated commitments under the PPA agreements were$1.0 billion based on the total remaining MW commitment at contractualprices. As of December 31, 2004, the fair value of the PPAs recorded inliabilities subject to compromise in the consolidated balance sheet totaled$540 million, of which $80 million would have been classified ascurrent.

As discussed in Note 15, “Litigation and OtherContingencies,” on December 23, 2003, Mirant’s motion to reject theBack-to-Back Agreement related to the PPAs was denied by the federal districtcourt in Texas. In December 2004, we notified PEPCO and the BankruptcyCourt that we are suspending all future payments under the  Back-to-Back Agreement absent further orderof the Court. For 2004, the suspended payment amount was $16 million.

The TPAs state that Mirant will sell a quantity ofMWhs over the life of the contracts based on PEPCO’s load requirements. The TPArelated to load in Maryland expired in June 2004, while the TPA related toload in the District of Columbia expired in January 2005. The proportionof MWhs supplied under the District of Columbia agreement was 36%. As actualMWhs are purchased or sold under these agreements, Mirant amortizes a ratableportion of the obligation as an increase in revenues. The Company recorded, asan adjustment of revenues, amortization of the TPA obligation of approximately$344 million, $426 million and $423 million during the yearsended December 31, 2004, 2003 and 2002, respectively. The remaining TPAobligation will be amortized as an increase in revenue through January 2005.As of December 31, 2004, the remaining obligations for the TPAs recordedin transition power agreements and other obligations totaled $9 million,all of which is classified as current.

On October 24, 2003, Mirant and PEPCO reached asettlement, subject to Bankruptcy Court approval, whereby, the contractedprices for power delivered under the TPAs were increased by $6.40 per MWh andthe TPAs were assumed. In addition, the settlement agreement grants an allowedpre-petition general unsecured claim related to the amendment of theseagreements in the amount of $105 million. On November 19, 2003, theBankruptcy Court approved the settlement and the assumption of the amendedTPAs. Mirant recorded a liability for this claim on its consolidated balancesheet as of December 31, 2003. As a result of the amendment of the TPA’s,Mirant reduced its liability for transition power agreements in an amount equalto the allowed pre-petition claim, which resulted in a reduction in TPAamortization recognized as revenues for 2004 and January 2005.

Other obligations totaled$10 million, of which $5 million is classified as currentliabilities. These obligations are related primarily to out-of-market gastransportation and power sales agreements, and are recorded in transition poweragreements and other obligations in the consolidated balance sheet at December 31,2004.

**18.**   Related-PartyArrangements and Transactions

***Other Agreements***

Prior to the sale of its investment in Perryville in June 2002,Mirant entered into various agreements with, or with respect to its investmentin, Perryville, including a tolling agreement which was entered into in April 2001.Costs under the tolling agreement were approximately $5 million in 2002.Prior to the sale of its 50% ownership interest in Perryville, Mirant accountedfor its investment under the equity method. Management believes the costs underthe Perryville tolling agreement are substantially similar to costs the 

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Company would haveincurred with an unrelated party. Mirant completed the sale of its 50%ownership interest in Perryville in June 2002. See Note 3 for furtherdiscussion.

Prior to its sale in October 2003, Mirant had anoperating and maintenance contract with respect to its investment in theBirchwood generating plant. Mirant had a 50% ownership interest in Birchwoodand accounted for its investment under the equity method. Fees paid to Mirantunder the Birchwood operating and maintenance contract were approximately$7 million in 2003 and $8 million in 2002. Management believes thatthe fees paid by Birchwood for these services are equivalent to the fees thatwould be charged by an unrelated party.

In May 2003, Mirantannounced that it had entered an agreement to sell all but one half of onepercent of its 50% ownership interest in the Birchwood generating plant locatednear Fredricksburg, Virginia. On October 9, 2003, the Bankruptcy Courtentered an order approving the consummation of the sale, which was completed onOctober 31, 2003.

**19.**   LossPer Share

Mirantcalculates basic loss per share by dividing the loss  available to common stockholders by theweighted average number of common shares outstanding. Diluted loss per sharegives effect to dilutive potential common shares, including stock options,convertible notes and debentures and convertible trust preferred securities.The following table shows the computation of basic and diluted loss per sharefor 2004, 2003 and 2002 (in millions, except per share data).
| ** **                                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Loss from  continuing operations                       |       | $        | (410       | )        | $          | (3,632   | )          | $ | (2,340 | ) |
| Discontinued  operations                               |       | (66      | )          | (174     | )          | (98      | )          |
| Cumulative effect  of changes in accounting principles |       | —   |       | (29      | )          | —   |       |
| Net loss                                               |       | $        | (476       | )        | $          | (3,835   | )          | $ | (2,438 | ) |
| **Basic and diluted:**                                 |       |     |       |     |       |     |       |
| Weighted average  shares outstanding                   |       | 405.5    |       | 405.0    |       | 402.2    |       |
| Loss per share from:                                   |       |     |       |     |       |     |       |
| Continuing operations                                  |       | $        | (1.01      | )        | $          | (8.97    | )          | $ | (5.82 | ) |
| Discontinued operations                                |       | (0.16    | )          | (0.43    | )          | (0.24    | )          |
| Cumulative effect of changes in accounting  principles |       | —   |       | (0.07    | )          | —   |       |
| Net loss                                               |       | $        | (1.17      | )        | $          | (9.47    | )          | $ | (6.06 | ) |

 

Thefollowing potential common shares were excluded from the earnings per sharecalculations (in millions):
| ** **                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Out-of-the-money  options                                            |       | 16.8     |       | 23.3     |       | 20.7     |       |
| Shares issuable  upon conversion of debt                             |       | 58.6     |       | 59.8     |       | 35.6     |       |
| Shares issuable  upon conversion of convertible preferred securities |       | 12.5     |       | 12.5     |       | 12.5     |       |
| Total                                                                |       | 87.9     |       | 95.6     |       | 68.8     |       |

 

As discussed in note 3,the Company plans to cancel the common stock as part of our proposed Plan.

F-71

----

***Stock-Based Compensation***

Mirant accounts for itsstock-based employee compensation plans under the intrinsic-valuemethod of accounting for recognition, but discloses fair value pro formainformation. Under this method, compensation expense for employee stock optionsis recorded on the date of grant only if the current market price of theunderlying stock exceeds the exercise price. The following table illustratesthe effect on net loss if the fair-value-based method had been applied toall outstanding and unvested stock based awards in each period(in millions, except per share data). See also Note 14.
| ** **                                                                                                                                     | ** ** | **December 31,**                                    | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                                     | ** ** | **    2004    ** | ** ** | **    2003    ** | ** ** | **    2002    ** | ** ** |
| Net loss, as  reported                                                                                                                         |       |                                                     | $          | (476 | ) |   | $ | (3,835 | ) | $ | (2,438 | ) |
| Deduct: Total  stock-based employee compensation expense determined under fair-value-  based method for all awards, net of related tax effects |       |                                                     | (12        | ) |   | (27 | ) | (24 | ) |
| Pro forma net  loss                                                                                                                            |       |                                                     | $          | (488 | ) |   | $ | (3,862 | ) | $ | (2,462 | ) |
| Loss per share:                                                                                                                                |       |                                                     |       |   |   |   |   |   |   |
| Basic and diluted—as reported                                                                                                             |       |                                                     | $          | (1.17 | ) |   | $ | (9.47 | ) | $ | (6.06 | ) |
| Basic and  diluted—pro forma                                                                                                              |       |                                                     | $          | (1.20 | ) |   | $ | (9.54 | ) | $ | (6.12 | ) |

 

**20.**   SegmentReporting

The Company has two reportable segments: North Americaand International. The North America segment consists of the Company’s powergeneration and energy trading and marketing operations in the United States andCanada. The International segment includes power generation in the Philippinesand generation, transmission and distribution operations in the Caribbean. TheCompany’s reportable segments are strategic businesses that are geographicallyseparated and managed independently. Certain corporate costs, includingcorporate overhead and interest, are not allocated to a reporting segment. In2002, the Company closed its European trading operations and sold its Europeanand Chinese distribution and generation assets. Prior to the sale of theseassets, these operations are reflected in the International segment. Theaccounting policies of the segments are the same as those described inNote 2 “Accounting and Reporting Policies.”

In 2003, certain corporate costs were not allocated toa reporting segment. Beginning January 1, 2004, the Company changed itsallocation methodology related to corporate overhead expenses to better reflectits operating structure. As a result, substantially all of the operatingexpenses are now allocated to the Company’s North America and Internationalsegments. The new methodology allocates costs using several methods but isprimarily based on gross margin, property, plant and equipment balances, andlabor costs. The allocation methodology may be subject to further change duringthe Chapter 11 reorganization process.

