Filing Compare · GENON AMERICAS GENERATION LLC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2005
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to

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

For the Quarterly Period Ended June 30, 2006

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

For the Transition Period from to

Mirant Americas Generation, LLC

(Exact name of registrant as specified in its charter)

Delaware	~~N/A~~	~~51-0390520~~N/A	51-0390520
(State or other jurisdiction of	~~(Commission File Number)~~	(~~I.R.S. Employer~~Commission	(I.R.S. Employer
Incorporation or Organization)		~~Identification~~File ~~No.~~Number)	Identification No.)

1155 Perimeter Center West, Suite 100,	~~30338~~
Atlanta, Georgia	~~(Zip Code)~~	30338
(Address of Principal Executive Officers)
(Address of Principal Executive Offices)		(Zip Code)
(678) 579-5000	~~www.mirant.com~~
(Registrant’s Telephone Number,	~~(Web Page)~~
Including Area Code)

~~Indicate~~Securities byregistered ~~check~~pursuant ~~mark whether the registrant (1) has filed all reports required~~ to ~~be filed by~~ Section ~~13 or 15~~12(db) of ~~the Securities Exchange Act of 1934 during the preceding~~ ~~12 months (or for such shorter period that~~ the ~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.~~Act:

~~o Yes x No~~None

~~Indicate~~Securities byregistered ~~check~~pursuant ~~mark~~to ~~whether the registrant is an accelerated filer~~ Section 12(~~as defined by Rule~~g) ~~12b-2~~ of the Act).:

~~o Yes x No~~None

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

o Large Accelerated Filer

o Accelerated Filer

x Non-accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. x Yes o No

All of our outstanding membership interests are held by our parent, Mirant Americas, Inc., so we have no membership interests held by nonaffiliates.

TABLE OF CONTENTS

		Page
	Cautionary Statement Regarding Forward-Looking Information		3
	PART I—FINANCIAL INFORMATION
Item 1.	Interim Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations		6
	Condensed Consolidated and Combined Statements of Operations		5
	Condensed Consolidated Balance Sheets		76
	Condensed Consolidated Statements of Member’s Equity		8
	Condensed Consolidated Statements of Member’s Equity and Comprehensive Income		7
	Condensed Consolidated Statements of Cash Flows		9
	Condensed Consolidated and Combined Statements of Cash Flows		8
	Notes to the Condensed Consolidated Financial Statements		10
	Notes to the Condensed Consolidated and Combined Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition		3739
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4559
Item 4.	Controls and Procedures		4559
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		4760
Item 6.	Exhibits		48
Item 1A.	Risk Factors		68
Item 6.	Exhibits		68

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The information presented in this Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 in addition to historical information. These statements involve known and unknown risks and uncertainties and relate to future events, our future 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 other comparable terminology.

Forward-looking statements are only predictions. Actual events or results may differ materially from any forward-looking statement as a result of various factors, which include:

General Factors

· legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry; changes in state, federal and other regulations (including rate and other regulations); changes in, or changes in the application of, environmental and other laws and regulations to which we and our subsidiaries and affiliates are or could become subject;

· failure of our assets to perform as expected, including outages for unscheduled maintenance or repair;

· our ~~pursuit~~implementation of ~~potential~~ business strategies, including the acquisition of additional assets or the disposition or alternative utilization of existing assets;

· ~~changes~~our inability ~~market~~to ~~conditions,~~divest ~~including~~some ~~developments~~of inour ~~energy~~intermediate and ~~commodity~~peaking ~~supply, demand,~~gas ~~volume~~fired assets at prices and ~~pricing~~on orterms ~~the~~that ~~extent~~we ~~and~~would ~~timing~~be ofwilling ~~the~~to ~~entry~~accept, ofand ~~additional competition~~any inadverse impact on our ~~markets~~debt orrating ~~those~~that ofmay ~~our~~result ~~subsidiaries~~from ~~and~~such ~~affiliates~~sales;

· changes in market ~~volatility~~conditions, orincluding ~~other~~developments in energy and commodity supply, ~~market~~demand, ~~conditions~~volume ~~that~~and ~~could~~pricing, ~~increase~~or ~~our~~the ~~affiliates’~~extent ~~obligations~~and totiming ~~post~~of the entry of additional ~~collateral~~competition ~~beyond~~in ~~amounts~~our ~~which~~markets ~~are~~or ~~expected~~those of our subsidiaries and affiliates;

· ~~our inability to access~~increased ~~effectively~~margin ~~the~~requirements, ~~over-the-counter (“OTC”) and exchange-based commodity markets or changes in commodity~~ market ~~liquidity~~volatility or other ~~commodity~~ market conditions~~, which~~ ~~may~~that ~~affect~~could increase our ~~ability~~obligations to ~~engage~~post incollateral ~~asset~~beyond ~~hedging~~amounts ~~activities~~which asare expected;

· our inability to access effectively the over-the-counter and exchange-based commodity markets or changes in commodity market liquidity or other commodity market conditions, which may affect our ability to engage in asset management and proprietary trading activities as expected;

· our ability to borrow additional funds and access capital markets;

· strikes, union activity or labor unrest;

· weather and other natural phenomena, including hurricanes and earthquakes;

· the cost and availability of emissions allowances;

· our ability to obtain adequate fuel supply and delivery for our facilities;

· curtailment of operations due to transmission constraints;

· environmental regulations that restrict our ability to operate our business;

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

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

· hazards customary to the power generation industry and the possibility that we may not have adequate insurance to cover losses as a result of such hazards;

· price mitigation strategies employed by independent system operators that result in a failure to compensate our generation units adequately for all of their costs;

· volatility in our financial results as a result of our hedging activities;

· our inability to enter into intermediate and long-term contracts to sell power and procure fuel on terms and prices acceptable to us;

· hazards customary to the power generation industry and the possibility that we may not have adequate insurance to cover losses as a result of such hazards;

· price mitigation strategies employed by independent system operators (“ISOs”) or regional transmission organizations (“RTOs”) that result in a failure to compensate our generation units adequately for all of their costs;

· volatility in our gross margin as a result of our accounting for derivative financial instruments used in our asset management activities and volatility in our cash flow from operations resulting from working capital requirements, including collateral, to support our asset management and proprietary trading activities;

· our inability to enter into intermediate and long-term contracts to sell power and procure fuel, including its transportation, on terms and prices acceptable to us;

· the inability of our operating subsidiaries to generate sufficient cash flow and our inability to access that cash flow to enable us to make debt service and other payments;

· ~~our~~the ~~substantial~~fact ~~indebtedness and the possibility~~ that weour orNew ~~our~~York subsidiaries ~~may incur~~remain ~~additional indebtedness~~ in ~~the future~~bankruptcy;

· ~~restrictions~~our onsubstantial ~~the~~consolidated ~~ability~~indebtedness ofand ~~our~~the ~~subsidiaries~~possibility tothat ~~pay~~we ~~dividends, make distributions~~ or our ~~otherwise~~subsidiaries ~~transfer~~may ~~funds~~incur toadditional ~~us,~~indebtedness ~~including restrictions on Mirant Mid-Atlantic contained~~ in ~~its~~the ~~leveraged lease financing agreements~~future; ~~and~~

· ~~the~~restrictions ~~disposition~~on the ability of ~~the~~our ~~pending~~subsidiaries ~~litigation~~to ~~described~~pay individends, ~~this~~make ~~Form 10-Q~~distributions asor ~~well~~otherwise astransfer ~~our~~funds ~~Form 10-K~~to ~~for~~us, ~~the~~including ~~year~~restrictions ~~ended~~on ~~December 31~~Mirant Mid-Atlantic, LLC ~~2004.~~(“Mirant Mid-Atlantic”) contained in its leveraged lease financing agreements;

~~Bankruptcy-Related~~· the ~~Factors~~resolution of claims and obligations that were not resolved during the Chapter 11 process that may have a material adverse effect on our results of operations;

· ~~the~~our ~~lack~~ability ofto ~~comparable~~negotiate ~~financial~~favorable ~~data~~terms ~~due~~from tosuppliers, ~~the~~counterparties ~~restructuring~~and ofothers and ~~our~~to ~~business~~retain ~~and the~~customers ~~adoption~~because ofwe ~~fresh~~were ~~start~~previously ~~reporting~~subject to bankruptcy protection; and

· the ~~actions~~disposition ~~and decisions~~ of ~~our~~the ~~creditors~~pending ~~and~~litigation ofdescribed ~~other third parties with interests~~ in ~~the~~this ~~voluntary~~Form 10-Q ~~petitions for reorganization filed with the U.S.~~as ~~Bankruptcy~~well ~~Court~~as ~~for~~in ~~the~~our ~~Northern~~Annual ~~District~~Report ~~of Texas, Fort Worth Division (the “Bankruptcy Court”),~~ on ~~July~~Form ~~14, 2003, July 15, 2003, August 18, 2003, October 3, 2003 and November 18, 2003, by Mirant Corporation (“Mirant”) and substantially all of its wholly~~10-~~owned~~K ~~and~~for ~~certain non-wholly-owned U.S. subsidiaries (“Mirant Debtors”) under Chapter 11 (“Chapter 11”) of~~ the ~~U.S.~~ ~~Bankruptcy~~year ~~Code~~ended ~~(the “Bankruptcy Code”), including actions taken by our creditors and other third parties with respect to our proposed plan of reorganization, filed with the Bankruptcy Court on January~~December 1931, ~~2005 as~~ ~~amended on March 25,~~ 2005 ~~and any subsequent amendments thereto (the “Plan”);~~.

~~· the Mirant~~We ~~Debtors’~~undertake ~~ability~~no obligation to ~~satisfy~~update ~~the~~publicly ~~conditions~~or ~~precedent~~revise toany ~~the effectiveness~~forward-looking ofstatements ~~the~~to ~~proposed~~reflect ~~Plan,~~events or ~~including~~circumstances ~~their~~that ~~ability~~may toarise ~~secure~~after the ~~necessary~~ ~~financing;~~date of this report.

· the effects of the Chapter 11 proceedings on our liquidity and results of operations;

· the instructions, orders and decisions of the Bankruptcy Court, the U.S. District Court for the Northern District of Texas, the U.S. Court of Appeals for the Fifth Circuit and other legal and administrative proceedings, settlements, investigations and claims;

· our ability to operate pursuant to the terms of our debtor-in-possession financing agreement;

· our ability to successfully reject unfavorable contracts;

· the disposition of unliquidated claims against us;

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

· possible decisions by the Mirant Debtors’ pre-petition creditors who may receive Mirant common stock upon emergence from bankruptcy and therefore may have the right to select Mirant’s board members and influence certain aspects of our business operations;

· the possibility that certain of our subsidiaries may remain in bankruptcy after our emergence;

· the effects of changes in our organizational structure in conjunction with our emergence from Chapter 11 protection, including changes resulting from our reorganization under a new parent entity formed in a jurisdiction outside the United States; and

· the duration of our Chapter 11 proceedings.

The ultimate outcome of matters with respect to which we make forward-looking statements and the terms of any reorganization plan ultimately confirmed can affect the value of our various pre-petition liabilities and other securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. Accordingly, we urge that caution be exercised with respect to existing and future investments in these liabilities and/or securities.

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

Factors that Could Affect Future Performance

In addition to the ~~discussion~~ discussion of certain risks in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying Notes to Mirant ~~Americas~~ Americas Generation, LLC’s unaudited condensed consolidated and combined financial statements, other factors that could affect the Company’s future performance (business, financial condition or results of operations and cash flows) are set forth in our ~~2004~~2005 Annual Report on Form 10-K.

Certain Terms

As used in this report, “we,” “us,” “our,” the “Company” and “Mirant Americas Generation” refer to Mirant Americas Generation, LLC and its subsidiaries, unless the context requires otherwise.

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
(Wholly-Owned Indirect Subsidiary of Mirant Corporation)

JUNE 30, 2006, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
and
JUNE 30, 2005, CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	(in millions)
Operating revenues—affiliate	$	27		$	25		$	30		$	60
Operating revenues—nonaffiliate	654			643			1,627			1,199
Total operating revenues	681			668			1,657			1,259
Cost of fuel, electricity and other products—affiliate	35			35			51			65
Cost of fuel, electricity and other products—nonaffiliate	265			402			572			768
Total cost of fuel, electricity and other products	300			437			623			833
Gross Margin	381			231			1,034			426
Operating Expenses:
Operations and maintenance—affiliate, including restructuring charges of $2 in 2005	70			73			140			151
Operations and maintenance—nonaffiliate	83			80			156			141
Depreciation and amortization	35			32			67			65
Generation facilities rent	24			26			48			51
Gain on sales of assets, net	(6		)	—			(6		)	(1		)
Total operating expenses	206			211			405			407
Operating Income	175			20			629			19
Other Expense (Income), net:
Interest expense—affiliate	—			3			—			6
Interest expense—nonaffiliate	68			2			143			3
Interest income—affiliate	(1		)	—			(1		)	—
Interest income—nonaffiliate	(9		)	—			(16		)	(1		)
Gain on sale of investments	(2		)	—			(2		)	—
Other, net	3			(1		)	—			(2		)
Total other expense, net	59			4			124			6
Income Before Reorganization Items and Income Taxes	116			16			505			13
Reorganization items, net	(1		)	(23		)	(1		)	7
Provision (benefit) for income taxes	2			(1		)	2			5
Net Income	$	115		$	40		$	504		$	1

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES (Wholly-Owned Indirect Subsidiary of Mirant Corporation) ~~(Debtor-in-Possession) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)~~

	Three Months Ended March 31,
	2005			2004
	(in millions)
Operating Revenues:
Affiliate	$	381		$	471
Nonaffiliate	50			77
Total operating revenues	431			548
Cost of fuel, electricity and other products—affiliate	210			300
Cost of fuel, electricity and other products—nonaffiliate	54			45
Total cost of fuel, electricity and other products	264			345
Gross Margin	167			203
Operating Expenses:
Generation facilities rent	25			24
Depreciation and amortization	23			23
Operations and maintenance—affiliate	62			70
Operations and maintenance—nonafiliate	57			58
Gain on sales of assets, net	(1		)	—
Total operating expenses	166			175
Operating Income	1			28
Other (Expense) Income, net:
Interest expense—affiliate	(2		)	—
Other, net	1			—
Total other expense, net	(1		)	—
Income from Continuing Operations Before Reorganization Items and Income Taxes	—			28
Reorganization items, net	15			13
Provision (benefit) for income taxes	6			—
Net (Loss) Income	$	(21	)	$	15