F-72

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**Business Segments**
| ** **                                                                    | ** ** | **North America** | ** ** | **International** | ** **   | **Corporate and   Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|--------------|--------------------------------------------|------------|------------------|------------|
| ** **                                                                    | ** ** | **(In millions)** | ** ** |
| **2004:**                                                                     |       |                   |       | *** ***      |         |                                       |       | *** ***     |       |   |   | *** *** |   |   |   | *** *** |   |
| Operating Revenues:                                                           |       |                   |       | *** ***      |         |                                       |       | *** ***     |       |   |   | *** *** |   |   |   | *** *** |   |
| Generation                                                                    |       |                   | $          | 3,486             | *** *** |                                       |       | $                | 477        | *** *** |   |   | $ | — | *** *** |   |   | $ | 3,963 | *** *** |   |
| Integrated utilities and distribution                                         |       |                   | —     | *** ***      |         |                                       | 573        |             |       |   | — | *** *** |   |   | 573 | *** *** |   |
| Net trading revenue                                                           |       |                   | 36         | *** ***      |         |                                       | —     |             |       |   | — | *** *** |   |   | 36 | *** *** |   |
| Total operating revenues                                                      |       |                   | 3,522      | *** ***      |         |                                       | 1,050      |             |       |   | — |   |   |   | 4,572 | *** *** |   |
| Cost of fuel,  electricity and other products                                 |       |                   | 2,326      | *** ***      |         |                                       | 294        |             |       |   | — |   |   |   | 2,620 | *** *** |   |
| Gross margin                                                                  |       |                   | 1,196      | *** ***      |         |                                       | 756        |             |       |   | — |   |   |   | 1,952 | *** *** |   |
| Operating Expenses:                                                           |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   |   | *** *** |   |
| Operations and maintenance                                                    |       |                   | 730        | *** ***      |         |                                       | 295        |             |       |   | (21 | ) |   |   | 1,004 | *** *** |   |
| Depreciation and amortization                                                 |       |                   | 165        | *** ***      |         |                                       | 122        |             |       |   | 21 |   |   |   | 308 | *** *** |   |
| Goodwill impairment losses                                                    |       |                   | —     | *** ***      |         |                                       | 582        |             |       |   | — |   |   |   | 582 | *** *** |   |
| Other impairment losses and restructuring charges                             |       |                   | 9          | *** ***      |         |                                       | 1          |             |       |   | 13 |   |   |   | 23 | *** *** |   |
| Loss on sales of assets, net                                                  |       |                   | 50         | *** ***      |         |                                       | 2          |             |       |   | 1 |   |   |   | 53 | *** *** |   |
| Total operating expenses                                                      |       |                   | 954        | *** ***      |         |                                       | 1,002      |             |       |   | 14 |   |   |   | 1,970 | *** *** |   |
| Operating income  (loss)                                                      |       |                   | $          | 242               | *** *** |                                       |       | $                | (246       | ) |   |   | $ | (14 | ) |   |   | $ | (18 | ) |   |
| Total other expense, net                                                      |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   | (25 | ) |   |
| Loss from  continuing operations before reorganization items and income taxes |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   | (43 | ) |   |
| Reorganization items, net                                                     |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   | 259 |   |   |
| Provision for  income taxes                                                   |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   | 87 |   |   |
| Minority interest                                                             |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   | 21 | ** ** |   |
| Loss from  continuing operations                                              |       |                   |       | ** **        |         |                                       |       |             |       |   |   |   |   |   | $ | (410 | ) |   |
| Total assets                                                                  |       |                   | $          | 9,354             | *** *** |                                       |       | $                | 4,730      |   |   |   | $ | (2,660 | ) |   |   | $ | 11,424 | *** *** |   |
| Gross property  additions                                                     |       |                   | 99         | *** ***      |         |                                       | 57         |             |       |   | 3 |   |   |   | 159 | *** *** |   |
| Investment in  equity method affiliates                                       |       |                   | 6          | *** ***      |         |                                       | 231        |             |       |   | 11 |   |   |   | 248 | *** *** |   |

 

F-73

----

 
| ** **                                                                    | ** ** | **North America** | ** ** | **International** | ** **   | **Corporate and   Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|--------------|--------------------------------------------|------------|------------------|------------|
| ** **                                                                    | ** ** | **(In millions)** | ** ** |
| **2003:**                                                                     |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   |   | *** *** |   |
| Operating Revenues:                                                           |       |                   |       | *** ***      |         |                                       |       |             |       |   |   |   |   |   |   | *** *** |   |
| Generation                                                                    |       |                   | $          | 4,138             | *** *** |                                       |       | $                | 502        |   |   |   | $ | — |   |   |   | $ | 4,640 | *** *** |   |
| Integrated utilities and distribution                                         |       |                   | —     | *** ***      |         |                                       | 523        |             |       |   | — |   |   |   | 523 | *** *** |   |
| Net trading revenue                                                           |       |                   | (1         | )                 |         |                                       | —     |             |       |   | — |   |   |   | (1 | ) |   |
| Total operating revenues                                                      |       |                   | 4,137      |              |         |                                       | 1,025      |             |       |   |   |   |   |   | 5,162 |   |   |
| Cost of fuel,  electricity and other products                                 |       |                   | 2,904      |              |         |                                       | 280        |             |       |   | — |   |   |   | 3,184 |   |   |
| Gross margin                                                                  |       |                   | 1,233      |              |         |                                       | 745        |             |       |   | — |   |   |   | 1,978 |   |   |
| Operating  Expenses:                                                          |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                    |       |                   | 701        |              |         |                                       | 257        |             |       |   | 127 |   |   |   | 1,085 |   |   |
| Depreciation and amortization                                                 |       |                   | 200        |              |         |                                       | 116        |             |       |   | 24 |   |   |   | 340 |   |   |
| Goodwill impairment losses                                                    |       |                   | 2,067      |              |         |                                       | —     |             |       |   | — |   |   |   | 2,067 |   |   |
| Long-lived asset impairment losses                                            |       |                   | 1,338      |              |         |                                       | 1          |             |       |   | — |   |   |   | 1,339 |   |   |
| Other impairment losses and restructuring charges                             |       |                   | 19         |              |         |                                       | 13         |             |       |   | 25 |   |   |   | 57 |   |   |
| (Gain) loss on sales of assets, net                                           |       |                   | (38        | )                 |         |                                       | 1          |             |       |   | (9 | ) |   |   | (46 | ) |   |
| Total operating expenses                                                      |       |                   | 4,287      |              |         |                                       | 388        |             |       |   | 167 |   |   |   | 4,842 |   |   |
| Operating (loss)  income                                                      |       |                   | $          | (3,054            | )            |                                       |       | $                | 357        |   |   |   | $ | (167 | ) |   |   | (2,864 | ) |   |
| Total other expense, net                                                      |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | (317 | ) |   |
| Loss from  continuing operations before reorganization items and income taxes |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | (3,181 | ) |   |
| Reorganization items, net                                                     |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | 290 |   |   |
| Provision for  income taxes                                                   |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | 126 |   |   |
| Minority interest                                                             |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | 35 |   |   |
| Loss from  continuing operations                                              |       |                   |       |              |         |                                       |       |             |       |   |   |   |   |   | $ | (3,632 | ) |   |
| Total assets                                                                  |       |                   | $          | 9,443             |         |                                       |       | $                | 5,147      |   |   |   | $ | (2,257 | ) |   |   | $ | 12,333 |   |   |
| Gross property  additions                                                     |       |                   | 271        |              |         |                                       | 206        |             |       |   | 16 |   |   |   | 493 |   |   |
| Investment in  equity method affiliates                                       |       |                   | 7          |              |         |                                       | 168        |             |       |   | 92 |   |   |   | 267 |   |   |

 

F-74

----

 
| ** **                                           | ** ** | **North America** | ** ** | **International** | ** ** | **Corporate and   Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|-------------------|------------|--------------------------------------------|------------|------------------|------------|
| ** **                                           | ** ** | **(In millions)** | ** ** |
| **2002:**                                            |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   |   |   |   |
| Operating Revenues:                                  |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   |   |   |   |
| Generation                                           |       |                   | $          | 3,352             |       |                                       |       | $                | 525        |   |   |   | $ | — |   |   |   | $ | 3,877 |   |   |
| Integrated utilities and distribution                |       |                   | —     |              |       |                                       | 485        |             |       |   | — |   |   |   | 485 |   |   |
| Net trading revenue                                  |       |                   | 341        |              |       |                                       | —     |             |       |   | — |   |   |   | 341 |   |   |
| Total operating revenues                             |       |                   | 3,693      |              |       |                                       | 1,010      |             |       |   | — |   |   |   | 4,703 |   |   |
| Cost of fuel, electricity and other products         |       |                   | 2,254      |              |       |                                       | 228        |             |       |   | — |   |   |   | 2,482 |   |   |
| Gross margin                                         |       |                   | 1,439      |              |       |                                       | 782        |             |       |   | — |   |   |   | 2,221 |   |   |
| Operating  Expenses:                                 |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                           |       |                   | 770        |              |       |                                       | 322        |             |       |   | 117 |   |   |   | 1,209 |   |   |
| Depreciation and amortization                        |       |                   | 149        |              |       |                                       | 116        |             |       |   | 17 |   |   |   | 282 |   |   |
| Goodwill impairment losses                           |       |                   | —     |              |       |                                       | 697        |             |       |   | — |   |   |   | 697 |   |   |
| Long-lived asset impairment losses                   |       |                   | 509        |              |       |                                       | 101        |             |       |   | — |   |   |   | 610 |   |   |
| Other impairment losses and restructuring charges    |       |                   | 270        |              |       |                                       | 65         |             |       |   | 28 |   |   |   | 363 |   |   |
| Gain on sales of assets, net                         |       |                   | (5         | )                 |       |                                       | (36        | )                |       |   | — |   |   |   | (41 | ) |   |
| Total operating expenses                             |       |                   | 1,693      |              |       |                                       | 1,265      |             |       |   | 162 |   |   |   | 3,120 |   |   |
| Operating loss                                       |       |                   | $          | (254              | )          |                                       |       | $                | (483       | ) |   |   | $ | (162 | ) |   |   | (899 | ) |   |
| Total other expense, net                             |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   | (417 | ) |   |
| Loss from  continuing operations before income taxes |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   | (1,316 | ) |   |
| Provision for  income taxes                          |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   | 949 |   |   |
| Minority interest                                    |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   | 75 |   |   |
| Loss from  continuing operations                     |       |                   |       |              |       |                                       |       |             |       |   |   |   |   |   | $ | (2,340 | ) |   |
| Total assets                                         |       |                   | $          | 15,293            |       |                                       |       | $                | 4,622      |   |   |   | $ | (492 | ) |   |   | $ | 19,423 |   |   |
| Gross property  additions                            |       |                   | 1,342      |              |       |                                       | 160        |             |       |   | 10 |   |   |   | 1,512 |   |   |
| Investment in equity  method affiliates              |       |                   | 96         |              |       |                                       | 187        |             |       |   | 13 |   |   |   | 296 |   |   |