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	At June 30,				At December 31,
	2006				2005
	(Unaudited)
	(in millions)
ASSETS
Current Assets:
Cash and cash equivalents		$	377			$	424
Funds on deposit		429				1,540
Receivables:
Affiliate		16				21
Nonaffiliate, less allowance for uncollectibles of $6 and $10 for 2006 and 2005, respectively		328				583
Price risk management assets—affiliate		13				—
Price risk management assets—nonaffiliate		655				604
Prepaid rent and other payments		118				147
Inventories		377				278
Assets held for sale		—				7
Investment in securities available for sale		44				30
Total current assets		2,357				3,634
Property, Plant and Equipment, net		2,819				2,808
Noncurrent Assets:
Intangible assets, net		216				221
Price risk management assets—affiliate		3				—
Price risk management assets—nonaffiliate		116				105
Prepaid rent		220				208
Funds on deposit		4				5
Accounts receivable, less allowance for uncollectibles of $3 for 2006 and 2005		5				2
Debt issuance costs, net		64				37
Other		9				—
Total noncurrent assets		637				578
Total assets		$	5,813			$	7,020
LIABILITIES AND EQUITY
Current Liabilities:
Notes payable—affiliate		$	7			$	21
Current portion of long-term debt		74				3
Claims payable and estimated claims accrual		97				1,831
Accounts payable and accrued liabilities		306				486
Payable to affiliate		70				305
Price risk management liabilities—affiliate		3				5
Price risk management liabilities—nonaffiliate		494				791
Accrued property taxes		216				186
Other		8				—
Total current liabilities		1,275				3,628
Noncurrent Liabilities:
Long-term debt		3,216				2,590
Price risk management liabilities—nonaffiliate		28				27
Asset retirement obligations		37				33
Other		—				5
Total noncurrent liabilities		3,281				2,655
Liabilities Subject to Compromise		34				34
Commitments and Contingencies
Equity:
Member’s interest		1,510				995
Preferred stock in affiliate		(329		)		(319		)
Accumulated other comprehensive income		42				27
Total equity		1,223				703
Total liabilities and equity		$	5,813			$	7,020

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES (Wholly-Owned Indirect Subsidiary of Mirant Corporation) ~~(Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEETS~~

	At March 31, 2005				At December 31, 2004
	(Unaudited)
	(in millions)
Assets
Current Assets:
Cash and cash equivalents		$	499			$	414
Receivables:
Affiliate		250				246
Customer accounts		3				11
Price risk management assets—affiliate		23				11
Prepaid rent and other payments		124				133
Inventory		155				162
Other current assets		20				35
Total current assets		1,074				1,012
Property, Plant and Equipment, net		2,106				2,109
Noncurrent Assets:
Other intangible assets, net		205				207
Notes receivable from affiliate		478				478
Price risk management assets—affiliate		7				1
Prepaid rent		173				197
Other noncurrent assets		28				26
Total noncurrent assets		891				909
Total Assets		$	4,071			$	4,030
Liabilities and Member’s Equity
Current Liabilities:
Accounts payable and accrued liabilities		$	53			$	51
Payable to affiliates		33				52
Price risk management liabilities—affiliate		120				62
Revenue subject to refund		5				5
Accrued taxes—affiliate		70				51
Accrued taxes		136				122
Other current liabilities		14				8
Total current liabilities		431				351
Noncurrent Liabilities:
Price risk management liabilities—affiliate		6				1
Other noncurrent liabilities		24				46
Total noncurrent liabilities		30				47
Liabilities Subject to Compromise		3,437				3,438
Member’s Equity:
Member’s interest		3,853				3,853
Accumulated deficit		(3,680		)		(3,659		)
Total member’s equity		173				194
Total Liabilities and Member’s Equity		$	4,071			$	4,030

CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY AND
COMPREHENSIVE INCOME (UNAUDITED)
(in millions)

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

								Accumulated
				Preferred				Other
	Member’s			Stock in				Comprehensive			Comprehensive
	Interest			Affiliate				Income			Income
Balance, December 31, 2005		$	995		$	(319	)		$	27
Net Income		504			—				—			$	504
Amortization of discount on preferred stock in affiliate		10			(10		)		—			—
Capital contribution pursuant to the Plan of Reorganization		1			—				—			—
Other comprehensive income		—			—				15			15
Comprehensive Income												$	519
Balance, June 30, 2006		$	1,510		$	(329	)		$	42

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES (Wholly-Owned Indirect Subsidiary of Mirant Corporation) ~~(Debtor-in-Possession) CONDENSED CONSOLIDATED STATEMENTS of MEMBER’S EQUITY (UNAUDITED)~~

	Member’s Interest			Accumulated Deficit
	(in millions)
Balance, December 31, 2004		$	3,853		$	(3,659	)
Net loss		—			(21		)
Balance, March 31, 2005		$	3,853		$	(3,680	)

JUNE 30, 2006, CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
and
JUNE 30, 2005, CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

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

	Six Months Ended June 30,
	2006			2005
	(in millions)
Cash Flows from Operating Activities:
Net income	$	504		$	1
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	72			65
Price risk management activities, net	(376		)	(67		)
Deferred income taxes	—			2
Non-cash charges for reorganization items	—			(17		)
Gain on sales of assets and investments	(8		)	(1		)
Other, net	—			1
Changes in operating assets and liabilities:
Affiliate accounts receivable, net	5			(5		)
Customer accounts receivable, net	344			91
Prepaid rent	(12		)	(17		)
Inventories	(99		)	20
Other assets	199			(29		)
Accounts payable and accrued liabilities	(219		)	(110		)
Settlement of claims payable	(744		)	—
Payable to affiliate	15			8
Property taxes accrued, affiliate	—			(5		)
Property taxes accrued, nonaffiliate	30			18
Other liabilities	48			5
Total adjustments	(745		)	(41		)
Net cash used in operating activities	(241		)	(40		)
Cash Flows from Investing Activities:
Capital expenditures	(63		)	(62		)
Repayments on notes receivable from affiliate	—			11
Proceeds from the sales of assets and investments, net	16			4
Net cash used in investing activities	(47		)	(47		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	2,015			1
Repayment of debt-affiliate	(13		)	—
Repayment of long-term debt-nonaffiliate	(470		)	(1		)
Settlement of debt under the Plan	(990		)	—
Payment to affiliate under the Plan	(250		)	—
Debt issuance cost	(51		)	—
Net cash provided by financing activities	241			—
Net Decrease in Cash and Cash Equivalents	(47		)	(87		)
Cash and Cash Equivalents, beginning of period	424			636
Cash and Cash Equivalents, end of period	$	377		$	549
Supplemental Cash Flow Disclosures:
Cash paid for interest, net of amounts capitalized	$	111		$	9
Cash paid for claims and professional fees from bankruptcy	$	1,742		$	33
Financing Activity:
Capital contribution—non-cash	$	1		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES ~~(Wholly-Owned~~NOTES ~~Indirect~~TO ~~Subsidiary of Mirant Corporation) (Debtor-in-Possession)~~ CONDENSED CONSOLIDATED ~~STATEMENTS~~ OFAND ~~CASH~~COMBINED ~~FLOWS~~FINANCIAL ~~(UNAUDITED)~~STATEMENTS

	Three Months Ended March 31,
	2005			2004
	(in millions)
Cash Flows from Operating Activities:
Net (loss) income	$	(21	)	$	15
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	23			23
Unrealized losses on price risk management assets and liabilities—affiliate, net	45			38
Restructuring charges, net of amounts paid	—			4
Non-cash charge for reorganization items	3			—
Deferred income taxes	1			—
Gain on sale of assets, net	(1		)	—
Changes in certain assets and liabilities:
Affiliate receivables	(4		)	(45		)
Customer accounts receivable	13			(2		)
Inventory	7			5
Prepaid rent	25			24
Other assets	10			16
Accounts payable and accrued liabilities	—			(6		)
Payable to affiliate	(18		)	(1		)
Accrued taxes—affiliate	31			—
Accrued taxes—nonaffiliate	(15		)	16
Total adjustments	120			72
Net cash provided by operating activities	99			87
Cash Flows from Investing Activities:
Capital expenditures	(18		)	(14		)
Proceeds from sale of assets	4			—
Net cash used in investing activities	(14		)	(14		)
Cash Flows from Financing Activities:
Net cash provided by financing activities	—			—
Net Increase in Cash and Cash Equivalents	85			73
Cash and Cash Equivalents, beginning of period	414			324
Cash and Cash Equivalents, end of period	$	499		$	397
Supplemental Cash Flow Disclosures:
(Cash refund received) cash paid for income taxes	$	—		$	(1	)
Cash paid for interest	$	2		$	1

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

MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES

(Debtor-in-Possession)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2005 and 2004

A. Description of Business

Overview

Mirant Americas Generation, LLC, including its subsidiaries (collectively, the “Company” or “ Mirant Americas Generation”), is a national independent power provider and an indirect wholly-owned subsidiary of Mirant Corporation (“Mirant”). ~~The~~Mirant ~~Company produces~~was ~~and~~incorporated ~~sells electricity~~ in ~~the~~Delaware ~~United States under fixed price contracts and~~ on ~~the spot market to its energy marketing affiliate Mirant Americas Energy~~September 23, ~~Marketing L.P. (“Mirant Americas Energy Marketing”)~~2005, ~~utilities~~ and ~~energy merchants.~~is ~~The~~the ~~Company~~successor ~~sells~~to ~~substantially~~a ~~all~~corporation of the ~~output~~same ~~from~~name ~~its generating~~that ~~facilities~~was informed ~~the forward and spot markets and the remainder under~~in ~~contracts~~Delaware ~~with~~on ~~third~~April 3, ~~parties~~1993. InThis ~~addition,~~succession ~~Mirant~~occurred ~~Americas~~by ~~Energy~~virtue ~~Marketing arranges~~of ~~for~~ the transfer ~~supply~~ of substantially all of ~~the~~old ~~fuel used by the Company~~Mirant’s ~~generating~~ ~~units~~assets ~~and~~to ~~emissions~~new ~~allowances~~Mirant ~~which are utilized~~ in conjunction ~~connection~~ with ~~the~~ ~~business.~~old ~~The~~Mirant’s ~~Company~~emergence ~~uses~~from ~~derivative~~bankruptcy ~~financial~~protection ~~instruments~~on January 3, 2006. ~~such~~Old ~~as commodity~~Mirant ~~forwards,~~was ~~futures,~~then ~~options~~renamed and ~~swaps~~transferred to ~~manage~~a ~~its~~trust ~~exposure~~which ~~to fluctuations in electric energy and fuel prices. The Company~~ is ~~a Delaware limited~~not ~~liability~~affiliated ~~company~~with ~~and~~new ~~owns~~Mirant. orAs ~~leases~~used ~~approximately~~in ~~11,000~~this ~~megawatts~~report (“MWMirant”) ~~of electric~~refers ~~generation~~to ~~capacity in the United States. The Company operates~~old ~~56 generating~~Mirant ~~units~~prior atto 19January ~~plants~~3, ~~serving~~2006, ~~customers~~and ~~located~~to ~~near~~new ~~major metropolitan~~Mirant ~~load~~on ~~centers~~or inafter ~~Maryland~~January 3, ~~Virginia, California, New York,~~ ~~Massachusetts and Texas~~2006.

The Company ~~has~~produces ~~entered into~~and asells ~~number~~substantially all of ~~service~~the output ~~agreements~~from ~~with~~its ~~subsidiaries~~generating offacilities ~~Mirant~~in ~~related~~the toforward and spot markets and the ~~sales~~remainder ofunder ~~its~~contracts ~~electric~~with ~~power~~third ~~and~~parties. ~~the~~The ~~procurement~~Company ofuses ~~fuel~~derivative financial ~~and~~instruments, ~~labor~~such as commodity forwards, futures, options and swaps ~~administrative~~to ~~services~~manage ~~essential~~its exposure to ~~operating~~fluctuations ~~its~~in ~~business.~~electric ~~These~~energy ~~related parties~~and ~~are~~fuel ~~primarily~~prices. ~~Mirant,~~The Company ~~Mirant~~is ~~Americas~~a ~~Energy~~Delaware ~~Marketing~~limited liability company and ~~Mirant~~owns or leases ~~Services~~approximately 12,035 ~~LLC~~megawatts (“~~Mirant Services~~MW”) of electric generation capacity in the United States. The ~~arrangements~~Company ~~with~~operates ~~these~~72 generating ~~related~~units ~~parties~~at 21 plants ~~are~~serving ~~discussed~~customers located near major metropolitan load centers in ~~Note~~Maryland, California, CNew York, Massachusetts, Michigan, Virginia and Texas.

Pursuant to the Plan of Reorganization (the “Plan”), that was approved in conjunction with Mirant’s emergence from bankruptcy, in December 2005 Mirant contributed its interest in Mirant Potomac River, LLC (“Mirant Potomac River”) and Mirant Peaker, LLC (“Mirant Peaker”) to our indirect wholly-owned subsidiary Mirant Mid-Atlantic, LLC (“Mirant Mid-Atlantic”) and its interest in Mirant Zeeland, LLC (“Mirant Zeeland”) and Mirant Americas Energy Marketing, LP (“Mirant Americas Energy Marketing”), Mirant Americas Development, Inc., Mirant Americas Production Company, Mirant Americas Energy Capital, LLC, Mirant Americas Energy Capital Assets, LLC, Mirant Americas Development Capital, LLC, Mirant Americas Retail Energy Marketing, LP, and Mirant Americas Gas Marketing, LLC (collectively, the “Trading Debtors”) to Mirant North America, LLC (“Mirant North America”), a newly organized holding company subsidiary. All of the contributed subsidiaries were under the common control of Mirant and are collectively referred to as the “Contributed Subsidiaries.” Mirant’s contribution of the Contributed Subsidiaries resulted in a change in the Mirant Americas Generation reporting entity under Accounting Principles Board Opinion No. 20, “Accounting Changes,” which was replaced by Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections,” and accordingly the Company has restated the financial statements for all prior periods to reflect the financial information of the new reporting entity. On January 31, 2006, the trading and marketing business of the Trading Debtors was transferred to Mirant Energy Trading, LLC (“Mirant Energy Trading”), a wholly-owned subsidiary of Mirant North America. After these transfers took place, the Trading Debtors were transferred to a trust created under the Plan that is not affiliated with the Company. As a result, the Company now executes the affiliate transactions previously executed with the Trading Debtors with Mirant Energy Trading. On August 9, 2006, Mirant announced the planned sales of our Zeeland (837 MW) and Bosque (532 MW) plants.