 

**Geographic Areas**
| ** ** | ** ** | **Revenue**            | ** ** |
|------------|------------|------------------------|------------|
| ** ** | ** ** | ** **             | ** ** | **International** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **North  America**     | ** ** | **The  Philippines** | ** ** | **Jamaica** | ** ** | **All  Other** | ** ** | **Total** | ** ** | **Consolidated** | ** ** |
| ** ** | ** ** | **(In millions)** | ** ** |
| 2004       |       | $3,522                 |       |   | $487 |   |   |   | $495 |   |   | $68 |   | $1,050 |   |   | $4,572 |   |   |
| 2003       |       | $4,137                 |       |   | $505 |   |   |   | $455 |   |   | $65 |   | $1,025 |   |   | $5,162 |   |   |
| 2002       |       | $3,693                 |       |   | $537 |   |   |   | $427 |   |   | $46 |   | $1,010 |   |   | $4,703 |   |   |

 
| ** ** | ** ** | **Long-Lived Assets** | ** ** | ** **           |
|------------|------------|-----------------------|------------|----------------------|
| ** ** | ** ** | ** **            | ** ** | ** **           | **International** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **North  America**    | ** ** | **The  Philippines** | ** ** | **Jamaica** | ** ** | **All  Other** | ** ** | **Total** | ** ** | **Consolidated** | ** ** |
| ** ** | ** ** | **(In millions)**     | ** ** |
| 2004       |       | $4,317                |       |                 | $1,522 |   |   |   | $568 |   |   | $114 |   | $2,204 |   |   | $6,521 |   |   |
| 2003       |       | $4,496                |       |                 | $2,178 |   |   |   | $571 |   |   | $110 |   | $2,859 |   |   | $7,355 |   |   |

 

F-75

----

**21.   QuarterlyFinancial Data (Unaudited)**

Summarizedquarterly financial data for 2004, 2003 and 2002 is as follows (in millions):
| ** ** | ** ** | **Operating  Revenue** | ** ** | **Operating  Income  (Loss)** | ** ** | **Income (Loss)  Before Cumulative  Effect of Changes in  Accounting Principles** | ** ** | **Consolidated  Net Income  (Loss)** | ** ** | **Basic and Diluted  Income (Loss)  Per Common  Share** | ** ** |
|------------|------------|------------------------|------------|-------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| **2004:**  |       |                   |       |                          |       |                                                                                                            |       |                                      |       |                                                                        |       |   |   |   |   |   |   |   |   |
| March      |       |                   | $          | 1,184                         |       |                                                                                                            | $          | 140                                       |       |                                                                        | $          | 30 |   |   |   | $ | 30 |   |   |   | $ | 0.07 |   |   |
| June       |       |                   | 1,264      |                          |       | 166                                                                                                             |       |                                      | 32         |                                                                        |       |   | 32 |   |   |   | 0.08 |   |   |
| September  |       |                   | 1,121      |                          |       | 147                                                                                                             |       |                                      | 32         |                                                                        |       |   | 32 |   |   |   | 0.08 |   |   |
| December   |       |                   | 1,003      |                          |       | (471                                                                                                            | )          |                                      | (570       | )                                                                           |       |   | (570 | ) |   |   | (1.40 | ) |   |
| **2003:**  |       |                   |       |                          |       |                                                                                                            |       |                                      |       |                                                                        |       |   |   |   |   |   |   |   |   |
| March      |       |                   | $          | 1,506                         |       |                                                                                                            | $          | 176                                       |       |                                                                        | $          | — |   |   |   | $ | (28 | ) |   |   | $ | (0.07 | ) |   |
| June       |       |                   | 1,250      |                          |       | (2,038                                                                                                          | )          |                                      | (2,202     | )                                                                           |       |   | (2,202 | ) |   |   | (5.44 | ) |   |
| September  |       |                   | 1,595      |                          |       | 279                                                                                                             |       |                                      | (33        | )                                                                           |       |   | (33 | ) |   |   | (0.08 | ) |   |
| December   |       |                   | 811        |                          |       | (1,281                                                                                                          | )          |                                      | (1,571     | )                                                                           |       |   | (1,572 | ) |   |   | (3.88 | ) |   |

 

Financial data for thequarters ended December 31, 2004 and June 30, 2003 reflect goodwillimpairment charges discussed in Note 8. Financial data for the quarterended December 31, 2003 reflects the long-lived asset impairmentcharge discussed in Note 7.

**22.   Valuationand Qualifying Accounts**
| ** **                                         | ** ** | **Years Ended December 31, 2004, 2003 and 2002** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                         | ** ** | ** **                                                                          | ** ** | **Additions** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Description**                                    | ** ** | ** **                                                                          | ** ** | **Balance at  Beginning of  Period** | ** ** | **Charged to  Income** | ** ** | **Charged to  Other Accounts** | ** ** | **Deductions** | ** ** | **Balance at  End of Period** | ** ** |
| ** **                                         | ** ** | **(In millions)**                                                              | ** ** |
| Provision for  uncollectible accounts (current)    |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004                                               |       |                                                                                | $          | 206 |   |   |   | $ | 6 |   |   |   | $ | 32 |   |   |   | $ | (10 | ) |   |   | $ | 234 |   |   |
| 2003                                               |       |                                                                                | 198        |   |   |   | 9 |   |   |   | — |   |   |   | (1 | ) |   |   | 206 |   |   |
| 2002                                               |       |                                                                                | 197        |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | 198 |   |   |
| Provision for  uncollectible accounts (noncurrent) |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004                                               |       |                                                                                | $          | 205 |   |   |   | $ | — |   |   |   | $ | (34 | ) |   |   | $ | (10 | ) |   |   | $ | 161 |   |   |
| 2003                                               |       |                                                                                | 104        |   |   |   | 130 |   |   |   | — |   |   |   | (29 | ) |   |   | 205 |   |   |
| 2002                                               |       |                                                                                | 114        |   |   |   | 14 |   |   |   | — |   |   |   | (24 | ) |   |   | 104 |   |   |
|                                                    |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-76

----

 

**Report of Independent Registered Public AccountingFirm**

The Board of Directors andShareholdersMirant Corporation:

We have audited theaccompanying consolidated balance sheets of Mirant Corporation and subsidiaries(the Company) as of December 31, 2004 and 2003, and the relatedconsolidated statements of operations, stockholders’ equity (deficit), comprehensiveloss and cash flows for each of the years in the three-year period ended December 31,2004. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Mirant Corporation andsubsidiaries as of December 31, 2004 and 2003, and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2004, in conformity with U.S. generally acceptedaccounting principles.

The accompanyingconsolidated financial statements have been prepared assuming that the Companywill continue as a going concern. The Company incurred losses of $476 million,$3.8 billion and $2.4 billion from operations during 2004, 2003 and 2002,respectively, sold significant assets during 2003 and 2002, has an accumulateddeficit at December 31, 2004 and 2003, and, as discussed in Note 3 to theconsolidated financial statements, filed voluntary petitions seeking toreorganize under Chapter 11 of the federal bankruptcy laws. All of theseconditions raise substantial doubt about the Company’s ability to continue as agoing concern. Management’s plans in regard to these matters are also describedin Note 3. The accompanying consolidated financial statements do not includeany adjustments that might result from the outcome of these uncertainties.

As discussed in Note 3 tothe consolidated financial statements, in 2003 the Company adopted theprovisions of Statement of Position 90-7, *FinancialReporting by Entities in Reorganization Under the Bankruptcy Code*and as discussed in Note 2 to the consolidated financial statements, in 2003the Company changed its method of accounting for asset retirement obligationsand energy trading contracts and energy-related inventory.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2004, basedon the criteria established in Internal Control-Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission, and ourreport dated March 14, 2005 expressed an unqualified opinion onmanagement’s assessment of, and the effective operation of, internal controlover financial reporting.

KPMG LLP
|                |   |
|---------------------|--------|
|                |   |
| Atlanta,  Georgia   |   |
| March 14, 2005 |   |

 

F-77

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**Reportof Independent Registered Public Accounting Firm**

TheBoard of Directors and ShareholdersMirant Corporation:

Wehave audited management’s assessment, included in the accompanying Management’sReport on Internal Control Over Financial Reporting*,*thatMirant Corporation maintained effective internal control over financialreporting as of December 31, 2004, based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Mirant Corporation’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the Company’sinternal control over financial reporting based on our audit.

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, evaluating management’s assessment, testingand evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

Inour opinion, management’s assessment that Mirant Corporation maintainedeffective internal control over financial reporting as of December 31,2004, is fairly stated, in all material respects, based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Also, in our opinion, MirantCorporation maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2004, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Mirant Corporation and subsidiaries as of December 31,2004 and 2003, and the related consolidated statements of operations,stockholders’ equity (deficit), comprehensive loss and cash flows for each ofthe years in the three-year period ended December 31, 2004, and our reportdated March 14, 2005 expressed an unqualified opinion on thoseconsolidated financial statements.

KPMG LLP
| Atlanta, Georgia    |   |
|---------------------|--------|
| March 14, 2005 |   |

 

F-78

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***Item 9.****                          Changesin and Disagreements with Accountants on Accounting and Financial Disclosure*

None.

***Item 9A.****                  Controlsand Procedures*

**InherentLimitations in Control Systems**

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

**Effectivenessof Disclosure Controls and Procedures**

As required by ExchangeAct Rule 13a-15(b), our management, including our Chief ExecutiveOfficer and our Chief Financial Officer, conducted an assessment of the effectivenessof the design and operation of our disclosure controls and procedures (asdefined by Rules 13a-15(e) and 15d-15(e) under theExchange Act), as of December 31, 2004. Based upon this assessment, ourmanagement concluded that, as of December 31, 2004, the design andoperation of these disclosure controls and procedures were effective in timelyalerting us to material information relating to the Company (including ourconsolidated subsidiaries) required to be included in our periodic SEC filings.