The Company has a number of service agreements for labor and administrative services with Mirant Services, LLC (“Mirant Services”). In addition, Mirant Energy Trading, and previously Mirant Americas

Energy Marketing, provides services to other Mirant affiliates related to the sale of electric power and the procurement of fuel and emissions allowances.

Basis of Presentation

The accompanying ~~condensed~~unaudited condensed consolidated and combined financial statements ~~(unaudited)~~ of Mirant Americas Generation and its wholly-owned subsidiaries have been prepared in accordance ~~with~~ ~~accounting~~with ~~principles~~United States generally accepted inaccounting ~~the~~principles ~~United States of America~~ (“GAAP”) for interim financial information and with ~~the~~ the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the combined and consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2004~~2005.

The accompanying unaudited condensed consolidated and combined financial statements include the accounts of Mirant Americas Generation and its wholly-owned subsidiaries and the Contributed Subsidiaries as discussed above and have been prepared from records maintained by Mirant Americas Generation, ~~and~~ its subsidiaries and the Contributed Subsidiaries. All significant intercompany accounts and transactions have been eliminated in ~~consolidation~~preparing the condensed consolidated and combined financial statements. Certain prior period amounts have been reclassified to conform to the current year financial statement presentation.

~~New~~Impairment ~~Accounting Standard~~of ~~Not~~Long-Lived ~~Yet Adopted~~Assets

InMirant ~~March 2005~~Americas Generation 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 the carrying amount of the asset may not be ~~Financial~~recoverable. ~~Accounting~~Such ~~Standards~~evaluations ~~Board~~are ~~(“FASB”)~~performed ~~issued~~in ~~FASB~~accordance ~~Interpretation~~with SFAS No. 47144, “Accounting for ~~Conditional~~the ~~Asset~~Impairment ~~Retirement Obligations~~or ~~(“FIN~~Disposal ~~47”)~~of Long-Lived Assets.” ~~The~~Recoverability ~~interpretation~~of ~~requires~~assets ~~companies~~ to be held and used is ~~recognize~~measured by a ~~liability~~comparison ~~for~~of the ~~fair~~carrying ~~value~~amount of aan ~~legal~~asset ~~obligation~~to the estimated undiscounted future cash flows expected to ~~perform~~be generated by the asset. If the ~~retirement~~carrying ~~activities~~amount ~~that~~of ~~are~~an ~~conditional~~asset onexceeds aits estimated undiscounted future ~~event~~cash flows, ifan impairment charge is recognized as the amount ~~can~~by which the carrying beamount ~~reasonably~~of ~~estimated~~the asset exceeds the discounted future cash flows of the asset. Assets ~~FIN~~to 47be isdisposed ~~effective~~of ~~for~~are separately presented in the ~~fiscal~~accompanying ~~years~~condensed consolidated ~~ending~~balance ~~after~~sheets ~~December 15,~~and are reported at the lower of the carrying ~~2005~~amount or fair value less costs to sell, and are not depreciated. The ~~Company~~assets and ~~will~~liabilities ~~adopt~~of a disposal group classified as held for sale are presented separately in the ~~provisions~~appropriate asset and liability sections of the accompanying condensed consolidated balance sheets.

On August 9, 2006, Mirant announced the planned sale of various gas fired assets. The Mirant Americas Generation assets to be sold include the Zeeland (837 MW) and Bosque (532MW) intermediate and peaking gas fired plants. The planned sales will result in the reclassification of the long-lived assets related to these plants as held for sale beginning in the third quarter of 2006. Initial estimates indicate that for each of these plants an impairment loss will need to be recorded in the third quarter to reduce the carrying value of these plants to the fair value less costs to sell. While the amount of the impairment loss has not yet been determined, the Company currently estimates the total impairment loss for these two plants will range from $100 million to $200 million and will be reflected as a loss from discontinued operations in the Company’s condensed consolidated statements of operations for the third quarter of 2006.

~~FIN~~Recently ~~47 on~~Adopted ~~the~~Accounting ~~earlier of its emergence from bankruptcy or the effective date. The Company has not yet determined the impact, if any, of FIN 47 on its financial statements.~~Standard

BIn September 2005, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force (“EITF”) Issue 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”), which requires companies to account for certain purchases and sales of inventory with the same counterparty as a single transaction. ~~Bankruptcy~~ The Company ~~Related~~adopted ~~Disclosures~~EITF 04-13 on April 1, 2006. The adoption of EITF 04-13 did not have a material impact on the Company’s statements of operations, financial position or cash flows during the quarter.

OnNew ~~January 19,~~Accounting ~~2005, the~~Standards ~~Mirant~~Not ~~Debtors~~Yet filed a proposed Plan of Reorganization (as amended, the “Plan”) and Disclosure Statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court. A First Amended Plan and a First Amended Disclosure Statement were filed on March 25, 2005. The proposed Plan sets forth the proposed structure of the Mirant Debtors at emergence and outlines how the claims of creditors and stockholders are proposed to be treated. If the Disclosure Statement is found by the Bankruptcy Court to contain adequate information, then the Mirant Debtors will solicit votes on the proposed Plan from those creditors, security holders and interest holders who are entitled to vote on the proposed Plan.Adopted

~~Under~~In February 2006, the ~~proposed~~FASB ~~Plan,~~issued ~~(1)~~SFAS No. ~~the~~155, ~~intermediate~~“Accounting ~~holding~~for ~~company~~Certain ~~subsidiaries~~Hybrid ofFinancial Instruments” ~~Mirant~~(“SFAS ~~Americas~~No. 155”), ~~Generation~~which ~~(excluding~~allows fair value ~~Mirant~~measurement ~~Mid-Atlantic~~for ~~and,~~any ~~absent~~hybrid afinancial ~~resolution~~instrument ofthat ~~certain~~contains ~~outstanding~~an ~~property~~embedded ~~tax~~derivative ~~disputes,~~that ~~Mirant~~otherwise ~~New~~would ~~York)~~require ~~will~~bifurcation. beSFAS ~~merged~~No. 155 ~~and~~is effective ~~consolidated~~for toall ~~form~~financial ~~Mirant North~~instruments ~~America~~acquired, ~~LLC~~issued ~~(“Mirant~~or ~~North~~subject ~~America”),~~to a re-measurement ~~single~~event ~~intermediate~~beginning ~~holding company~~in ~~subsidiary~~the offirst ~~Mirant~~fiscal ~~Americas~~year ~~Generation;~~after ~~(2)~~September ~~Mirant Mid-Atlantic~~15, ~~will~~2006. beAt ~~merged~~the ~~into~~date aof ~~subsidiary~~adoption, ofany ~~Mirant~~difference ~~North~~between ~~America~~the ~~and~~total ~~(3) in~~carrying ~~the~~amount ~~event~~of itthe isexisting ~~excluded~~bifurcated ~~from~~hybrid ~~the~~financial ~~Plan,~~instrument and the ~~capital~~fair ~~stock~~value of the ~~Mirant~~combined ~~New~~hybrid ~~York~~financial instrument will be ~~contributed~~recognized as a cumulative effect adjustment to ~~Mirant~~beginning ~~North~~retained ~~America~~earnings. ~~Mirant~~The ~~North~~Company ~~America~~ will ~~directly~~adopt orSFAS No. 155 ~~indirectly~~on ~~own~~January 1, ~~100%~~2007. The adoption of ~~the~~SFAS ~~equity~~No. 155 ~~interests~~is innot expected to have a material impact on the ~~operating~~Company’s ~~subsidiaries~~statements of ~~Mirant~~ ~~Americas Generation~~operations, ~~including~~financial position ~~Mirant~~or ~~Mid-Atlantic~~cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS No. 156”), which requires all separately recognized servicing assets and servicing liabilities to be measured initially at fair value and permits, but does not require, an entity to measure subsequently those servicing assets or liabilities at fair value. SFAS No. 156 is effective at the beginning of the first fiscal year after September 15, 2006. The ~~proposed~~Company ~~Plan~~will ~~implements~~adopt SFAS No. 156 on January 1, 2007. All requirements for recognition and initial measurement of servicing assets and servicing liabilities will be applied prospectively to transactions occurring after the adoption of this statement. The adoption of SFAS No. 156 is ~~built~~not ~~around~~expected to have a material impact on the ~~following~~Company’s ~~key~~statements ~~elements:~~of operations, financial position or cash flows.

· In April 2006, the FASB issued FASB Staff ~~business~~Position of(“FSP”) ~~the~~FASB ~~Mirant~~Interpretation ~~Debtors~~(“FIN”) ~~will~~46R-6, ~~continue~~“Determining the Variability to be ~~operated~~Considered in ~~substantially~~Applying FASB Interpretation No. 46R” (“FSP ~~its~~FIN ~~current~~46R-6”). ~~form,~~The ~~subject~~variability tothat is considered in applying FIN 46 (1)Revised December ~~certain~~2003), ~~internal~~“Consolidation of ~~structural~~Variable ~~changes~~Interest ~~that~~Entities—an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46R”) affects the ~~Mirant~~determination ~~Debtors~~of whether ~~believe~~an ~~will~~entity ~~improve~~is ~~operational~~a ~~efficiency~~variable interest entity (“VIE”), ~~facilitate~~which interests are variable interests in the entity, and which party, if any, is the primary ~~optimize~~beneficiary ~~their~~of ~~ability~~the VIE. According to ~~meet~~FSP ~~financing~~FIN ~~requirements~~46R-6, the variability to be considered should be based on the nature of the risks of the entity and ~~accommodate~~the purpose ~~their~~for which the entity was created. The guidance in FSP FIN 46R-6 ~~debt~~is ~~structure~~applicable asprospectively ~~contemplated~~to an entity at ~~emergence~~the time a company first becomes involved with such entity and ~~(2) organizing~~is applicable to all entities previously required to be analyzed under FIN 46R when a reconsideration event has occurred beginning with the ~~new~~first reporting period after June 15, 2006. ~~parent~~Retrospective ~~entity~~application ~~for~~to the ~~Mirant~~date ~~Debtors’~~of ~~ongoing~~the ~~business~~initial ~~operations~~application ~~(“New~~of ~~Mirant”)~~FIN 46R is inpermitted but not required. The Company adopted FSP FIN 46R-6 on July 1, 2006, on a ~~jurisdiction~~prospective ~~outside~~basis. Upon adoption there was no impact on the ~~United~~Company’s statements ~~States;~~of operations, financial position or cash flows.

~~· the estates~~On ofJuly 13, 2006, the ~~Mirant~~FASB ~~Debtors~~issued ~~(excluding~~FIN ~~Mirant~~No. 48, “Accounting ~~Americas~~for ~~Generation~~Uncertainty ~~and~~in ~~its~~Income Taxes: an ~~debtor~~Interpretation ~~subsidiaries)~~of ~~(collectively,~~FASB ~~the~~Statement No. 109” (“~~Consolidated~~FIN ~~Mirant Debtors~~48”). ~~will~~FIN be48 ~~substantively~~clarifies ~~consolidated~~the ~~solely~~accounting for ~~purposes~~uncertainty ofin ~~voting~~income ontaxes ~~the~~recognized ~~Plan~~in ~~(except as~~an ~~set~~enterprise’s ~~forth~~financial statements in ~~Section 7.3~~accordance ofwith ~~the~~FASB ~~Plan)~~Statement No. 109, “Accounting ~~confirmation~~for ofIncome ~~the~~Taxes”. ~~Plan~~This Interpretation prescribes a recognition threshold and ~~determining~~ ~~the~~measurement ~~treatment~~attribute offor the ~~claims~~financial ~~against~~statement recognition and ~~equity~~measurement ~~interests~~of ina ~~such~~tax position taken or ~~Consolidated~~expected ~~Mirant~~to ~~Debtors~~be ~~under~~taken ~~the~~in ~~proposed~~a ~~Plan;~~tax return.

· the estates of Mirant Americas Generation and its debtor subsidiaries (collectively, the “Mirant Americas Generation Debtors”) will be substantively consolidated solely for purposes of voting on the Plan (except as set forth in Section 7.3 of the Plan), confirmation of the Plan and determining the treatment of claims against and equity interests in the Mirant Americas Generation Debtors under the proposed Plan;

· the holders of unsecured claims against the Consolidated Mirant Debtors will receive a pro rata share of 100% of the shares of New Mirant common stock, except for: (1) certain shares to be issued to the holders of certain claims against Mirant Americas Generation Debtors, as described below, and (2) the shares reserved for issuance pursuant to the New Mirant employee stock programs;

· the unsecured claims against the Mirant Americas Generation Debtors will be paid in full through (1) the issuance to general unsecured creditors and holders of the Mirant Americas Generation revolving credit facilities and senior notes maturing in 2006 and 2008 of (a) new debt securities of Mirant North America or, at the option of the Mirant Debtors, cash proceeds from third-party financing transactions, in an amount equal to 90% of the full amount owed to such creditors (as

~~determined~~The byevaluation ~~the~~of a tax position in accordance with ~~Bankruptcy~~FIN ~~Court)~~48 ~~and~~is ~~(b) common~~a ~~stock~~two-step inprocess. ~~New~~The ~~Mirant~~first ~~having~~step is recognition based on a determination ~~value~~of ~~equal~~whether it is more likely than not that a tax position will be tosustained ~~10%~~upon examination, including resolution of ~~such~~any ~~amount~~related ~~owed;~~appeals ~~and~~or litigation ~~(2)~~ processes, based on the ~~reinstatement~~technical merits of ~~Mirant~~the ~~Americas~~position. In ~~Generation~~evaluating ~~senior~~whether ~~notes~~a ~~maturing~~tax inposition ~~2011~~has met the more-likely-than-not recognition threshold, ~~2021~~the ~~and~~enterprise ~~2031;~~should presume that the position will be examined by the appropriate taxing authority having full knowledge of all relevant information. The second step is to measure a tax position that meets the more-likely-than-not threshold. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

~~· allowed~~FIN 48 is effective for ~~convenience~~fiscal ~~claims~~years ~~(unsecured~~beginning ~~claims~~after upDecember 15, to2006. ~~$25~~The Company will adopt FIN 48 on January 1,~~000~~ in2007. ~~amount)~~The ~~shall~~provisions ~~receive~~of aFIN 48 will be applied to all tax ~~single~~positions ~~cash~~upon ~~payment~~initial ~~equal~~adoption of this Interpretation. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of the ~~claim~~Interpretation. The ~~amount;~~Company has not yet determined the impact of FIN 48 on its statements of operations, financial position or cash flows.