Appearing as exhibits tothis annual report are the certifications of the Chief Executive Officer andthe Chief Financial Officer required in accordance with Section 302 of theSarbanes-Oxley Act of 2002.

**Management’sReport on Internal Control Over Financial Reporting**

Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting (as defined by Rules 13a-15(f) underthe Exchange Act). The Company’s internal control framework and processes havebeen designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with U.S. generally accepted accounting principles. Internalcontrol over financial reporting includes those processes and procedures that:

·       pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company;

·       providereasonable assurance that transactions are recorded properly to allow for thepreparation of financial statements, in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company;

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·       providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the Company’s assets that could have amaterial effect on the consolidated financial statements; and

·       providereasonable assurance as to the detection of fraud.

Under the supervision and with the participation ofour management, including our Chief Executive Officer and our Chief FinancialOfficer, we carried out an assessment of the effectiveness of our internalcontrol over financial reporting as of December 31, 2004. In conductingour assessment, management utilized the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission in *InternalControl—Integrated Framework*. Based on this assessment, managementconcluded that our internal control over financial reporting was effective asof December 31, 2004.

Our independent registered public accounting firm,KPMG LLP, has issued reports on management’s assessment of internal controlover financial reporting and our consolidated financial statements. KPMG LLP’sreports can be found on pages F-91 and F-92.

**PART III**

**Item 10.**                 *Directors and Executive Officers of the Registrant*

Set forth below is adescription of the business experience during the past five years or more ofthe directors and executive officers of the Company, their positions and officeswith the Company, and other biographical information. In accordance with Mirant’sBylaws, each director shall hold office until the next election of the classfor which such director shall have been chosen, and until his or her successorhas been elected and qualified, or until his or her earlier death, resignationor removal. Ms. Fuller and Messrs. Lesar and Robinson serve in theclass of 2004; Messrs. Dahlberg, Eizenstat and McCullough serve in theclass of 2005; and Messrs. Correll and McDonald serve in the class of2006. Because of its bankruptcy, the Company did not hold an annual meeting in2004 and has not scheduled an annual meeting for 2005; therefore, the directorsin the classes of 2004 and 2005 are serving until the next election. Officersare elected by our board of directors to hold office until their successors areelected and have qualified or until their removal, resignation, death ordisqualification.
| **Name**      | ** ** | ** ** | ** ** | **Age**                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **Position and Experience** |
|---------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|
| A.D. Correll  |       | 63         |       | Director since 2000  Chairman of the Board, and Chief Executive Officer of Georgia-Pacific  Corporation, manufacturers and distributors of building products, pulp, and  paper. He was appointed to his current position in 1993. He also served as  President from 1991 until September 2002. He is a director of Georgia-Pacific  Corporation, Norfolk Southern Corporation, and SunTrust Banks, Inc.      |
| A.W. Dahlberg |       | 64         |       | Director since 1996  Chairman of the Board of Mirant. He was appointed to his current position in  August 2000. He served as Chairman of the Board of the Southern Company  from 1995 until April 2001, during which time Southern Company was the  parent of Mirant. He also served as Chief Executive Officer of Southern  Company from 1995 until March 2001. He is a director of Equifax, Inc. |

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| Stuart E.  Eizenstat |   | 61 |   | Director since  2001  Partner of Covington & Burling where he has headed the law firm’s  international practice since 2001. He served as Deputy Secretary of the  United States Department of the Treasury from July 1999 to  January 2001. He was Under Secretary for Economics, Business, and  Agricultural Affairs of the United States Department of State from 1997 to  July 1999 and Under Secretary for International Trade of the United  States Department of Commerce from 1996 to 1997. He served as U.S. Ambassador  to the European Union from 1993 to 1996 and was President Carter’s Chief  Domestic Policy Advisor from 1977 to 1981. He is a trustee of BlackRock  Funds. |
|----------------------|--------|----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| S. Marce Fuller      |   | 44 |   | President, Chief  Executive Officer and Director since July 1999  Served as President and Chief Executive Officer of Mirant’s Mirant Americas  Energy Marketing subsidiary from September 1997 to July 1999 and  Executive Vice President of Mirant from October 1998 to July 1999.  She is a director of Curtiss-Wright Corporation and  EarthLink, Inc.                                                                                                                                                                                                                                                                                                                                 |
| David J. Lesar       |   | 51 |   | Director since 2000  Chairman, President and Chief Executive Officer of Halliburton Company,  diversified energy services, engineering and construction company. He was  President and Chief Operating Officer of Halliburton Company from  June 1997 until August 2000, when he was appointed to his current  position. He is a director of Halliburton Company and Lyondell Chemical  Company.                                                                                                                                                                                                                                                                                                                   |
| Robert F. McCullough |   | 62 |   | Director since  February 2003  Senior partner and former Chief Financial Officer of AMVESCAP plc,  independent global investment managers. He served as Director and CFO of  AMVESCAP from 1996 until April 2004. He is a director of Acuity  Brands, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| James F. McDonald    |   | 64 |   | Director since 2001  Chairman, President and Chief Executive Officer of Scientific-Atlanta, Inc.,  broadband equipment, software and services provider. He has served as  President and Chief Executive Officer since 1993 and Chairman of the Board of  Scientific-Atlanta since November 2000. He is a director of Burlington  Resources, Inc., NDCHealth Corporation, and Scientific-Atlanta, Inc.                                                                                                                                                                                                                                                                                                    |
| Ray M. Robinson      |   | 57 |   | Director since 2001  Chairman of the East Lake Community Foundation in Atlanta. He was Vice  Chairman of the East Lake Community Foundation from May 2003 until  October 2003, when he was appointed to his present position. He was  President of the Southern Region of AT&T Corporation from 1996 until his  retirement in May 2003. He is a director of Aaron Rents, Inc.,  Acuity Brands, Inc., Avnet, Inc., Citizens Trust Bank and Choice  Point Inc.                                                                                                                                                                                                                               |

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| M. Michele Burns  |   | 47 |   | Executive Vice  President, Chief Financial Officer and Chief Restructuring Officer Elected  Executive Vice President and Chief Financial Officer in May 2004 and  Chief Restructuring Officer in August 2004. Prior to joining Mirant she  was Executive Vice President and Chief Financial Officer of Delta Air  Lines, Inc. from August 2000 to May 2004; Senior Vice  President—Finance and Treasurer from February 2000 to August 2000;  Vice President—Finance and Treasurer from September 1999 to  February 2000 and Vice President—Corporate Tax from January 1999 to  September 1999. |
|-------------------|--------|----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Curtis A. Morgan  |   | 44 |   | Executive Vice President  and Chief Operating Officer  Elected Executive Vice President, North America effective August 25,  2003 and Executive Vice President and Chief Operating Officer in  June 2004. Prior to Joining Mirant, he was President, East Region,  Reliant Energy Wholesale Group, where he was responsible for Reliant assets  and markets in the mid-Western and Eastern United States from  September 2000 to July 2003. He was Senior Vice President,  Corporate Planning and Development, Reliant Energy from March 1998 to  September 2000.                                                                      |
| Vance N. Booker   |   | 51 |   | Senior Vice President,  Administration  Elected Senior Vice President in August 1999. Served as Vice President,  Administration from June 1996 to August 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Douglas L. Miller |   | 54 |   | 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.                                                                                                                                                                                                                                                                                                                                                                                                     |
| Dan Streek        |   | 43 |   | Vice President and Controller  Elected Vice President and Controller effective February 20, 2003. Prior  to joining Mirant, he served as Chief Financial Officer of Aquila, Inc.,  a global energy company, from August 2001 to November 2002; Senior  Vice President, Finance of Aquila Merchant Services, Inc. from  January 2000 to August 2001 and Vice President and Assistant  Controller for Aquila, Inc. from July 1998 to January 2000.                                                                                                                                                                   |

 

*DirectorIndependence*

We have adopted criteriafor independence contained in our Corporate Governance Guidelines thatsupplement the criteria established for director independence by the New YorkStock Exchange. Our Board has determined that all of our non-managementdirectors are independent under the rules of the New York Stock Exchangeand these supplemental independence criteria.

*FamilyRelationships—None.*

*Certain LegalProceedings*

On July 14, 2003, Mirant and most of its domesticsubsidiaries filed for reorganization under Chapter 11 of the UnitedStates Bankruptcy Code. Certain of Mirant’s officers are also officers or 

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directors of othersubsidiaries that filed for reorganization under Chapter 11. As such, eachof the Company’s executive officers has been associated with a corporation thatfiled a petition under the federal bankruptcy laws within the last five years.

Ms. Fuller served asan executive officer of Mobile Energy Services Company, LLC (“Mobile Energy”)from July 1995 to July 2001, and as an executive officer of itsparent company Mobile Energy Services Holdings, Inc. (“MESH”) from February 1995to January 1999. Mobile Energy owns a generating facility, which providespower and steam to a tissue mill in Mobile, Alabama. Mobile Energy and MESHfiled for bankruptcy on January 14, 1999 in response to the announcementby its then largest customer, a pulp mill, of plans to cease operations in September 1999.A plan of reorganization for Mobile Energy and MESH was approved by theBankruptcy Court and became effective December 16, 2003.

*Audit Committee andDesignated Audit Committee Financial Experts*

Mirant has a standingaudit committee established in accordance with Section 3(a)(58)(A) ofthe Exchange Act, and its members are Messrs. McCullough, Lesar andEisenstat. The Board of Directors has evaluated the members of the AuditCommittee, and determined that each member is independent, as independence foraudit committee members is defined under the listing standards of the New YorkStock Exchange and Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.The Board also has determined that each member of the Audit Committee isfinancially literate and has designated Messrs. Lesar and McCullough as “auditcommittee financial experts” as defined in SEC regulations.

*Section 16(a) BeneficialOwnership Reporting Compliance*

Section 16(a) ofthe Securities Exchange Act of 1934, as amended, requires all executiveofficers, directors and persons who are the beneficial owners of more than 10%of the common stock of the Company to file reports of ownership with the SECindicating their ownership of the Company’s equity securities and to report anychanges in that ownership. Specific due dates for these reports have beenestablished, and the Company is required to report in this Annual Report on Form 10-Kany failure to comply therewith during the fiscal year ended December 31,2004. Based on copies of the reporting forms received by it or on the writtenrepresentations from certain reporting persons that no Form 5 (AnnualStatement of Changes in Beneficial Ownership) were required to be filed underapplicable rules of the SEC, the Company believes that all reportingrequirements under Section 16(a) for the fiscal year 2004 were met ina timely manner by our directors, executive officers and greater than 10%beneficial owners with the following executions: Mr Streek did not timely filetwo Form 4s, and Ms. Fuller, Mr. Booker, Mr. Miller and Mr. JohnW. Ragan, a former executive officer of the Company, each did not timely file aForm 4. Subsequently, all such Form 4 reports have been filed.

*Code of Ethics forSenior Financial Officers*

Mirant has adopted a codeof ethics that applies to its Chief Executive Officer, Chief Financial Officer,Senior Vice President—Finance, Treasurer, Chief Risk Officer, VicePresident—Tax, and Controller. A copy of the code of ethics for seniorfinancial officers is posted on Mirant’s website at www.mirant.com and alsowill be provided without charge upon request made in writing to the CorporateSecretary at 1155 Perimeter Center West, Atlanta, GA 30338. Mirantintends to post any amendments and waivers to the code of ethics for seniorfinancial officers on its website.

*ShareholderNominees to Board of Directors*

We have not yet adoptedprocedures by which shareholders may recommend director candidates forconsideration by our Nominating and Governance Committee because we are notholding annual shareholders’ meetings while we are under Chapter 11 protection.

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**Item 11.**                 *Executive Compensation*

**Summary Compensation Table**

Thistable sets forth cash and non-cash compensation paid to or accrued for the pastthree years for the five most highly compensated executive officers of Mirantserving as of December 31, 2004.
|                                                                 | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **Name and  Principal Position**                      | ** ** | ** **              | ** ** | **Year**                   | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)(1)** | ** ** | **Other Annual  Compensation  ($)(2)** | ** ** | **Restricted  Stock Awards  ($)(3)** | ** ** | **Number of  Securities  Underlying  Stock Options  (#)(6)** | ** ** | **All Other  Compensation  ($)(7)** | ** ** |
| S. M. Fuller                                                    |       | 2004                    |       | 841,803                    |       | 850,000 |   |   | 38,736 |   |   |   | — |   |   |   | — |   |   |   | 38,731 |   |   |
| President & CEO                                        |       | 2003                    |       | 800,000                    |       | 173,643 |   |   | 100,303 |   |   |   | 1,620,000 |   |   |   | 500,000 |   |   |   | 37,125 |   |   |
|                                                                 |       | 2002                    |       | 800,000                    |       | — |   |   | 170,057 |   |   |   | 4,173,023 |   |   |   | 425,000 |   |   |   | 36,000 |   |   |
| M. M. Burns  EVP, CFO & Chief Restructuring Officer(4) |       | 2004                    |       | 401,639                    |       | 2,186,100 |   |   | 18,000 |   |   |   | — |   |   |   | — |   |   |   | 23,798 |   |   |
| C. A. Morgan                                                    |       | 2004                    |       | 427,350                    |       | 543,483  |   |   | 18,000 |   |   |   | — |   |   |   | — |   |   |   | 32,559 |   |   |
| EVP& COO(5)                                                 |       | 2003                    |       | 156,822                    |       | 124,000 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 8,331 |   |   |
| D. L. Miller                                                    |       | 2004                    |       | 375,000                    |       | 298,313  |   |   | 18,000 |   |   |   | — |   |   |   | — |   |   |   | 28,956 |   |   |
| SVP &  General                                         |       | 2003                    |       | 349,795                    |       | 62,708 |   |   | — |   |   |   | 395,000 |   |   |   | 125,000 |   |   |   | 36,364 |   |   |
| Counsel                                                         |       | 2002                    |       | 300,000                    |       | 120,000 |   |   | 905 |   |   |   | 323,640 |   |   |   | 50,000 |   |   |   | 53,476 |   |   |
| V. N. Booker                                                    |       | 2004                    |       | 280,000                    |       | 229,740  |   |   | 18,000 |   |   |   | — |   |   |   | — |   |   |   | 12,844 |   |   |
| SVP Administration                                              |       | 2003                    |       | 267,301                    |       | 140,500 |   |   | — |   |   |   | 233,000 |   |   |   | 75,000 |   |   |   | 12,956 |   |   |
|                                                                 |       | 2002                    |       | 250,000                    |       | 87,500 |   |   | — |   |   |   | 341,620 |   |   |   | 53,000 |   |   |   | 10,875 |   |   |
|                                                                 |            |                         |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          2004 Bonuses in thiscolumn include a payment to Ms. Burns and a payment to Mr. Morgan. Tohire Ms. Burns from her former employer in May 2004, Mirant paid$1,500,000 as the first of three potential “make-whole payments” at thecommencement of her prior employment. These payments are intended to replacevalue Ms. Burns lost by terminating her employment. The remaining twopayments to Ms. Burns will be made over the next two years. During 2004, Mr. Morganreceived two retention payments worth $100,000, which had been agreed to at thecommencement of his employment in August 2003.

(2)          During a portion of2004, and all of 2003 and 2002, Mirant owned fractional shares of a businessaircraft which Ms. Fuller used at a cost to Mirant of $17,736, $79,704 and$140,020, respectively. Mirant no longer owns any shares in an aircraft.

(3)          During 2004, Mirant didnot grant any Restricted Stock Units. The values shown reflect the value of therestricted stock unit on the date of the grant. No dividends are paid onrestricted stock units. Over the past three years, Mirant has granted threetypes of Restricted Stock, described as follows: *PerformanceRestricted Stock Units*: Granted in 2002 and 2001, these vest 20%each time Mirant’s stock price increases 20% over the price on the day ofgrant. The stock price targets that must be met for the remaining restrictedstock to vest range from $14.53 to $51.02 per share. *RestrictedStock Units paid in cash*: Granted in 2003, these units are payablein cash based upon the price of Mirant common stock on the vesting date. Theoutstanding units from these grants vest over time between March 2005 and February 2007.*Restricted Stock Units paid in stock*:Granted in 2003, these units are paid in shares of stock. One-half of theseunits vest in shares on each of the first and second anniversary dates of thegrant date.

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(4)          Ms. Burns firstbecame an executive officer of Mirant on May 20, 2004.

(5)          Mr. Morgan firstbecame an executive officer of Mirant on August 25, 2003.

(6)          Mirant does not have anylong-term incentive plans other than stock options and restricted stock,therefore no LTIP Payout is included in the table.

(7)          Includescontributions to the Mirant Services Employee Savings Plan (“ESP”), ProfitSharing Arrangement within the Mirant Services Employee Savings Plan (“ProfitSharing”), as well as non-pension related accruals under the SupplementalBenefit Plan (“SBP”). The breakout of the 2004 contributions is provided in thefollowing table:
| ** **   | ** ** | **ESP ($)** | ** ** | **Profit Sharing ($)** | ** ** | **SBP ($)** | ** ** |
|--------------|------------|------------------|------------|----------------------------------|------------|------------------|------------|
| S. M. Fuller |       |             | 9,225      |                             |       |             | —     |   |   | 29,506 |   |
| M. M. Burns  |       |             | 4,228      |                             |       |             | 6,150      |   |   | 13,420 |   |
| C. A. Morgan |       |             | 9,225      |                             |       |             | 6,150      |   |   | 17,184 |   |
| D. L. Miller |       |             | 9,225      |                             |       |             | 6,150      |   |   | 13,581 |   |
| V. N. Booker |       |             | 9,225      |                             |       |             | —     |   |   | 3,619 |   |

 

**Stock Option Grant, Exercise and Year-End ValuesTables**

Mirant did not grant anystock options in 2004.

**AggregatedStock Option Exercises in 2004 and Year-End Option Values**
| ** **   | ** ** | ** ** | ** ** | ** **                                                          | ** ** | **Number of Securities  Underlying Unexercised  Options at Year-End** | ** ** | **Value of Unexercised  In-the-Money Options at  Year-End ($)(2)** | ** ** |
|--------------|------------|------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Name**     | ** ** | ** ** | ** ** | **Number of  Shares  Acquired on Exercise (#)** | ** ** | **Value  Realized  ($)(1)**                                           | ** ** | **Exercisable**                                                    | ** ** | **Unexercisable** | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| S. M. Fuller |       |       | —     |                                                                |       |                                                                  | —     |                                                               |       | 1,225,660 |   |   | 475,000 |   |   |   | $ | 0 |   |   |   | $ | 0 |   |   |
| M. M. Burns  |       |       | —     |                                                                |       |                                                                  | —     |                                                               |       | — |   |   | — |   |   |   | $ | 0 |   |   |   | $ | 0 |   |   |
| C. A. Morgan |       |       | —     |                                                                |       |                                                                  | —     |                                                               |       | — |   |   | — |   |   |   | $ | 0 |   |   |   | $ | 0 |   |   |
| D. L. Miller |       |       | —     |                                                                |       |                                                                  | —     |                                                               |       | 232,126 |   |   | 100,000 |   |   |   | $ | 0 |   |   |   | $ | 0 |   |   |
| V. N. Booker |       |       | —     |                                                                |       |                                                                  | —     |                                                               |       | 204,677 |   |   | 67,667 |   |   |   | $ | 0 |   |   |   | $ | 0 |   |   |
|              |            |            |            |                                                                     |            |                                                                       |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          The Value Realized isordinary income, before taxes, and represents the amount equal to the excess ofthe fair market value of the shares or rights at the time of exercise above theexercise price.