~~· the~~B. Bankruptcy ~~intercompany~~Related claims between and among the Consolidated Mirant Debtors and the Mirant Americas Generation Debtors will be resolved as part of a global settlement under the proposed Plan whereby intercompany claims will not receive a distribution under the proposed Plan;Disclosures

~~· the prospective working capital requirements of~~ Mirant’s ~~Americas~~Plan ~~Generation~~was ~~and~~confirmed ~~its subsidiaries~~by ~~are~~the ~~expected~~United ~~to be met with a new senior secured revolving credit~~States ~~facility~~Bankruptcy ofCourt ~~Mirant~~for ~~North America in~~ the ~~amount~~Northern ofDistrict ~~$750 million to $1 billion. In addition the Mirant Americas Generation consolidated business will have approximately $3.05 billion~~ of ~~debt~~Texas (~~as compared to approximately $2.8 billion of debt at~~ the ~~commencement~~“Bankruptcy ~~of the Chapter 11 cases~~Court”) ~~comprised of $1.7 billion~~on ofDecember 9, ~~reinstated~~2005, ~~debt~~and at Mirant ~~Americas~~and ~~Generation~~the ~~and~~Company ~~$1.35~~emerged ~~billion~~from ofbankruptcy ~~new~~on ~~debt~~January 3, ~~incurred~~2006. byFor ~~Mirant~~financial ~~North~~statement ~~America~~presentation inpurposes, ~~partial satisfaction of certain existing~~ Mirant ~~Americas~~and ~~Generation debt, which amount does not include~~ the ~~Mirant~~Company ~~Mid-Atlantic~~recorded ~~operating~~the ~~leases~~effects ~~related~~of to the ~~Morgantown~~Plan ~~Station~~at ~~and~~December 31, ~~Dickerson Station;~~2005.

~~· to help~~At ~~support~~June 30, ~~the~~2006 ~~feasibility~~and ~~of the proposed Plan with respect to the Mirant~~December 31, ~~Americas Generation Debtors~~2005, ~~Mirant~~amounts ~~shall~~related ~~contribute value~~ to ~~Mirant~~allowed ~~North America~~claims, ~~including~~estimated ~~Mirant’s~~unresolved ~~trading~~claims and professional ~~marketing~~fees ~~business~~associated ~~(subject~~with tothe ~~an obligation~~bankruptcy tothat ~~return~~are ato ~~portion~~be ofsettled ~~the~~in ~~embedded~~ cash are ~~collateral~~$97 inmillion ~~the trading~~ and ~~marketing~~$1.831 ~~business~~billion, ~~to Mirant provided that~~respectively, ~~under~~and ~~certain~~these ~~circumstances,~~amounts are ~~the~~recorded ~~Mirant~~in ~~Debtors~~claims ~~may~~payable ~~elect~~and toestimated ~~satisfy~~claims ~~this~~accrual ~~obligation~~on bythe ~~transferring $250~~accompanying ~~million~~unaudited tocondensed ~~Mirant~~consolidated ~~Americas, Inc~~balance sheets. ~~(“Mirant~~These ~~Americas”)~~amounts ~~from~~do ~~Mirant~~not ~~North~~include ~~America),~~unresolved ~~the~~claims ~~Mirant~~that ~~Peaker,~~will ~~LLC~~be ~~(“Mirant~~settled ~~Peaker”),~~in Mirant ~~Potomac~~common ~~River,~~stock. ~~LLC~~During ~~(“Mirant~~the six ~~Potomac~~months ~~River”)~~ended ~~and~~June 30, ~~Mirant Zeeland~~2006, ~~LLC~~the ~~generating~~Company ~~facilities~~paid ~~and~~approximately ~~commitments~~$1.734 billion in cash related to ~~make~~bankruptcy ~~prospective~~claims. ~~capital~~Of ~~contributions~~this ofamount approximately $~~150~~990 million is toreflected ~~Mirant~~in ~~Americas Generation(for~~cash ~~refinancing)~~flows ~~and,~~from ~~under~~financing ~~certain~~activities ~~circumstances,~~and uprepresents ~~to $265~~the ~~million~~principal toamount ~~Mirant~~of ~~North~~debt ~~America~~claims. ~~(for~~The ~~sulfur~~remaining ~~dioxide~~$744 ~~(“SO2”)~~million ~~capital expenditures).~~is ~~Under~~reflected ~~the~~in cash ~~proposed~~flows ~~Plan,~~from ~~Mirant~~operating ~~Peaker~~activities and ~~Mirant~~represents ~~Potomac~~other ~~River will~~bankruptcy ~~become~~claims ~~subsidiaries of Mirant Mid-Atlantic;~~and interest.

~~· the disputes~~Financial ~~regarding~~Statements ~~the Mirant Debtors’ ad valorem real property taxes for the Bowline and Lovett facilities will be settled and resolved on terms that permit the feasible operation~~ of ~~these~~Subsidiaries ~~assets, or the Mirant Debtors that own such assets will remain~~ in ~~Chapter 11 until such matters are resolved by settlement or through litigation;~~Bankruptcy

~~· the~~Mirant ~~bulk~~Americas ofGeneration’s New ~~the~~York ~~contingent~~subsidiaries ~~liabilities~~remain ofin bankruptcy and include the following entities: Mirant ~~Debtors~~Lovett, ~~associated~~LLC ~~with~~(“Mirant ~~the~~Lovett”), ~~California~~Mirant ~~energy~~Bowline, ~~crisis~~LLC ~~and~~(“Mirant ~~certain related~~Bowline”), ~~matters~~Mirant ~~are~~NY-Gen, ~~resolved~~LLC ~~pursuant~~(“Mirant toNY-Gen”), aMirant ~~global~~New ~~settlement~~York, Inc. as(“Mirant New ~~described~~York”) inand ~~“Item 3~~Hudson Valley Gas Corporation. ~~Legal~~Unaudited ~~Proceedings”~~condensed consolidated financial statements of Mirant Americas Generation’s ~~Form 10-K~~New ~~for~~York ~~the~~subsidiaries ~~year~~are set ~~ended~~forth ~~December 31, 2004;~~below.

· substantially all of the assets of Mirant will be transferred to New Mirant, which will serve as the corporate parent of the Mirant Debtors’ business enterprise on and after the effective date of the proposed Plan; similarly, the Mirant trading and marketing business of Mirant Americas Energy Marketing shall be substantially transferred to Mirant Energy Trading, LLC (a subsidiary of Mirant North America); and

· the outstanding common stock in Mirant will be cancelled and the holders 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 if they vote to accept the proposed Plan.

~~The~~New ~~Mirant Americas~~York Generation Creditor Committee, together with Wells Fargo Bank, National Association and the Ad Hoc Committee of Bondholders of Mirant Americas Generation, have objected to the reinstatement of the Mirant Americas Generation senior notes maturing in 2011, 2021 and 2031 and filed a motion requesting an order determining that these long-term noteholders are impaired under the Plan and thus entitled to vote on the Plan. The Bankruptcy Court issued an opinion on May 24, 2005 denying their motion and finding that the treatment under the Plan of the long-term notes did not impair the holders thereof and, therefore, the holders of the Mirant Americas Generation long-term notes may not vote on the Plan. The Committees have sought leave from the United States District Court for the Northern District of Texas to appeal the Bankruptcy Court’s order, which is not a final order that is appealable as a matter of right.Subsidiaries

~~At present, the proposed~~Unaudited ~~Plan~~Condensed ~~has~~Consolidated ~~not~~Statements ~~been approved by any~~ of the Statutory Committees. As such, the Mirant Debtors anticipate that negotiations will continue between the Mirant Debtors and each of the Statutory Committees. Negotiations with the Statutory Committees, whether or not successful, could lead to material changes to certain components of the proposed Plan.Operations

Since April 2005, the Mirant Debtors, the Statutory Committees and representatives of certain other interests have been party to proceedings before the Bankruptcy Court with respect to the valuation of the Mirant Debtors. Pursuant to a letter dated June 30, 2005, the Bankruptcy Court instructed the Mirant Debtors and their financial advisors, The Blackstone Group, to make certain modifications to the 2005 business plan of the Mirant Debtors and the valuation report prepared by The Blackstone Group. The Bankruptcy Court indicated that it intends to use the modified business plan and valuation report to generate an enterprise value for the Mirant Debtors which can be used for all purposes for confirmation of a plan of reorganization for the Mirant Debtors. Absent a settlement among the Mirant Debtors, the Statutory Committees and the other parties, the Mirant Debtors do not expect that they and The Blackstone Group will complete the modifications ordered by the Bankruptcy Court before the end of September 2005.

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
	(in millions)
Operating revenues	$	71		$	85		$	189		$	150
Cost of fuel, electricity and other products	41			70			84			119
Operating expenses	53			48			95			86
Operating income (loss)	(23		)	(33		)	10			(55		)
Other expense, net	—			1			2			1
Reorganization items, net	(1		)	(1		)	(2		)	(1		)
Provision for income taxes	—			—			—			1
Net income (loss)	$	(22	)	$	(33	)	$	10		$	(56	)

AtNew ~~this time, it is not~~York possible to accurately predict if or when the proposed Plan will be approved by the creditors and security holders and confirmed by the Bankruptcy Court, or if and when some or all of the Mirant Debtors may emerge from Bankruptcy Court protection under Chapter 11.Subsidiaries

~~Accounting for~~Unaudited ~~Reorganization~~Condensed Consolidated Balance Sheets

The accompanying unaudited condensed consolidated financial statements of Mirant Americas Generation have been prepared in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, and on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, as a result of the bankruptcy proceedings, such realization of assets and satisfaction of liabilities are subject to a significant number of uncertainties. Mirant Americas Generation’s unaudited condensed consolidated financial statements do not reflect adjustments that might be required if the Company (or each of the Mirant Debtors) is unable to continue as a going concern.

	At June 30, 2006			At December 31, 2005
	(in millions)
Current assets		$	99		$	31
Receivables—affiliate		102			149
Property, plant and equipment, net		494			502
Other		12			4
Total assets		$	707		$	686
Liabilities not subject to compromise
Current liabilities		$	192		$	168
Affiliate payables		23			36
Other noncurrent liabilities		10			9
Liabilities subject to compromise—affiliate		61			62
Liabilities subject to compromise—nonaffiliate		18			18
Member’s equity		403			393
Total Liabilities and Member’s Equity		$	707		$	686

~~Interest~~New ~~Expense~~York Subsidiaries

~~The Mirant Debtors have~~Unaudited ~~discontinued~~Condensed ~~recording~~Consolidated ~~interest~~Statements ~~on liabilities subject to compromise. Contractual interest on liabilities subject to compromise in excess~~ of ~~reported interest~~Cash was approximately $64 million for the three months ended March 31, 2005. Contractual interest on liabilities subject to compromise in excess of reported interest for the period from the Petition Date through March 31, 2005 is approximately $429 million. This amount includes approximately $262 million of interest related to Mirant Americas Generation long-dated bonds, which would be reinstated under the proposed Plan.Flows

	Six Months Ended June 30,
	2006				2005
	(in millions)
Net cash provided by (used in):
Operating activities		$	(7	)		$	—
Investing activities		73				(3		)
Financing activities		5				3
Net increase in cash and cash equivalents		71				—
Cash and cash equivalents, beginning of period		1
Cash and cash equivalents, end of period		$	72			$	—

Reorganization Items

Reorganization items, net represents expense or income amounts that were recorded in the consolidated financial statements as a result of the bankruptcy proceedings primarily related to estimated claims and losses on rejected and amended contracts and professional fees for accounting and legal services. For the three months ended March 31, 2005 and 2004 the Company recorded $15 million and $13 million, respectively, in the accompanying unaudited condensed consolidated statements of operations.

	Three Months Ended March 31,
	2005				2004
Professional fees and administrative expense		$	15			$	10
Estimated claims and losses on rejected and amended contracts		3				4
Interest income, net		(3		)		(1		)
Total		$	15			$	13

Liabilities Subject to Compromise

The ~~amounts~~ Company’s liabilities subject to compromise were $34 million at ~~March~~both June 3130, ~~2005~~2006 and December 31, ~~2004~~2005, and relate ~~consisted~~to ofits ~~the~~New ~~following~~York ~~items~~subsidiaries (that remain in ~~millions):~~ bankruptcy.

	March 31, 2005			December 31, 2004
Items, absent the bankruptcy filings, that would have been considered current at:
Accounts payable and accrued liabilities—affiliate		$	172		$	169
Accounts payable and accrued liabilities—nonaffiliate		494			498
Current portion of long-term debt		300			300
Items, absent the bankruptcy filings, that would have been considered noncurrent at:
Long-term debt		2,470			2,470
Other noncurrent liabilities		1			1
		$	3,437		$	3,438

The amounts subject to compromise at June 30, 2006, and December 31, 2005, consisted of the following items (in millions):

C. Related Party Arrangements and Transactions

Services and Administration Arrangements

The Company and its subsidiaries utilize the services of Mirant, Mirant Americas Energy Marketing and Mirant Services. The significant arrangements with these affiliated companies are described below. The following table summarizes the amounts incurred under the arrangements that are recorded in the accompanying unaudited condensed consolidated statements of operations as operations and maintenance—affiliate (in millions):

~~Management~~Reorganization Items, ~~Personnel~~ ~~and Services Agreement with Mirant Services~~net

~~Mirant~~For the ~~Services~~three ~~provides~~and ~~the~~six ~~Company~~months ~~with~~ended ~~various management~~June 30, ~~personnel~~2006, reorganization items, net were $1 million, and ~~other~~relate ~~services~~to the New York subsidiaries. ~~The~~For ~~Company~~the ~~reimburses~~three ~~Mirant~~and six ~~Services~~months ~~for~~ended June 30, 2006 and 2005, reorganization items, net represent amounts that ~~equal~~were torecorded ~~Mirant~~in ~~Services’~~the ~~direct~~financial ~~costs~~statements as a result of ~~providing~~the ~~such~~bankruptcy ~~services~~proceedings. The following were the significant items within this category (in millions):

The total costs incurred under the Management, Personnel and Services Agreement with Mirant Services have been included in the accompanying unaudited condensed consolidated statements of operations as follows (in millions):

	Three Months Ended June 30,							Six Months Ended June 30,
	2006				2005			2006				2005
Estimated claims and losses on rejected and amended contracts		$	—		$	(36	)		$	—		$	(17	)
Professional fees and administrative expense		—			19				—			35
Interest income, net		(1		)	(6		)		(1		)	(11		)
Total		$	(1	)	$	(23	)		$	(1	)	$	7

C. Change in Reporting Entity

~~Services~~As ~~Agreements~~discussed in Note A, pursuant to the Plan, Mirant ~~with~~contributed its interest in the Contributed Subsidiaries to the Company resulting in a change in the Mirant Americas ~~Energy~~Generation ~~Marketing~~reporting entity at December 31, 2005.