(2)          Thesecolumns represent the excess of the fair market value of Mirant’s common stockof $0.385 per share, as of December 31, 2004, above the exercise price ofthe options. The amounts under the Exercisable column report the “value” ofoptions that are vested and therefore could be exercised. The Unexercisablecolumn reports the “value” of options that are not vested and therefore couldnot be exercised as of December 31, 2004.

**Long-TermIncentive Plans—Awards in 2004**

Mirant did not grant anylong-term incentive in 2004.

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**Pension Plan Table**

The following table shows the estimated annualpension benefit payable (rounded to $000) at normal retirement age (65) underMirant’s qualified pension plan, non-qualified pension plans and pension-relatedcontracts, based on the stated compensation (rounded to $000) and years ofAccredited Service with Mirant’s subsidiaries.
| ** **       | ** ** | **Years of Accredited Service** | ** ** |
|------------------|------------|---------------------------------|------------|
| **Compensation** | ** ** | ** **                      | ** ** | **10** | ** ** | **15** | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** |
| $250,000         |       | $                               | 41,100     |   | $ | 61,150 |   | $ | 81,300 |   | $ | 101,850 |   | $ | 121,600 |   |
| 500,000          |       | 83,600                          |       | 124,900 |   | 166,300 |   | 208,100 |   | 249,100 |   |
| 750,000          |       | 126,100                         |       | 188,650 |   | 251,300 |   | 314,350 |   | 376,600 |   |
| 1,000,000        |       | 168,600                         |       | 252,400 |   | 336,300 |   | 420,600 |   | 504,100 |   |
| 1,250,000        |       | 211,100                         |       | 316,150 |   | 421,300 |   | 526,850 |   | 631,600 |   |
| 1,500,000        |       | 253,600                         |       | 379,900 |   | 506,300 |   | 633,100 |   | 759,100 |   |
| 1,750,000        |       | 296,100                         |       | 443,650 |   | 591,300 |   | 739,350 |   | 886,600 |   |
|                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Pension benefits are calculated using a final averagepay formula and are based on a single life annuity without reduction for jointand survivor annuities. Compensation for pension purposes is limited to theaverage of the highest three (five for Mr. Miller) of the final10 years’ compensation. For Ms. Fuller, compensation is base salaryplus the excess of short-term incentive compensation over 10 percent ofbase salary. For the other executive officers listed in the SummaryCompensation Table, it is base salary plus the excess of short-term incentivecompensation over 15 percent of base salary. Accredited service at December 31,2004, is as follows: Ms. Fuller—19.3; Mr. Miller—5.6; and Mr. Booker—28.3.Ms. Burns and Mr. Morgan are excluded from the table because they arenot eligible to receive a defined benefit pension; they are covered under adefined contribution program.

In 2002 and 2003 theCompany purchased individual annuity contracts for certain employees who wereeligible for non-tax qualified pension plans and met certain age, years ofservice and benefit requirements. These annuities provide the same after-taxbenefit at retirement and offset amounts otherwise payable by the Company underexisting non-tax qualified pension plans. They are not intended to increase aparticipant’s pension benefit.

**Compensation of Directors**

Only non-employee directors are compensated for Boardservice. The pay components are annual retainers of $70,000 and meeting fees of$2,500 for each Board meeting attended and $1,250 for each committee or othermeeting attended.

The Board of Directors met 10 times in 2004. Eachdirector attended more than 85 percent of meetings of the Board andcommittees on which he or she served.

The Audit Committee met 15 times, the CompensationCommittee met 8 times, the Third Party Claims Committee met 7 times and theNominating and Governance Committee met 5 times. There is no pension plan fornon-employee directors.

Mr. Dahlberg, as thenon-employee Chairman of the Board, receives the same annual retainer andmeeting fees as the other non-employee directors. Until April 2004, Mirantowned fractional shares of a business aircraft. Mr. Dahlberg’s personaluse of such aircraft cost Mirant $10,004 in 2004. Mirant no longer owns anyshares of the aircraft.

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**EmploymentContracts, Termination of Employment and Change-in-Control Agreements**

Certain contracts thatwere entered into prior to Mirant’s bankruptcy filing are consideredpre-petition, and as such, the Company may decide either to accept or rejectthese contracts as part of the bankruptcy proceedings based on a cost benefitanalysis of the individual agreements. Additionally, any such claims withrespect to such pre-petition agreements are subject to Bankruptcy Courtapproval and the Court may limit the amount of such claims.

*EmploymentContracts*

Mirant has entered into employment agreements withcertain of the executive officers named in the Summary Compensation Table. Thecompensation provided for in each employment agreement is discussed below. Theamounts granted under these agreements are forfeited upon termination for causeor resignation. Amounts are paid immediately if the employee dies, becomesdisabled, or is terminated without cause. The Board is solely responsible foradministering these agreements.

Ms. Fuller—Effective December 30, 2004,Mirant entered into a Separation Agreement and Release of Certain Claims with Ms.Fuller. In general, the agreement provides for the payment by Mirant of a lumpsum separation payment to Ms. Fuller of $3.4 million upon the termination of Ms.Fuller’s active employment with Mirant. In addition, the agreement providesthat Ms. Fuller will be paid her 2004 short-term incentive at her targetincentive amount of $850,000. In exchange, Ms. Fuller releases all rightsand claims under her change-in-control agreement with Mirant, which would haveprovided severance protection of three times base salary and bonus.

The terms of the agreement were approved by the BankruptcyCourt in the Northern District of Texas pursuant to an Order issued in theCourt on September 2, 2004 and were agreed to by all of the Statutory Committees.Ms. Fuller is not covered under the Key Employee Retention Program asdetailed below.

Ms. Fuller and Mr. Booker do not haveemployment agreements.

Ms. Burns—Effective April 14, 2004, Mirantentered into an employment agreement with M. Michele Burns. This agreementprovides for compensation and benefits during the three-year term of theagreement, commencing on May 1, 2004. Under the terms of the agreement, Ms. Burns’base salary is $600,000 a year and Mirant evaluates Ms. Burns’scompensation on a yearly basis. In addition, Ms. Burns’s target bonuslevel during the term of her employment will be no less than 75% of base salarywith a maximum of two times the target. Upon joining Mirant in May 2004, Ms. Burnsreceived a make-whole payment of $1.5 million. Contingent on her continuedemployment, Ms. Burns will receive additional make-whole payments of $1million on April 1, 2005 and $500,000 on April 1, 2006. Uponemergence from Chapter 11, Ms. Burns will receive a bonus of not less than$1.2 million. Retention bonuses in the amount of $500,000 each will be awardedon April 1, 2006 and April 1, 2007. Additionally, Ms. Burns iseligible to receive the equivalent of her base salary under the same terms asthose in place for the Company’s Key Employee Retention Program (“KERP”), asapproved by the Bankruptcy Court.

Mr. Morgan**—**Effective September 1,2003, Mirant entered into an employment agreement with Curtis A. Morgan. Thisagreement provides for compensation and benefits during the two-year term ofthe agreement. Under the terms of the agreement, Mr. Morgan’s base salarywill be at least $360,000 a year and Mirant evaluates Mr. Morgan’scompensation on a yearly basis. In addition, Mr. Morgan’s target bonus is65% of base salary with a maximum of two times the target according to Mirant’sShort-Term Incentive Program. Mr. Morgan received lump sum retentionbonuses of $50,000 each on January 1, 2004 and May 1, 2004. Mr. Morganwas also eligible to receive two additional lump sum retention bonuses of$50,000 on September 1, 2004 and $100,000 on January 1, 2005, whichhe waived as part of his inclusion in the KERP as discussed below.

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On June 28, 2004, Mr. Morgan was promoted toExecutive Vice President and Chief Operations Officer.

Mr. Miller**—**Effective October 1, 1999, Mirant entered into anemployment agreement with Douglas L. Miller, which expired October 1,2004. This agreement provides for compensation and benefits during thefive-year term of the agreement. Under the terms of the agreement, because Mr. Millerwas still employed by the Company on September 30, 2004, his retirementpayments will be calculated with five years of additional service includedin the pension and supplemental executive retirement plan calculations.

**Key Employee Retention Program**

On or around September 23, 2004, the Companyentered into a Key Employee Retention Program and Change in Control ReleaseAgreement with Mr. Booker, Mr. Miller, and Mr. Morgan.

In general, the Agreement provides for the waiver andtermination of any change in control rights and agreements that the employeemay have against the Company in exchange for the employee’s participation inthe KERP and the KERP Enhanced Severance Program, both as previously adopted bythe Bankruptcy Court on August 11, 2004. The Agreement also provides forthe waiver of any previously awarded retention or severance benefits and of anyadministrative claims that the employee may have had on account of anyretention agreement, employment agreement, severance agreement and/or otheremployee benefit plan.

As participants in the KERP, each of Messrs. Booker,Miller and Morgan was eligible to receive up to 100% of their base salary if aplan of reorganization is filed with the Bankruptcy Court by a specified date. Ifthe plan had not been filed by a specified date, the total payout percentagewould have decreased by 10%. The amounts are payable 15% upon the filing of theplan of reorganization, 35% upon a confirmation of a plan of reorganization,and 50% at the effective date of a plan of reorganization. The plan ofreorganization was filed on January 19, 2005, which was in line with theCourt approved deadline, thus the applicable executive officers will receivefull awards.