The ~~Company, through its~~following ~~subsidiaries,~~tables isand adiscussion ~~party~~summarize tothe ~~separate~~effects ~~services~~of ~~agreements with Mirant Americas Energy Marketing. Mirant Americas Energy Marketing is responsible for fuel procurement for~~ the ~~Company’s~~Contributed ~~facilities,~~Subsidiaries ~~as well as for executing contracts,~~on ~~including economic hedges, to reduce price risk. Each subsidiary of~~ the ~~company records~~previously ~~amounts~~reported ~~due to~~ Mirant Americas ~~Energy~~Generation’s ~~Marketing~~unaudited ~~and due from Mirant~~condensed ~~Americas~~combined ~~Energy~~statements ~~Marketing under the service agreements as a net accounts payable-affiliate or accounts receivable-affiliate because~~ of ~~each~~operations ~~subsidiaries legal~~for ~~right of offset. During~~ the ~~period~~three ~~of the ECSA, services to Mirant Mid-Atlantic were provided under separate services~~ and ~~risk~~six management agreements. Since May 1, 2003, these services have been provided under the Power and Fuel Agreements for 2003 and 2004. Beginning January 1, 2004, Mirant changed its allocation methodology related to its energy marketing overhead expenses. Under the new methodology, substantially all energy marketing overhead costs are now allocated to Mirant’s operating subsidiaries. For the three months ended ~~March~~June 3130, ~~2005 and 2004, the Company incurred~~ approximately $11 million and $15 million, respectively, in costs under these agreements. These costs are included in operations and maintenance — affiliate in the accompanying unaudited condensed consolidated statements of operations.2005:

Administration Arrangements with Mirant Services

	Three Months Ended June 30, 2005
	As Previously Reported				Adjustments				Combined
	(in millions)
Operating revenues—affiliate		$	452			$	(427	)		$	25
Operating revenues—nonaffiliate		32				611				643
Total operating revenues		484				184				668
Cost of fuel, electricity and other products—affiliate		215				(180		)		35
Cost of fuel, electricity and other products—nonaffiliate		34				368				402
Total cost of fuel, electricity and other products		249				188				437
Gross Margin		235				(4		)		231
Operating Expenses:
Operations and maintenance—affiliate, including restructuring		59				14				73
Operations and maintenance—nonaffiliate, including restructuring		70				10				80
Depreciation and amortization		22				10				32
Generation facilities rent		26				—				26
Total operating expenses		177				34				211
Operating Income		58				(38		)		20
Other Expense, net		2				2				4
Income before Reorganization Items and Income Taxes		56				(40		)		16
Reorganization items, net		(150		)		127				(23		)
Benefit for income taxes		—				(1		)		(1		)
Net income		$	206			$	(166	)		$	40

Beginning January 1, 2004, Mirant changed its allocation methodology related to the allocation of its corporate overhead expenses. Under the new methodology, substantially all of Mirant’s corporate overhead costs are now allocated to Mirant’s operating subsidiaries. For the three months ended March 31, 2005 and 2004, the Company incurred approximately $18 million and $20 million, respectively, in costs under these arrangements, which are included in operations and maintenance — affiliate in the accompanying unaudited condensed consolidated statements of operations.

Mirant Texas Tolling Arrangements with Mirant Americas Energy Marketing

Mirant Texas Investments, Inc. and Mirant Texas Management, Inc. (collectively “Mirant Texas”), wholly-owned subsidiaries, and Mirant Americas Energy Marketing entered into two tolling agreements, under which Mirant Americas Energy Marketing paid Mirant Texas annual capacity based payments on the guaranteed capacity of Mirant Texas’ generating units in Texas. Mirant Americas Energy Marketing paid Mirant Texas a fee for each megawatt-hour (“MWh”) of energy generated. For the three months ended March 31, 2004, revenue from Mirant Americas Energy Marketing under the tolling agreement was approximately $3 million. In August 2004, Mirant Texas entered into a tolling agreement with a third party

through December 2006. For the three months ended March 31, 2005, revenue under this third party tolling agreement was approximately $2 million.

	Six Months Ended June 30, 2005
	As Previously Reported				Adjustments				Combined
	(in millions)
Operating revenues—affiliate		$	833			$	(773	)		$	60
Operating revenues—nonaffiliate		82				1,117				1,199
Total operating revenues		915				344				1,259
Cost of fuel, electricity and other products—affiliate		425				(360		)		65
Cost of fuel, electricity and other products—nonaffiliate		88				680				768
Total cost of fuel, electricity and other products		513				320				833
Gross Margin		402				24				426
Operating Expenses:
Operations and maintenance—affiliate, including restructuring		121				30				151
Operations and maintenance—nonaffiliate, including restructuring		127				14				141
Depreciation and amortization		45				20				65
Generation facilities rent		51				—				51
Gain on sales of assets, net		(1		)		—				(1		)
Total operating expenses		343				64				407
Operating Income		59				(40		)		19
Other Expense, net		3				3				6
Income before Reorganization Items and Income Taxes		56				(43		)		13
Reorganization items, net		(135		)		142				7
Provision for income taxes		6				(1		)		5
Net income		$	185			$	(184	)		$	1

~~Purchased~~Historically, ~~Emissions~~the ~~Allowances~~Company’s ~~from~~operating subsidiaries were party to services agreements with Mirant Americas Energy Marketing. Mirant Americas Energy Marketing was responsible for marketing the output of the Company’s facilities and procurement of fuel for the Company’s facilities, as well as for executing contracts, including economic hedges, to reduce price risk. Transactions between the operating subsidiaries and Mirant Americas Energy Marketing were included in operating revenues—affiliate and cost of fuel, electricity and other products—affiliate, in the previously reported Mirant Americas Generation statements of operations. Because Mirant Americas Energy Marketing is part of the combined Mirant Americas Generation financial statements, these affiliate transactions are now eliminated. In addition, Mirant Americas Energy Marketing’s sales and purchase transactions with nonaffiliates are now reflected in Mirant Americas Generation unaudited condensed combined statements of operations.

The Company purchases emissions allowances from Mirant Americas Energy Marketing at Mirant Americas Energy Marketing’s original cost to purchase the emissions allowances. Where allowances have been purchased by Mirant Americas Energy Marketing from a Mirant affiliate, the price paid by Mirant Americas Energy Marketing is determined by market indices. For the three months ended March 31, 2005 and 2004, the Company purchased $2 million and $11 million, respectively, of emissions allowances from Mirant Americas Energy Marketing. For the three months ended March 31, 2005 and 2004, the Company sold allowances to Mirant Americas Energy Marketing for $5 million and $1 million, respectively. The allowances sold in the three months ended March 31, 2005 had a book value of $4 million resulting in a gain of $1 million, which is reflected in gross margin. Emissions allowances purchased from Mirant Americas Energy Marketing that were utilized in the three months ended March 31, 2005 and 2004 were $8 million and $7 million, respectively, and are recorded in cost of fuel, electricity and other products — affiliate in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2005, the Company had emissions allowances purchased from Mirant Americas Energy Marketing of $48 million, which are recorded in inventory in the accompanying unaudited condensed consolidated balance sheets.

Fuel Oil Sales to Mirant Peaker

For the three months ended March 31, 2005 and 2004, Mirant Mid-Atlantic sold approximately $9 million and $4 million, respectively, of fuel oil inventory from its Chalk Point facility to Mirant Peaker which approximated book value.

D. Price Risk Management Assets and Liabilities

The fair values of Mirant Americas Generation’s price risk management assets-affiliate and price risk management liabilities-affiliate as of March 31, 2005 are included in the following table (in millions):

	Assets							Liabilities								Net Value at
	Current				Noncurrent			Current				Noncurrent				March 31, 2005
Electricity		$	(44	)		$	2		$	(135	)		$	(6	)		$	(183	)
Natural gas		8				4			2				—				14
Crude oil		26				1			3				—				30
Residual/other		33				—			10				—				43
Total		$	23			$	7		$	(120	)		$	(6	)		$	(96	)

Of the total $96 million net value liability at March 31, 2005, a net price risk management liability of $97 million relates to contracts to be settled in 2005, a $6 million net price risk management liability relates to contracts to be settled in 2006 and a $7 million net price risk management asset relates to contracts to be settled in periods thereafter. The volumetric weighted average maturity, or weighted average tenor, of the price risk management portfolio at March 31, 2005, was approximately six months. The net notional amount of the price risk management assets and liabilities at March 31, 2005, was a net short position of approximately 12 million equivalent MWh.

~~E. Other~~The following ~~Intangible~~table ~~Assets~~summarizes the effects of the Contributed Subsidiaries on the previously reported Mirant Americas Generation’s unaudited condensed combined statements of cash flows for the six months ended June 30, 2005:

Following is a summary of other intangible assets as of (in millions):

	Six Months Ended June 30, 2005
	As Previously Reported				Adjustments				Combined
	(in millions)
Cash Flows from Operating Activities:
Net income		$	185			$	(184	)		$	1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		45				20				65
Unrealized losses on price risk management assets and liabilities		(24		)		(43		)		(67		)
Deferred income taxes		2				—				2
Non-cash charges for reorganization items		(164		)		147				(17		)
Gain on sales of assets and investments		(1		)		—				(1		)
Other, net						1				1
Changes in certain assets and liabilities:
Affiliate accounts receivable		(42		)		37				(5		)
Customer accounts receivable		15				76				91
Prepaid rent		(17		)		—				(17		)
Inventories		14				6				20
Other assets		20				(49		)		(29		)
Accounts payable and accrued liabilities		18				(128		)		(110		)
Payable to affiliate.		(4		)		12				8
Property taxes accrued, affiliate		(5		)		—				(5		)
Property taxes accrued, nonaffiliate		19				(1		)		18
Other liabilities		—				5				5
Total adjustments		(124		)		83				(41		)
Net cash provided by (used in) operating activities		61				(101		)		(40		)
Cash Flows from Investing Activities:
Capital expenditures		(50		)		(12		)		(62		)
Repayments on notes receivable from affiliate		—				11				11
Proceeds from the sale of assets, net		4				—				4
Net cash used in investing activities		(46		)		(1		)		(47		)
Cash Flows from Financing Activities:
Proceeds from issuance of debt—affiliate		—				1				1
Repayment of debt—nonaffiliate		—				(1		)		(1		)
Net cash provided by financing activities		—				—				—
Net Increase (Decrease) in Cash and Cash Equivalents		15				(102		)		(87		)
Cash and Cash Equivalents, beginning of period		414				222				636
Cash and Cash Equivalents, end of period		$	429			$	120			$	549

	Weighted		March 31, 2005							December 31, 2004
	Average
	Amortization		Gross							Gross
	Amount		Carrying			Accumulated				Carrying
	Lives		Amortization			Amount				Amortization			Accumulated
Trading rights		26 years		$	27		$	(2	)		$	27		$	(1	)
Development rights		40 years		62			(7		)		62			(7		)
Acquired emissions allowances		32 years		131			(16		)		131			(15		)
Other intangibles		30 years		12			(2		)		12			(2		)
Total other intangible assets				$	232		$	(27	)		$	232		$	(25	)

D. Related Party Arrangements and Transactions

~~F. Mirant Mid-Atlantic~~Management, ~~Operating~~Personnel ~~Leases~~and Services Agreement with Mirant Services

~~In conjunction with the acquisition of certain assets from PEPCO,~~ Mirant ~~Mid-Atlantic has leased the Morgantown and the Dickerson~~ ~~baseload~~Services ~~units~~provides ~~and associated property for terms of 33.75 and 28.5 years, respectively. Mirant Mid-Atlantic has an option to renew~~ the ~~leases~~Company for a period that would cover up to 75% of the economic useful life of the facilities, as measured from the beginning of the original lease term through the end of the proposed remaining lease term. Mirant Mid-Atlantic is accounting for these leases as operating leases. Rent expenses associated with ~~the Morgantown~~various ~~and Dickerson operating leases totaled approximately $25 million and $24 million for the three months ended March 31~~management, ~~2005~~personnel and ~~2004,~~other ~~respectively, and are recorded as generation facilities rent expense in the accompanying unaudited condensed consolidated statements of operations~~services. ~~Because of~~The ~~the~~Company ~~variability~~reimburses ~~in the scheduled payment amounts over the lease term,~~ Mirant ~~Mid-Atlantic~~ ~~records~~Services ~~rental expense~~ for these leases on a straight-line basis. As of March 31, 2005 and December 31, 2004, Mirant Mid-Atlantic has paid approximately $260 million and $285 million, respectively, of actual operating lease payments in accordance with the lease agreements in excess of rent expense recognized, and has reported these amounts asequal ~~prepaid rent in the accompanying unaudited condensed consolidated balance sheets. In addition~~ to ~~the regularly-scheduled rent payments,~~ Mirant ~~Mid-Atlantic paid an~~ ~~additional~~Services’ ~~$11 million~~direct ascosts of ~~March 31,~~providing ~~2005~~such and December 31, 2004, as required by the lease agreements. Of the $11 million payment made in 2005, $8 million is included in the long-term prepaid rent balance and the remaining $3 million is included in the current portion of the prepaid rent balance in the accompanying unaudited condensed consolidated balance sheets.

Significant disputes have arisen between the Mirant Debtors, on the one hand, and the owner lessors and the indenture trustee for the Mirant Mid-Atlantic leveraged leases, on the other hand, regarding, among other things, whether or not the leveraged lease transactions constitute a “lease” (or “leases”) within the meaning of section 365 of the Bankruptcy Code, or instead evidence a financing or other arrangement. In April 2005, the Bankruptcy Court dismissed the recharacterization claim, ruling that based upon the current posture of the Chapter 11 cases, a determination on the merits was not presently warranted. In its ruling, the Bankruptcy Court reserved the right to reconsider the merits of recharacterization in the event that facts and circumstances changed in a manner such that further consideration would be warranted.

At this time, the Mirant Debtors maintain that the leases are not true leases for bankruptcy purposes. However, based on the Bankruptcy Court’s comments in its April 2005 ruling, the Mirant Debtors may determine to modify their proposed Plan (and related Disclosure Statement) to propose that the leases be assumed conditioned upon certain provisions in the leases—including the limitations on restricted payments and the restrictions on the incurrence of indebtedness and liens—being modified, stricken or determined to be unenforceable and certain alleged defaults determined as not requiring “cure” as a

~~condition to assumption~~services. In ~~order~~The tototal ~~assume~~costs ~~leases,~~incurred ~~a debtor-lessee must obtain bankruptcy court approval and, subject to certain exceptions set forth in the Bankruptcy Code, must cure any existing defaults~~ under the ~~applicable leases (unless such~~ ~~defaults are duly waived). It would be the Mirant Debtors’ objective that assumption would be approved at or before confirmation of the Plan~~Management, Personnel and ~~that~~Services ~~as part~~Agreement ofwith ~~the assumption or confirmation order,~~ Mirant ~~Mid-Atlantic~~Services ~~would~~have bebeen ~~relieved~~included ofin the ~~obligation~~accompanying tounaudited ~~cure~~condensed ~~certain~~consolidated ~~defaults~~ and ~~of the obligation to~~combined ~~perform~~statements certain covenants. If it is not feasible for Mirant Mid-Atlantic to assume the leases because relief from certain defaults and/or covenants is not available, the two remaining alternatives are rejection and revisiting the issue of ~~recharacterization.~~operations ~~In the latter circumstance, if the Bankruptcy Court recharacterizes the leases as indebtedness, Mirant Mid-Atlantic may be required to re-evaluate the accounting~~ for the ~~leases.~~three ~~If, on the other hand, recharacterization is not sought or is not available,~~ and~~/or~~ ~~Mirant Mid-Atlantic~~six ~~cannot~~months orended ~~does not assume the leases~~June 30, ~~then the leases will be~~2006 ~~rejected. In that event, the owner lessors would be entitled to a return of the leased assets~~ and ~~would~~2005 ~~have~~as afollows ~~claim for damages, if any, arising from such rejection, subject to the limitation on allowed claims under section 502~~(~~b)(6)~~in ~~of the~~millions): Bankruptcy Code applicable to leases of real property. Any claims arising on account of rejection would be subject to compromise in Mirant Mid-Atlantic’s Chapter 11 case. The impact of any of these events would be reflected in the Company’s consolidated financial statements if and when the events occur.

As a result of Mirant Mid-Atlantic’s bankruptcy filing, a lease event of default has occurred under the leases. The leases provide that, upon a lease event of default, the owner lessors’ remedies include (1) terminating the leases and repossessing the leased assets, (2) selling their interests in the leased assets, (3) demanding payment by Mirant Mid-Atlantic of the excess, if any, of the termination value over the fair market sales value of the leased assets or the discounted fair market rental value of the leased assets and (4) demanding payment of the termination value mitigated by a sale of the leased assets for the account of Mirant Mid-Atlantic. The termination value for the leases approximated $1.4 billion at March 31, 2005 and generally decreases over time. The ability of the owner lessors to exercise their remedies under the leases is currently stayed as a result of Mirant Mid-Atlantic’s Chapter 11 filing.

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Cost of fuel, electricity and other products—affiliate		$	2		$	2		$	4		$	5
Operations and maintenance expense—affiliate		40			45			78			87
Total		$	42		$	47		$	82		$	92

~~G. Litigation~~ Services and ~~Other~~Risk ~~Contingencies~~Management Agreements with Affiliates

~~The~~For ~~Company~~the isthree ~~involved~~and insix amonths ~~number~~ended ofJune 30, ~~significant~~2006, ~~legal~~the ~~proceedings.~~Company ~~Some~~provided ~~matters~~energy ~~may~~marketing beand ~~unresolved for~~fuel ~~several~~procurement ~~years.~~services ~~The~~through ~~Company~~Mirant ~~cannot~~Energy ~~currently~~Trading ~~determine~~to the ~~outcome~~following ofaffiliates: Mirant ~~the~~Las Vegas, LLC, Mirant Sugar Creek, LLC, Mirant Shady Hills, LLC, Mirant ~~proceedings~~West ~~described~~Georgia, ~~below~~LLC orand ~~the~~Mirant ~~ultimate~~Wichita ~~amount~~Falls, LP. ofFor ~~potential~~the ~~losses~~three and six ~~therefore~~months ~~has~~ended ~~not~~June 30, ~~made~~2005, ~~any~~these ~~material~~services ~~provision~~were ~~for~~provided ~~such~~by ~~matters unless~~Mirant ~~specifically~~Americas ~~noted~~Energy ~~below~~Marketing. ~~Pursuant~~Amounts todue ~~SFAS~~from ~~No. 5,~~each ~~Accounting~~affiliate under their ~~for~~respective ~~Contingencies,~~services ~~management~~agreements ~~provides~~are ~~for~~recorded ~~estimated~~as ~~losses~~a net accounts payable-affiliate or accounts receivable-affiliate because of each subsidiary’s legal right to offset. For the ~~extent~~ ~~information~~three ~~becomes~~and ~~available~~six ~~indicating~~months ~~that~~ended ~~losses~~June 30, ~~are~~2006, ~~probable~~the Company earned approximately $2 million and $3 million, respectively, compared to ~~that~~$2 million and $4 million, respectively, for the ~~amounts~~same ~~are~~periods ~~reasonably~~in ~~estimable.~~2005, ~~Additional~~under these ~~losses~~agreements ~~could~~with ~~have~~affiliates which are recorded as a reduction to ~~material~~operations ~~adverse~~and ~~effect~~maintenance onin ~~the~~Mirant ~~Company~~Americas Generation’s ~~consolidated~~unaudited ~~financial position,~~condensed ~~results~~consolidated ofand ~~operations~~combined orstatements ~~cash~~of ~~flows~~operations.

~~Effect~~Administration ofArrangements ~~Chapter~~with 11Mirant ~~Proceedings~~Services

OnSubstantially ~~July 14,~~all ~~2003 and July 15,~~of ~~2003~~Mirant’s ~~(the~~corporate ~~“Petition~~overhead ~~Date”),~~costs ~~August 18,~~are ~~2003,~~allocated ~~October 3,~~to ~~2003 and November 18, 2003, the~~ Mirant’s ~~Debtors filed voluntary petitions for relief under~~operating ~~Chapter 11~~subsidiaries. ofFor the ~~Bankruptcy~~three ~~Code.~~and Assix ofmonths ~~the Petition~~ended ~~Date~~June 30, ~~most~~2006, ~~pending litigation (including some of~~ the ~~actions described~~ ~~below)~~Company isincurred ~~stayed,~~approximately $32 million and ~~absent further order of the Bankruptcy Court~~$65 million, ~~no party,~~ ~~subject~~respectively, compared to ~~certain~~$30 ~~exceptions,~~million ~~may~~and ~~take~~$68 ~~any action~~million, ~~again subject to certain exceptions~~respectively, tofor ~~recover on pre-petition claims against~~ the ~~Mirant Debtors. One~~ ~~exception~~same toperiods ~~this~~in ~~stay~~2005, ~~of litigation is for an action or proceeding by a governmental agency to enforce its police or regulatory power. The claims asserted~~ in ~~litigation~~costs ~~and~~under ~~proceedings~~these toarrangements, which ~~the~~are ~~stay~~included ~~applies may be fully and finally resolved~~ in ~~connection with the administration of the bankruptcy~~ ~~proceedings~~operations and, tomaintenance—affiliate ~~the extent not resolved, will need to be addressed~~ in the ~~Plan.~~ Onaccompanying ~~November 19,~~unaudited ~~2003, the Bankruptcy Court entered an order staying~~condensed ~~most~~consolidated ~~litigation pending against current or former officers, directors~~ and ~~managers~~ ofcombined ~~the~~statements ~~Mirant Debtors arising out~~ of ~~the performance of their duties and against certain potential indemnitees of the Mirant Debtors~~operations. ~~The Bankruptcy Court took that action to avoid the risk that the continuation of such litigation would~~

Notes Payable to Affiliate

During the pendency of the Chapter 11 proceedings, Mirant and certain of its subsidiaries participated in an intercompany cash management program approved by the Bankruptcy Court, pursuant to which cash balances at Mirant and the participating subsidiaries were transferred to central concentration accounts and, if necessary, lent to Mirant or any participating subsidiary to fund working capital and other needs, subject to the intercompany borrowing limits approved by the Bankruptcy Court. At June 30, 2006, and December 31, 2005, the Company had current notes payable to affiliate of $7 million and $21 million, respectively. For the three and six months ended June 30, 2006, the Company incurred less than $1 million of interest expense under this arrangement, compared to $3 million and $6 million, for the same periods in 2005, which are recorded in interest expense—affiliate in the accompanying unaudited condensed consolidated and combined financial statements.

Payable to Mirant Americas Pursuant to the Plan

Pursuant to the Plan, the Company was required to pay $250 million to Mirant Americas, Inc. (“Mirant Americas”) within five days of the effective date of the Plan in return for Mirant’s contribution of the Trading Debtors. This amount is included in payable to affiliate at December 31, 2005, in the consolidated balance sheet and was paid in January 2006.

~~impede the~~ Mirant Debtors’ ability to reorganize or would have a negative impact upon the assets of the Mirant Debtors. At this time, it is not possible to predict the outcome of the Chapter 11 proceedings or their effect on the business of the Mirant Debtors or outstanding legal proceedings. The Mirant Debtors intend to resolve as many of these claims as possible through the claims resolution process in the bankruptcy proceeding or the Plan.Guarantees

~~California~~Mirant posted pre-petition letters of credit and ~~Western~~a ~~Power~~guarantee ~~Markets~~on behalf of Mirant Mid-Atlantic to provide for the rent payment reserve required in connection with Mirant Mid-Atlantic’s lease obligations in the event that it was unable to pay its lease payment obligations. On January 3, 2006, as part of the settlement and the Company’s emergence from bankruptcy, Mirant North America posted a $75 million letter of credit for the benefit of Mirant Mid-Atlantic to cover debt service reserve obligations on Mirant Mid-Atlantic’s leases. Upon the posting of the letter of credit, the trustee returned $56 million of cash collateral to Mirant Mid-Atlantic.

~~The~~Mirant ~~Company~~posted isa ~~subject~~post-petition toletter ~~litigation~~of ~~related~~credit ~~to its activities~~ in ~~California and~~ the ~~western power markets and the high prices for~~ ~~wholesale~~amount electricity experienced in the western markets during 2000 and 2001. Various lawsuits and complaints have been filed by the California Attorney General, the California Public Utility Commission (“CPUC”), the California Electricity Oversight Board (“EOB”) and various states’ rate payers in state and federal courts and with the Federal Energy Regulatory Commission (“FERC”). Most of ~~the~~$5 million ~~plaintiffs~~on inbehalf ~~the rate payer suits seek to represent a state-wide class~~ of ~~retail~~Mirant ~~rate payers. In addition~~Texas, ~~civil~~LP ~~and~~as ~~criminal investigations have been initiated by the United States Department~~ of ~~Justice (“DOJ”)~~December 31, ~~the~~ ~~General Accounting Office~~2004, ~~the~~related ~~FERC~~to ~~and~~a ~~various~~tolling ~~states’ attorneys general~~agreement. ~~These~~ ~~matters~~This ~~involve~~post-petition ~~claims~~letter ~~that the Company engaged in unlawful business practices and generally seek unspecified amounts~~ of ~~restitution~~credit ~~and penalties,~~was ~~although~~set ~~the damages alleged~~ to ~~have~~expire ~~been incurred~~ in ~~some~~January 2006. ofUpon ~~the~~emergence ~~suits~~from ~~are in the billions of dollars. In addition~~bankruptcy, ~~the Company is subject to the proceedings~~Mirant ~~described~~North ~~below~~America inreplaced ~~FERC~~this ~~Refund Proceedings, FERC~~post-petition ~~Show~~letter ~~Cause~~of ~~Proceeding Relating~~credit towith ~~Trading~~a ~~Practices,~~letter ~~FERC Bidding Investigation,~~of ~~and~~credit ~~DWR~~issued ~~Power~~under ~~Purchases Proceedings relating to~~ its ~~operations~~senior insecured ~~California~~credit ~~and the western power markets. Resolution of these matters~~facilities, towhich ~~the~~expires ~~extent~~on ~~not fully and finally resolved through either the settlement of certain claims described below in California Settlement or the claims process~~February 28, ~~is subject to~~ ~~resolution of the ongoing litigation for the matters pending in courts and for those matters pending at the FERC to the issuance of final decisions by the FERC~~2007.