As part of the Key Employee Retention Program andChange in Control Release Agreement, each of the above named executive officersis eligible for the KERP Enhanced Severance Program until one-year afteremergence from Chapter 11. In the event of termination without cause, includinga constructive termination, each are eligible for a severance payment equal to 24months’ base salary plus target short-term incentive and 24 months of medicalbenefits.

Ms. Fuller is not aparticipant in this program.

*Change In ControlArrangements*

Mr. Booker, Ms. Fuller, and Mr. Millerhad change in control agreements that were effective upon a change in controlof Mirant. As part of the bankruptcy proceedings and either under the terms ofthe Key Employee Retention Agreement or an individual separation agreement,each individual has waived their rights to their individual Change-in-Controlagreement.

Ms. Burns’s employment agreement provides that if achange in control occurs and her employment terminates within one year of suchchange in control by reason of her discharge other than for cause or by reason ofher resignation for good reason, including because of a material change in jobresponsibilities, then Ms. Burns is entitled to a separation payment equal totwo times annual base salary and bonus, plus certain other accrued obligationsand make-whole payments.

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**CompensationCommittee Interlocks and Insider Participation—None**

**Item 12.**                 *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters*

Thistable shows the number of shares owned by directors and executive officers asof December 31, 2004. The shares owned by all directors and executiveofficers as a group constituted less than one percent of the total number ofshares of Mirant common stock outstanding as of December 31, 2004. Miranthas no known beneficial owner of more than 5% of Mirant common stock.
| ** **                                                         | ** ** | **Total Beneficial  Ownership(1)** | ** ** | **Common Shares  Beneficially  Owned(2)** | ** ** | **Non-Convertible  Economic  Interests(3)** | ** ** | **Shares Individuals  Have Rights to  Acquire within  60 days(4)** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| A. D. Correll                                                      |       |                                    | 127,217    |                                           |       |                                        | 33,736     |                                                                                        |       |   | 93,481 |   |   |   | — |   |   |
| A. W. Dahlberg                                                     |       |                                    | 194,969    |                                           |       |                                        | 90,851     |                                                                                        |       |   | 104,118 |   |   |   | — |   |   |
| Stuart E.  Eizenstat                                               |       |                                    | 35,882     |                                           |       |                                        | —     |                                                                                        |       |   | 35,882 |   |   |   | — |   |   |
| S. Marce Fuller                                                    |       |                                    | 2,657,642  |                                           |       |                                        | 37,714     |                                                                                        |       |   | 1,085,935 |   |   |   | 1,533,993 |   |   |
| David J. Lesar                                                     |       |                                    | 77,197     |                                           |       |                                        | 5,000      | (5)                                                                                         |       |   | 72,197 |   |   |   | — |   |   |
| Robert F.  McCullough                                              |       |                                    | 2,762      |                                           |       |                                        | 1,000      |                                                                                        |       |   | 1,762 |   |   |   | — |   |   |
| James F. McDonald                                                  |       |                                    | 29,540     |                                           |       |                                        | 29,540     |                                                                                        |       |   | — |   |   |   | — |   |   |
| Ray M. Robinson                                                    |       |                                    | 32,684     |                                           |       |                                        | 2,500      |                                                                                        |       |   | 30,184 |   |   |   | — |   |   |
| M. Michele Burns                                                   |       |                                    | —     |                                           |       |                                        | —     |                                                                                        |       |   | — |   |   |   | — |   |   |
| Curtis A. Morgan                                                   |       |                                    | —     |                                           |       |                                        | —     |                                                                                        |       |   | — |   |   |   | — |   |   |
| Douglas L. Miller                                                  |       |                                    | 371,700    |                                           |       |                                        | 10,014     |                                                                                        |       |   | 71,227 |   |   |   | 290,459 |   |   |
| Vance N. Booker                                                    |       |                                    | 327,556    |                                           |       |                                        | 4,641      |                                                                                        |       |   | 75,571 |   |   |   | 247,344 |   |   |
| Directors and  Executive Officers as a Group (13 people) |       |                                    | 3,857,149  |                                           |       |                                        | 214,996    |                                                                                        |       |   | 1,570,357 |   |   |   | 2,071,796 |   |   |

----

(1)          “Beneficialownership” means the sole or shared power to vote, or to direct the voting of,a security, or sole or shared investment power with respect to a security, orany combination thereof. This column includes ownership interests in MirantCommon Shares, Non-Convertible Economic Interests, and Shares Individuals HaveRights to Acquire within 60 days (as of 3/1/2005).

(2)          Indicates shares ofMirant common stock beneficially owned. Shares indicated are included in theTotal Beneficial Ownership column.

(3)          Indicates stock units andperformance restricted stock units held in various benefit plans. Althoughthese rights track the market value of Mirant common stock, they are payable incash and are not convertible into common stock. Shares indicated are includedin the Total Beneficial Ownership column.

(4)          Indicates shares ofMirant common stock that certain directors and executive officers have theright to acquire within 60 days, by exercising stock options. The numbersand values of exercisable stock options as of December 31, 2004 are shownin Item 11. Shares indicated are included in the Total Beneficial Ownershipcolumn.

(5)          Includes5,000 shares held by a Family Limited Partnership. Mr. Lesar disclaimsbeneficial ownership of 71.06% of these shares.

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***Securities Authorized for Issuance Under EquityCompensation Plans***

Thefollowing table indicates the compensation plans under which equity securitiesof Mirant are authorized for issuance as of December 31, 2004:
| **Plan Category**                                      | ** ** | ** ** | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities remaining  available for future issuance  under equity compensation  plans (excluding securities to be  issued upon exercise of  outstanding options, warrants  and rights)(1)** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       |       | 15,532,732 |                                                                                                                                                 |       |                                                                                                        | $          | 13.12                                                                                                                                                                                                                                                                                             |       |   |   | 23,957,405 |   |   |
| Equity  compensation plans not approved by security holders |       |       | —     |                                                                                                                                                 |       |                                                                                                        | —     |                                                                                                                                                                                                                                                                                              |       |   | — |   |   |
| Total                                                       |       |       | 15,532,732 |                                                                                                                                                 |       |                                                                                                        | $          | 13.12                                                                                                                                                                                                                                                                                             |       |   |   | 23,957,405 |   |   |

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(1)          Includes8,685,294 shares subject to issuance under the Mirant Corporation EmployeeStock Purchase Plan.

**Item 13.**                 *Certain Relationships and Related Transactions*

Certain principals, oremployees, of Alix Partners, LLC (“Alix Partners”), a management consultingfirm, served in the role of Chief Restructuring Officer and in various otherfinancial professional roles during 2003 and 2004. Mirant has retained AlixPartners to provide certain financial expertise to assist the Company duringthe pendency of its bankruptcy case. During 2003 and 2004, Mirant incurred feesand expenses totaling $7.8 million and $9.6 million, respectively, payableto AlixPartners. Mirant expects to continue to incur fees with AlixPartnersduring the pendency of its bankruptcy case.

**Item 14.**                 *Principal Accountant Fees and Services*

Thefollowing table presents fees for professional audit services and otherservices rendered by KPMG LLP (in millions):
| ** **             | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees(1)          |       | $        | 12.9       |     | $          | 12.9 |   |
| Audit-Related  Fees(2) |       | 0.6      |       | 0.6      |       |
| Tax Fees(3)            |       | 0.6      |       | 1.0      |       |
| All Other Fees(4)      |       | 0.4      |       | 0.4      |       |
| Total                  |       | $        | 14.5       |     | $          | 14.9 |   |
| Reaudit Fees(5)        |       | $        | —     |     | $          | 9.1 |   |

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(1)          Audit fees and expensesrepresent fees billed and expected to be billed for professional servicesrendered in connection with: (a) audits and reviews of the 2004 and 2003Mirant Corporation consolidated financials in accordance with standards of thePublic Company Accounting Oversight Board; (b) audits of various Mirantsubsidiary financial statements required by statute or regulation; (c) consultationson accounting matters reflected in the financial statements; and (d) attestationservices with respect to securities offerings and SEC filings.

(2)          Audit-related feesrepresent fees billed for professional services rendered in connection with: (a) auditsof Mirant’s employee benefit plans; (b) internal control reviews; (c) accountingconsultation on the implementation of Sarbanes-Oxley Section 404; (d) auditsof Mirant subsidiaries not required 

105

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by statute or regulation(domestic and foreign); and (e) document production in connection withlegal subpoenas related to various Mirant litigation matters.

(3)          Tax fees represent feesbilled for professional services rendered in connection with: (a) taxcompliance; (b) consultations related to tax audits and appeals; and (c) technicaltax advice on rulings from taxing authorities.

(4)          All other fees representfees billed for professional services rendered with respect to various taxaspects of Mirant’s Sarbanes-Oxley Section 404 implementation.

(5)          Reauditfees represent fees billed for professional services rendered in connectionwith the reaudits and rereviews of the Mirant Corporation and subsidiaries2002, 2001 and 2000 consolidated financial statements, in accordance withauditing standards generally accepted in the United States of America.

*Audit CommitteePre-Approval*

The Audit Committee has pre-approved all auditservices and permitted non-audit services provided by the independent auditors,and the compensation, fees and terms for such services. The Committee also hasapproved an Independent Auditor Policy which requires Committee pre-approval ofthe compensation and terms of service for audit services provided by theindependent auditors and any changes in terms and compensation resulting fromchanges in audit scope, company structure or other matters. The Policy alsorequires pre-approval by the Audit Committee or its Chairman, the independentauditor’s lead partner, Mirant’s Chief Financial Officer or Controller, andMirant’s Corporate Secretary of the compensation and terms of service for anypermitted non-audit services provided by the independent auditors. Any proposednon-audit services exceeding the pre-approved fee levels require pre-approvalby the Audit Committee or its Chairman. The Controller reports quarterly to theAudit Committee on the services performed and fees incurred by the independentauditors for audit and permitted non-audit services during the prior quarter.