~~California~~Prior ~~Receivables: In 2001, Southern California Edison Company (“SCE”) and Pacific Gas and Electric Company (“PG&E”) suspended payments~~ to ~~the California Power Exchange Corporation (“Cal PX”) and the California Independent System Operator Corporation (“CAISO”) for certain power purchases~~2005, ~~including purchases from~~ Mirant ~~Americas Energy~~ ~~Marketing.~~entered ~~Both~~into ~~the~~pre-petition ~~Cal~~letters PXof ~~and~~credit ~~PG&E~~to ~~filed~~support ~~for~~the ~~bankruptcy~~Company’s ~~protection in~~asset ~~2001~~management activities. AsIn ~~discussed below under California Settlement, on January~~September ~~14,~~ 2005, ~~Mirant~~several ~~and certain~~ of ~~its~~these ~~subsidiaries~~letters ~~entered into a Settlement and Release~~ of ~~Claims~~ ~~Agreement~~credit ~~(the~~were ~~“California~~drawn ~~Settlement”)~~in ~~with~~the ~~PG&E,~~amount ~~SCE,~~of ~~San~~$39 million. ~~Diego~~In ~~Gas and Electric Company~~January 2006, the remaining ~~CPUC,~~pre-petition ~~the~~letter ~~California Department~~ of ~~Water~~credit ~~Resources (“DWR”), the EOB and the Attorney General~~ of ~~the~~$7 ~~State~~million ofwas ~~California~~drawn ~~(collectively,~~in ~~the~~full. ~~“California~~In ~~Parties”)~~addition, ~~and~~Mirant ~~with~~entered ~~the~~into ~~Office~~post-petition letters of ~~Market~~credit ~~Oversight~~to ~~and~~support ~~Investigations~~its asset ofhedging ~~the FERC~~activities. OnIn ~~April~~January 152006, ~~2005,~~letters ~~the~~of ~~California~~credit ~~Settlement~~from ~~became effective, and~~the itMirant ~~resulted~~North inAmerica ~~Mirant~~senior ~~Americas~~secured ~~Energy~~credit ~~Marketing~~facilities ~~assigning~~replaced to the ~~California~~eleven ~~Parties~~post-petition ~~its~~letters ~~outstanding~~of ~~receivables~~credit ~~for~~outstanding ~~sales~~at ~~made in the Cal PX and CAISO markets from January~~December 131, ~~2000 through June 20, 2001~~2005. ~~Under intercompany~~See ~~agreements between the Company’s subsidiaries and Mirant Americas~~“Financial ~~Energy Marketing~~Condition, ~~this~~Cash ~~assignment~~Collateral ofand ~~receivables~~Letters ~~by Mirant Americas Energy Marketing may result in the termination~~ of ~~Mirant~~Credit” ~~Americas Energy Marketing’s~~for ~~liability~~details on ~~receivables~~letters ~~held~~of bycredit ~~those~~outstanding ~~subsidiaries~~at ~~against~~June 30, ~~Mirant Americas Energy Marketing related to the sales made by Mirant Americas Energy Marketing in Cal PX and CAISO markets~~2006.

~~FERC~~Preferred ~~Refund~~Stock ~~Proceedings: As a result of the increase~~ in ~~electricity prices in 2000 and 2001, the California Parties have pursued litigation at the FERC, claiming that the prices charged by~~ Mirant Americas Energy Marketing and other market participants in the California energy markets during certain periods in 2000 and 2001 were excessive. On July 25, 2001, the FERC issued an order requiring proceedings (the “FERC Refund Proceedings”) to determine the amount of any refunds 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 have appealed these FERC orders to the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) seeking review of a number of issues, including

For the six months ended June 30, 2006, the Company recorded $10 million in Preferred Stock in affiliate and Member’s Interest in the unaudited condensed consolidated balance sheet related to the amortization of the discount on the preferred stock in Mirant Americas.

Debtor in Possession Financing for New York Subsidiaries

Mirant North America and Mirant Americas Energy Marketing, (the “Primary DIP Lenders”) entered into an agreement (the ‘‘Primary New York DIP Agreement’’) to make secured debtor-in-possession financing in an amount of (i) $20 million, plus (ii) an amount equal to the amount of credit support provided on behalf of Mirant New York, Mirant Bowline, Mirant Lovett, and Hudson Valley Gas Corporation (collectively, the ‘‘New York DIP Borrowers’’), to the extent such amounts are collateralized with cash or cash equivalents by the New York DIP Borrowers. The facility is available on a joint and several basis to the New York DIP Borrowers. On January 31, 2006, all the assets of Mirant Americas Energy Marketing were transferred to Mirant Energy Trading, with Mirant Energy Trading to succeed to all rights and assume all obligations of Mirant Americas Energy Marketing under the Primary New York DIP Agreement. The New York DIP Borrowers have posted $18.3 million cash collateral with Mirant Energy Trading in accordance with the June 30, 2006, collateral allocation performed in good faith by Mirant Energy Trading. To the extent that the required level of credit support provided to the New York DIP Borrowers is reduced, the amount of such reduction is required to be returned to the New York DIP Borrowers.

Contemporaneous with their entry into the Primary New York DIP Agreement, the New York DIP Borrowers also entered into an agreement for secured financing with Mirant (the “Secondary New York DIP Agreement”). The Secondary New York DIP Agreement permits Mirant to make secured debtor-in-possession financing in the maximum amount of $50 million to the New York DIP Borrowers,

~~changing the Refund Period to include periods prior to October 2, 2000~~ and ~~expanding~~ the ~~sales~~borrowings ofare ~~electricity~~available ~~subject~~solely tofor ~~potential~~cash ~~refund~~collateral topostings include bilateral sales made to the DWR. Any such expansion of the Refund Period or the types of sales of electricity potentially subject to refund could significantly increase the refund exposure of Mirant Americas Energy Marketing in this proceeding. Although Mirant Americas Energy Marketing is the Mirant entity that engaged in transactions with the CAISO and the Cal PX, the orders issued by the FERC in the refund proceedings, and the filings made by other parties in those proceedings, generally refer to the Mirant entity involved as Mirant without being more specific. Mirant believes that the Mirant entity that would actually be liable to third parties for any ~~refunds~~one ~~determined by the FERC to be owed,~~ or ~~that~~more ~~would be due any receivables found to be owed to Mirant, is Mirant Americas Energy Marketing. Agreements that were in effect at the time~~ of the ~~transactions~~ ~~at issue between Mirant Americas Energy Marketing and the Company’s~~New ~~subsidiaries~~York ~~that~~DIP ~~own generating facilities in California would shift some of the economic burden of such refunds or the benefit of such receivables from Mirant Americas Energy Marketing to those subsidiaries~~Borrowers.

InThe ~~the~~Bankruptcy ~~July 25,~~Court ~~2001 order, the FERC also ordered~~has ~~that~~approved a ~~preliminary~~debtor-in-possession ~~evidentiary~~loan ~~proceeding be held~~ to ~~develop~~Mirant aNY-Gen ~~factual record on whether there had been unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest~~ from ~~December 25,~~Mirant ~~2000 through June 20,~~Americas ~~2001.~~under Inwhich ~~that~~Mirant ~~proceeding~~Americas, ~~the~~subject ~~California Attorney General, the CPUC and the EOB filed~~ to ~~recover~~ certain ~~refunds from parties~~conditions, ~~including~~would ~~Mirant~~lend ~~Americas~~up ~~Energy Marketing, for bilateral sales of electricity~~ to ~~the DWR at the~~ ~~California/Oregon border, claiming that such sales took place in the Pacific Northwest~~$9. ~~In an order issued June~~5 ~~25,~~million ~~2003,~~to ~~the~~Mirant ~~FERC~~NY-Gen ~~ruled~~to ~~that~~provide ~~no refunds~~funding ~~were~~for ~~owed and terminated~~ the ~~proceeding.~~repairs Onon ~~November 10, 2003,~~ the ~~FERC~~Swinging ~~denied~~Bridge ~~requests for rehearing filed by various parties~~dam. ~~Various parties have appealed the FERC’s decision to the Ninth Circuit.~~

OnFor ~~September 9,~~further ~~2004,~~discussion ~~the Ninth Circuit reversed~~see ~~the~~“Item ~~FERC~~2. Management’s ~~dismissal~~Discussion ~~of a complaint filed in 2002 by the California Attorney General that sought refunds for transactions conducted in markets administered by the CAISO~~ and ~~the~~Analysis—Financial Cal PX outside the Refund Period set by the FERC and for transactions between the DWR and various owners of generation and power marketers, including Mirant Americas Energy Marketing and subsidiaries of the CompanyCondition. The Ninth Circuit remanded the proceeding to the FERC for it to determine what remedies, including potential refunds, are appropriate where entities, including Mirant Americas Energy Marketing and subsidiaries of the Company, purportedly did not comply with certain filing requirements for transactions conducted under market-based rate tariffs. Mirant Americas Energy Marketing and other parties have filed a petition for rehearing with the Ninth Circuit.”

~~As discussed below under California Settlement, the California Settlement became effective April 15, 2005~~E. ~~The California Settlement results in the release of most of Mirant~~ Price ~~Americas~~Risk ~~Energy~~Management ~~Marketing’s~~Assets and therefore the Company’s potential liability in (1) the FERC Refund Proceedings for sales made in the CAISO or the Cal PX markets, (2) the proceeding also initiated by the FERC in July 2001 to determine whether there had been unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest from December 25, 2000 through June 20, 2001 and (3) any proceedings at the FERC resulting from the Ninth Circuit’s reversal of the FERC’s dismissal of the complaint filed in 2002 by the California Attorney General. Under the California Settlement, the California Parties and those other market participants who have opted into the settlement have released Mirant and its subsidiaries from any liability for refunds related to sales of electricity and natural gas in the western markets from January 1, 1998 through July 14, 2003. Also, the California Parties will assume the obligation of Mirant Americas Energy Marketing to pay any refunds determined by the FERC to be owed by Mirant Americas Energy Marketing to other parties that do not opt into the settlement for transactions in the CAISO and Cal PX markets during the Refund Period with the liability of the California Parties for such refund obligation limited to the amount of the receivables assigned by Mirant Americas Energy Marketing to the California Parties under the California Settlement. Subject to applicable bankruptcy law, however, Mirant Americas Energy Liabilities

The fair values of Mirant Americas Generation’s price risk management assets and liabilities, net of credit reserves, at June 30, 2006, are included in the following table (in millions):

	Net Price Risk Management Assets(Liabilities)
	Assets Current			Assets Noncurrent			Liabilities Current				Liabilities Noncurrent				Net Fair Value
Electricity		$	603		$	106		$	(449	)		$	(16	)		$	244
Natural gas		43			6			(37		)		(8		)		4
Oil		16			—			(1		)		(3		)		12
Coal/other		6			7			(10		)		(1		)		2
Total		$	668		$	119		$	(497	)		$	(28	)		$	262

Of the $262 million net fair value asset at June 30, 2006, a net price risk management asset of $96 million relates to the remainder of 2006, a net price risk management asset of $109 million relates to 2007 and a net price risk management asset of $57 million relates to periods thereafter. The volumetric weighted average maturity, or weighted average tenor, of the price risk management portfolio at June 30, 2006, was approximately 14 months. The net notional amount of the price risk management assets and liabilities at June 30, 2006, was a net short position of approximately 28 million equivalent megawatt-hours (“MWh”).

In January 2006, the Company entered into financial swap transactions with a counterparty, the effect of which was to hedge its Mid-Atlantic expected on-peak coal fired generation by approximately 80%, 50% and 50% for 2007, 2008 and 2009, respectively.

The following table provides a summary of the factors impacting the change in net fair value of the price risk management asset and liability accounts for the six months ended June 30, 2006 (in millions):

	Proprietary Trading				Asset Management				Total
Net fair value of portfolio at December 31, 2005		$	40			$	(154	)	$	(114	)
Gains recognized in the period, net		23				284			307
Contracts settled during the period, net		(10		)		79			69
Net fair value of portfolio at June 30, 2006		$	53			$	209		$	262

F. Assets Held for Sale

No assets were held for sale as of June 30, 2006. Assets held for sale as of December 31, 2005, included $7 million related to the Mirant Service Center building and accompanying land. The sale of the Mirant Service Center closed on June 30, 2006, and the Company recognized a gain of approximately $6 million.

~~Marketing~~Planned ~~will~~Asset continue to be liable for any refunds that FERC determines it to owe (1) to participants 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 the Refund Period and (2) to participants in bilateral transactions with Mirant Americas Energy Marketing that are not California Parties (or that do not elect to opt into the settlement). This liability of Mirant Americas Energy Marketing could result in additional liability of the Company’s subsidiaries to Mirant Americas Energy Marketing under the intercompany agreements referred to above.Dispositions

~~FERC Show Cause Proceeding Relating to Trading Practices:~~ On ~~June~~August 259, ~~2003~~2006, ~~the~~Mirant ~~FERC issued~~announced ~~a show cause order (~~the ~~“Trading Practices Order”)~~planned tosale ~~more than 50 parties, including Mirant Americas Energy Marketing and subsidiaries~~ of ~~the Company,~~various ~~that~~gas afired ~~FERC~~assets ~~staff~~including ~~report issued on March 26, 2003 identified as having potentially engaged in one or more trading strategies of~~ the ~~type employed~~Company’s byZeeland ~~Enron Corporation and its affiliates~~ (~~“Enron”~~837 MW)~~, as~~ described in the Enron memos released by the FERC in May 2002. The Trading Practices Order identified certain specific trading practices that the FERC indicated could constitute gaming or anomalous market behavior in violation of the CAISO and ~~Cal PX tariffs. The Trading Practices Order requires~~ ~~the~~Bosque CAISO to identify transactions between January 1, 2000 and June 20, 2001 that may involve the identified trading strategies, and then requires the applicable sellers involved in those transactions to demonstrate why such transactions 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 settlement agreement (~~the~~532 ~~“Trading Settlement Agreement”~~MW) ~~entered~~ ~~into~~intermediate ~~between certain Mirant entities~~ and ~~the~~peaking ~~FERC~~gas ~~Trial~~fired ~~Staff, under which Mirant Americas Energy Marketing would pay $332,411 to settle the show cause proceeding, except for an issue related to selling of ancillary services, which is discussed below~~plants. InSee aNote ~~November 14,~~A ~~2003~~“Impairment ~~order in a different proceeding, the FERC ruled that certain allegations~~ of ~~improper~~Long-Lived ~~trading~~Assets” ~~conduct with respect to the selling of ancillary services during 2000 should be resolved in the show cause proceeding. On December 19, 2003, the Mirant entities filed with the FERC~~ for ~~approval~~discussion of ~~an amendment to the Trading Settlement~~ ~~Agreement~~impairment ~~reached~~losses ~~with~~related ~~the FERC Trial Staff with respect~~ to ~~the sale~~these ~~of ancillary services~~plants. Under that amendment the FERC would have an allowed unsecured claim in Mirant Americas Energy Marketing’s bankruptcy proceeding for $3.67 million in settlement of the allegations with respect to the sale of ancillary services (the “Ancillary Amount”). The Trading Settlement Agreement, as amended, must be approved by the FERC and the Bankruptcy Court to become effective.