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**PART IV**

**Item 15.**                 *Exhibits and Financial Statement Schedules*

(a)          *1.*                 *Financial Statements*

See “Index to Financial Statements” set forth on page F-1.

2.                 *Financial Statement schedules*

None

3.                 *Exhibit Index*
| Exhibit No.                          | ** ** | ** **                                                                                                                                                                                                              | ** ** | **Exhibit Name** |
|-------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
|        2.1* |       | Joint Chapter 11 Plan of Reorganization for Mirant  Corporation and its Affiliated Debtors (Designated on Form 8-K filed  January 19, 2005 as Exhibit 2.1).                                              |
|        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-1  in 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.  (now Mirant Corporation) 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-1 in 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 as Exhibit 10.4)                                                   |
|     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 (Designated on Form 10-K filed March 21,  2001 as Exhibit 10.7)                                                                     |
|     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 Mirant Corporation Employee Stock  Purchase Plan                                                                                                                                                           |

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|     10.11* |   | Form of Amended and Restated Mirant Corporation  Omnibus Incentive Compensation Plan (Designated on Form 10-K filed  March 11, 2002 as Exhibit 10.29)                           |
|---------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     10.12* |   | Form of Amended and Restated Mirant Services  Supplemental Executive Retirement Plan (Designated on Form 10-K  filed March 11, 2002 as Exhibit 10.31)                           |
|     10.13* |   | Form of Amended and Restated Mirant Corporation  Deferred Compensation Plan for Directors and Select Employees (Designated on  Form 10-K filed March 11, 2002 as Exhibit 10.55) |
|     10.14* |   | First Amendment to Mirant Corporation Deferred  Compensation Plan for Directors and Select Employees (Designated on  Form 10-K filed March 11, 2002 as Exhibit 10.56)                |
|     10.15* |   | Form of Mirant Services Supplemental Benefit  Plan (Designated on Form 10-K filed March 11, 2002 as  Exhibit 10.57)                                                             |
|     10.16* |   | First Amendment to the Mirant Services Supplement  Benefit Plan (Designated on Form 10-K filed March 11, 2002 as  Exhibit 10.58)                                                     |
|     10.17* |   | Form of Mirant Services Supplemental  Compensation Plan (Designated on Form 10-K filed March 11,  2002 as Exhibit 10.59)                                                        |
|     10.18* |   | First Amendment to the Mirant Services Supplemental  Compensation Plan (Designated on Form 10-K filed March 11,  2002 as Exhibit 10.60)                                              |
|     10.19* |   | Form of First Amendment to the Amended and  Restated Mirant Services Supplemental Executive Retirement Plan (Designated on  Form 10-K filed March 11, 2002 as Exhibit 10.61)    |
|     10.20* |   | Form of Second Amendment to the Amended and  Restated Mirant Services Supplemental Executive Retirement Plan (Designated on  Form 10-K filed March 11, 2002 as Exhibit 10.62)   |
|     10.21* |   | Employment Agreement with Douglas L. Miller  (Designated on Form 10-K filed March 11, 2002 as  Exhibit 10.63)                                                                   |
|     10.22* |   | Mirant Corporation—Four Year Credit Agreement  (Designated on Form 8-K filed February 12, 2003 as  Exhibit 10.67)                                                               |
|     10.23* |   | Mirant Corporation—364-Day Credit Facility  (Designated on Form 8-K filed February 12, 2003 as  Exhibit 10.68)                                                                  |
|     10.24* |   | Mirant Corporation—Facility C Credit Agreement  (Designated on Form 8-K filed February 12, 2003 as  Exhibit 10.69)                                                              |
|     10.25* |   | Mirant Americas Generation, LLC—Facility B  Credit Agreement (Designated on Form 8-K filed February 12,  2003 as Exhibit 10.70)                                            |
|     10.26* |   | Mirant Americas Generation, LLC—Facility C  Credit Agreement (Designated on Form 8-K filed February 12,  2003 as Exhibit 10.71)                                            |
|     10.27* |   | Second Amendment to the Mirant Services Supplemental  Benefit Plan (Designated on Form 10-K filed April 29, 2003 as  Exhibit 10.72)                                                  |
|     10.28* |   | Employment Agreement with Daniel Streek (Designated on  Form 10-K filed April 29, 2003 as Exhibit 10.83 )                                                                            |
|     10.29* |   | Second Amendment to the Mirant Services Supplemental  Compensation Plan (Designated on Form 10-K filed April 29,  2003 as Exhibit 10.84)                                             |
|     10.30* |   | Third Amendment to the Amended and Restated Mirant  Services Supplemental Executive Retirement Plan (Designated on Form 10-Q  filed October 27, 2003 as Exhibit 10.86)               |
|     10.31* |   | Second Amendment to the Mirant Corporation Deferred  Compensation Plan for Directors and Select Employees (Designated on  Form 10-Q filed October 27, 2003 as Exhibit 10.87)         |
|     10.32* |   | Debtor-In-Possession Credit Agreement  (Designated on Form 10-Q filed December 19, 2003 as  Exhibit 10.88)                                                                           |
|     10.33* |   | Employment Agreement with Curt Morgan (Designated on  Form 10-Q filed December 19, 2003 as Exhibit 10.89)                                                                            |

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|     10.34* |   | Key Employee Retention Program and Change in Control  Release Agreement with Curt Morgan (Designated on Form 8-K filed  September 24, 2004 as Exhibit 99.1)                               |
|---------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     10.35* |   | Key Employee Retention Program and Change in Control  Release Agreement with Douglas L. Miller (Designated on Form 8-K  filed September 24, 2004 as Exhibit 99.2)                    |
|     10.36* |   | Key Employee Retention Program and Change in Control  Release Agreement with Vance N. Booker (Designated as Exhibit 99.3  on Form 8-K filed September 24, 2004 as Exhibit 99.3) |
|     10.37* |   | Key Employee Retention Program and Change in Control  Release Agreement with Aldie Warnock (Designated on Form 8-K filed  September 24, 2004 as Exhibit 99.4)                             |
|     10.38* |   | Separation Agreement and Release of Certain Claims  with S. Marce Fuller (Designated on Form 8-K filed December 30,  2004 as Exhibit 99.1)                                                |
|     10.39  |   | California Settlement Agreement dated  January 13, 2005                                                                                                                                             |
|     10.40  |   | Third Amendment to the Mirant Services Supplemental  Benefit Plan                                                                                                                                        |
|     10.41  |   | Third Amendment to the Mirant Services Supplemental  Compensation Plan                                                                                                                                   |
|     10.42  |   | Fourth Amendment to the Amended and Restated Mirant  Services Supplemental Executive Retirement Plan                                                                                                     |
|     10.43  |   | Third Amendment to the Mirant Corporation Deferred  Compensation Plan for Directors and Select Employees                                                                                                 |
|     10.44* |   | Employment Agreement with M. Michele Burns  (Designated on Form 10-Q filed August 9, 2004 as Exhibit 10.1)                                                                                |
|     10.45* |   | Employment Agreement with Loyd Alderman Warnock  (Designated on Form 10-Q filed August 9, 2004 as Exhibit 10.2)                                                                           |
|     10.46  |   | 2005 Short-term Incentive Plan Description                                                                                                                                                               |
|     10.47  |   | 2005 Named Executive Officer Base Compensation and Short-term  Incentive Targets                                                                                                                         |
|     16.1*  |   | Arthur Andersen LLP letter to the Securities and  Exchange Commission dated May 15, 2002 (Designated on Form 8-K  filed May 15, 2002 Exhibit 16.1)                                   |
|     21.1   |   | Subsidiaries of Registrant                                                                                                                                                                               |
|     24.1   |   | Power of Attorney                                                                                                                                                                                        |
|     31.1   |   | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a))                                                                           |
|     31.2   |   | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a))                                                                           |
|     32.1   |   | Certification of the Chief Executive Officer  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b))             |
|     32.2   |   | Certification of the Chief Financial Officer  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b))             |

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*                    Asteriskindicates exhibits incorporated by reference.

109

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on this 14th day ofMarch, 2005.
|        | MIRANT  CORPORATION |
|--------|---------------------|
|   | By:                 | /s/ S. MARCE FULLER | * * |
|   |                | *President and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below on March 14, 2005 by the following persons on behalf ofthe registrant and in the capacities indicated.
|                       | **Signatures** | ** **                                                    | ** ** | ** ** | **Title** | ** ** |
|-----------------------|----------------|---------------------------------------------------------------|------------|------------|-----------|------------|
| *                     |           | Chairman of the Board                                         |
| A. W. Dahlberg        |           |                                                          |
| /s/  S. MARCE FULLER  |           | President, Chief  Executive Officer and Director (Principal   |
| S. Marce Fuller       |           | Executive  Officer)                                           |
| /s/  M. MICHELE BURNS |           | Executive Vice President  and Chief Financial Officer         |
| M. Michele Burns      |           | (Principal  Financial Officer)                                |
| /s/  DAN STREEK       |           | Vice President and  Controller (Principal Accounting Officer) |
| Dan Streek            |           |                                                          |
| *                     |           | Director                                                      |
| A. D. Correll         |           |                                                          |
| *                     |           | Director                                                      |
| Stuart E.  Eizenstat  |           |                                                          |
| *                     |           | Director                                                      |
| David J. Lesar        |           |                                                          |
| *                     |           | Director                                                      |
| James F. McDonald     |           |                                                          |
| *                     |           | Director                                                      |
| Ray M. Robinson       |           |                                                          |
| *                     |           | Director                                                      |
| Robert F.  McCullough |           |                                                          |

 

*                    Byattorney-in-fact.

110

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