AsThe planned ~~discussed~~sales ~~below~~will ~~under~~result ~~California Settlement,~~in onthe ~~April 15,~~reclassification ~~2005~~of the ~~California~~revenues ~~Settlement~~and ~~became~~expenses ~~effective,~~of ~~and,~~these asassets ato ~~result,~~discontinued ~~the~~operations ~~California~~and ~~Parties~~the ~~withdrew~~reclassification ~~their~~of ~~opposition~~the torelated ~~the~~assets ~~Trading~~and ~~Settlement~~liabilities ~~Agreement~~to asassets ~~amended~~held ~~and~~for ~~supported~~sale ~~approval~~and ofliabilities ~~the~~held for ~~Trading~~sale, ~~Settlement~~respectively, ~~Agreement~~in asthe ~~proposed~~third byquarter ~~the~~of ~~Mirant~~2006. ~~entities~~The ~~that~~following ~~are~~table presents ~~parties~~a topro ~~the~~forma ~~Trading~~summary ~~Settlement~~of ~~Agreement and~~ the ~~FERC~~operating ~~Trial~~results ~~Staff~~for ~~without change~~these orassets ~~modification.~~for ~~The FERC approved~~ the ~~Trading~~three ~~Settlement Agreement, as~~and ~~amended,~~six onmonths ended June 2730, ~~2005,~~2006 and ~~the~~2005 ~~Mirant entities will now seek approval from the Bankruptcy Court.~~(in millions):

FERC Bidding Investigation: On June 25, 2003, the FERC issued an order (the “Bidding Order”) initiating an investigation by its staff into bidding practices in the Cal PX and CAISO markets between May 1, 2000 and October 1, 2000 of more than 50 parties, including Mirant Americas Energy Marketing. These entities were previously 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 prices unrelated to costs. Under the contractual arrangements pursuant to which Mirant Americas Energy Marketing bought and resold electricity produced by the Company’s California generation assets, the Company’s subsidiaries could have had to reimburse Mirant Americas Energy Marketing for the amount of any disgorgement of profits required or other remedy imposed by the FERC upon Mirant Americas Energy Marketing. As discussed below under California Settlement, on April 15, 2005 the California Settlement became effective, and it has resulted in the termination of the FERC Staff’s investigation of Mirant Americas Energy Marketing’s bidding practices that was initiated under the Bidding Order.

	Three Months Ended June 30,							Six Months Ended June 30,
	2006			2005				2006			2005
Operating revenues		$	13		$	21			$	22		$	31
Operating expenses, including other (expense) income, net		11			24				20			37
Income (loss) before income taxes		2			(3		)		2			(6		)
Provision for income taxes		—			—				—			—
Net income (loss)		$	2		$	(3	)		$	2		$	(6	)

G. Debt

Long-term debt at June 30, 2006 and December 31, 2005, was as follows (in millions):

Long-term debt:	At June 30, 2006				At December 31, 2005				Interest Rate		Secured/ Unsecured
Mirant Americas Generation:
Senior notes:
Due 2011		$	850			$	850		8.30	%	Unsecured
Due 2021		450				450			8.50	%	Unsecured
Due 2031		400				400			9.125	%	Unsecured
Unamortized debt discount		(3		)		(4		)
Mirant North America:
Term loan, due 2006 to 2013(1)		696				—			LIBOR + 1.75	%	Secured
Senior note, due 2013		850				850			7.375	%	Unsecured
Mirant Zeeland capital lease, due 2006 to 2012		12				11			9.50	%	—
Other :
Mirant Peaker capital lease, due 2006 to 2015		35				36			8.19	%	—
Total		3,290				2,593
Less: current portion of long-term debt		(74		)		(3		)
Total long-term debt, excluding current portion		$	3,216			$	2,590

(1) Under the senior secured term loan, $200 million was deposited into a cash collateral account to support issuance of up to $200 million of letters of credit.

Pursuant to the Plan, the Company reinstated $1.7 billion of senior notes maturing in 2011, 2021 and 2031.

~~DWR~~Senior ~~Power~~Secured ~~Purchases~~Credit Proceedings: On May 22, 2001, Mirant Americas Energy Marketing entered into a 19-month agreement with the DWR to provide the State of California with approximately 500 MW of electricity during 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 Mirant Americas Energy Marketing and other sellers of electricity under long-term agreements with the DWR, alleging that the terms of these contracts were unjust and unreasonable and that the contracts should be abrogated or the prices under the contracts should be reduced. On June 26, 2003, the FERC issued an order dismissing the complaints filed by the CPUC and the EOB against Mirant Americas Energy Marketing. On November 10, 2003, the FERC denied motions for rehearing filed by the CPUC and the EOB. The CPUC and EOB appealed the FERC’s decision to the Ninth Circuit. As discussed below under California Settlement, the California Settlement became effective on April 15, 2005. Under that settlement, the DWR and the other California Parties have released Mirant Americas Energy Marketing from any liability with respect to the DWR Contract and the CPUC and the EOB are to dismiss their appeal of the FERC’s decision dismissing their complaints.Facilities

~~Reliability~~Mirant ~~Must~~North ~~Run~~America, ~~Agreements~~a ~~Proceeding. Certain of~~wholly-owned ~~the~~subsidiary ~~generating facilities acquired by subsidiaries~~ of the Company ~~from PG&E~~entered ~~are~~into ~~operated~~senior ~~subject~~secured tocredit ~~reliability-must-run~~facilities ~~agreements~~in ~~(“RMR Agreements”)~~January 2006, which ~~those~~are ~~subsidiaries~~comprised ~~assumed~~of ~~from~~an ~~PG&E.~~$800 million ~~These~~six-year ~~agreements allow~~senior ~~the~~secured ~~CAISO to require the Company’s subsidiaries, under certain~~revolving ~~conditions,~~credit tofacility ~~operate~~and ~~these~~a ~~facilities~~$700 million toseven-year ~~support~~senior ~~the~~secured ~~California~~term ~~electric transmission system~~loan. The ~~rates~~full ~~that~~amount ~~the~~of ~~Company’s subsidiaries could charge~~ the ~~CAISO~~ ~~under~~senior ~~those~~secured ~~agreements,~~revolving ~~where~~credit ~~they~~facility ~~were~~is ~~also making sales into the market~~available ~~and~~for ~~were~~cash ~~retaining~~draws ~~the~~or ~~revenues~~for ~~from those sales, were~~ the ~~subject~~issuance of ~~an ongoing~~letters ~~disputed rate proceeding before the FERC at the time~~ of ~~the~~credit. ~~acquisition~~On January 3, of2006, ~~the~~Mirant ~~plants~~North ~~from~~America ~~PG&E~~drew ~~and~~$465 ~~were~~million ~~being~~under ~~collected~~its ~~subject~~senior tosecured ~~refund. Prior~~revolving tocredit ~~2005,~~facility. ~~for~~All ~~the~~amounts ~~plants~~were ~~that~~repaid ~~are~~during ~~subject to~~ the ~~RMR~~first ~~Agreements~~quarter ~~and~~of ~~from~~2006. ~~which the~~The ~~Company’s~~senior ~~subsidiaries~~secured ~~have~~term ~~exercised~~loan ~~their rights to also make market~~was ~~sales,~~fully ~~the~~drawn ~~Company’s~~at ~~subsidiaries~~closing ~~collected~~and ~~from~~amortizes ~~the~~in ~~CAISO~~quarterly aninstallments ~~amount equal to~~aggregating 500.25% of the ~~annual~~original ~~fixed~~principal ~~revenue~~of ~~requirement (~~the ~~“Annual~~term ~~Requirement”)~~loan ofper ~~those plants.~~quarter ~~The~~for ~~amounts~~ the ~~Company’s~~first 27 quarters, ~~subsidiaries~~with ~~collected from~~ the ~~CAISO~~remainder ~~were subject~~payable toon ~~refund~~the ~~pending~~ final ~~review~~maturity ~~and~~date ~~approval~~in ~~by the FERC~~January 2013. ~~While the~~ ~~CAISO~~At is the ~~party to the RMR Agreements with the Company’s subsidiaries~~closing, ~~the CAISO’s~~$200 million ~~obligations~~drawn under ~~those~~the ~~agreements~~senior ~~are~~secured ~~funded~~term byloan ~~PG&E, and PG&E~~was isdeposited ~~the~~into ~~real~~a ~~party~~cash incollateral ~~interest~~account ~~with respect~~ to ~~any~~support ~~refunds~~the ~~owed~~issuance byof ~~the~~up ~~Company’s~~to ~~subsidiaries~~$200 million ~~for~~of ~~sales~~letters ~~made~~of ~~previously~~credit. ~~under~~The ~~those~~senior ~~agreements.~~secured Incredit ~~June 2000,~~facilities ~~the~~are ~~ALJ~~obligations ~~issued~~of aMirant ~~decision~~North ~~finding~~America ~~that~~and the ~~amount~~respective ~~the~~guarantors ~~Company’s~~and ~~subsidiaries~~are ~~should~~not berecourse ~~allowed~~ to ~~charge~~any ~~the~~other ~~CAISO~~Mirant ~~for~~Americas ~~such~~Generation ~~plants was approximately 3½% on average of the Annual Requirement~~entities. ~~In July 2000, the Company’s subsidiaries sought review by the FERC of the ALJ decision.~~

AsLoans ~~discussed below~~ under ~~California Settlement,~~ the ~~California~~senior ~~Settlement~~secured ~~became~~credit ~~effective on April 15, 2005. Under that settlement, PG&E has released the Company’s subsidiaries that own generating~~ facilities ~~subject to the RMR Agreements from any potential~~are ~~refund~~available ~~liability~~at ~~under~~either ~~the~~of ~~RMR Agreements for~~ the ~~period~~following ~~through~~rates: ~~September~~(i) ~~30, 2004~~a influctuating ~~return~~rate ~~for~~of interest ~~the~~per ~~consideration~~annum ~~provided~~equal to, ~~PG&E~~on ~~under~~any ~~the~~given ~~California Settlement. In addition~~day, the ~~CAISO~~greater ~~separately~~of ~~agreed with Mirant to release its~~(a) the ~~claims~~interest ~~for~~rate ~~refunds~~per ~~with~~annum ~~respect~~publicly toannounced ~~the~~by ~~RMR~~JPMorgan ~~Agreements~~Chase ~~for the period through September 30~~Bank, ~~2004 upon the California Settlement becoming effective~~ N.A. In as its ~~order~~prime ~~issued~~rate ~~April 13, 2005~~in ~~approving~~effect ~~the~~at ~~California~~its ~~Settlement,~~principal ~~the~~office ~~FERC~~in ~~also~~New ~~dismissed~~York asCity ~~moot~~on ~~the pending proceeding regarding the rates~~ that ~~the Company’s subsidiaries could~~day, ~~charge~~and ~~for plants subject to~~ (b) the ~~RMR~~federal ~~Agreements~~funds ~~from~~rate ~~which~~in ~~those~~effect ~~subsidiaries were~~on ~~also~~that ~~making~~day ~~market~~plus ~~sales~~0. ~~The Company’s subsidiaries on May 13~~50%, ~~2005 filed~~plus ~~with~~ the ~~FERC a request for rehearing of the FERC’s dismissal of that~~ ~~proceeding~~applicable ~~for~~margin ~~the~~described ~~purpose~~below ~~of having~~ (the ~~FERC~~“base ~~determine the~~ rate”), ~~that~~or ~~would apply for periods subsequent to September~~(ii) ~~30,~~a ~~2004~~fixed ~~where those~~rate ~~subsidiaries~~determined ~~are~~for ~~making~~selected ~~sales~~interest ~~into~~periods ~~the~~of ~~market~~one, ~~from~~two, ~~units~~three ~~designated~~or bysix ~~the~~months equal ~~CAISO~~to ~~under the RMR Agreements as RMR units~~U.S. Ondollar ~~June 3,~~London ~~2005,~~InterBank ~~the~~Offered ~~FERC denied~~Rate ~~that request for rehearing~~(“LIBOR”), ~~concluding~~plus ~~that~~ the ~~terms of the California~~applicable ~~Settlement~~margin ~~and~~described ~~power~~below ~~purchase agreements entered into between~~ (the ~~Company’s subsidiaries~~“Eurodollar ~~and PG&E under the terms of that settlement caused no issues to remain as to~~ rate”).

The applicable margin with respect to loans under the senior secured revolving credit facility is 1.25% in the case of base rate loans or 2.25% in the case of Eurodollar rate loans. The applicable margin is subject to a reduction of up to 0.50% based on the achievement and maintenance of certain leverage ratios by Mirant North America. This reduction became effective June 7, 2006. The applicable margin with respect to the senior secured term loan is 0.75% in the case of base rate loans or 1.75% in the case of Eurodollar rate loans.

Mirant North America is required to prepay a portion of the outstanding principal balance of the senior secured term loan once a year, in addition to the regularly scheduled principal payments, based on adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) calculation to determine excess free cash flows, as defined in the loan agreement. At June 30, 2006, the current estimate of the mandatory principal prepayment of the term loan in April 2007 is approximately $63 million. This amount has been reclassified from long-term debt to current portion of long-term debt as of June 30, 2006.

Senior Notes

In December 2005, Mirant North America issued senior notes (the “Old Notes”) in an aggregate principal amount of $850 million that bear interest at 7.375% and mature on December 31, 2013. The senior notes were issued in a private placement and were not registered with the Securities and Exchange Commission. Interest on the notes is payable on each June 30 and December 31, commencing June 30, 2006. The proceeds of the notes offering initially were placed in escrow pending the emergence of Mirant North America from bankruptcy. The proceeds were released from escrow in connection with Mirant North America’s emergence from bankruptcy and the closing of the senior secured credit facilities. The senior notes are obligations of Mirant North America and the respective guarantors and are not recourse to any other Mirant Americas Generation entities.

In connection with the issuance of the Old Notes, Mirant North America entered into a registration rights agreement under which it agreed to complete an exchange offer for the Old Notes. On June 29, 2006, Mirant North America completed its registration under the Securities Act of $850 million of 7.375% senior notes due 2013 (the “New Notes”) and initiated an offer to exchange all of the outstanding Old

~~what~~Notes for ~~payments~~the ~~would~~New Notes (the “Exchange Offer”). The Exchange Offer was completed on August 4, ~~effectively~~2006, bewith ~~made~~$849.965 tomillion of the ~~Company’s~~outstanding ~~subsidiaries~~Old ~~under~~Notes ~~the~~being ~~RMR~~tendered ~~Agreements during~~for the New ~~period~~Notes. ~~those~~The ~~power~~terms ~~purchase~~of ~~agreements~~the New Notes are identical in ~~effect~~all material respects to the terms of the Old Notes, ~~which~~except isthat the New Notes are registered under the ~~potentially~~Securities ~~through~~Act ~~2012~~and generally are not subject to transfer restrictions or registration rights.

~~California Settlement~~H. ~~On January 14,~~ Litigation ~~2005, Mirant~~ and ~~certain~~Other of its subsidiaries entered into the California Settlement with the California Parties and the Office of Market Oversight and Investigations of the FERC settling a variety of disputed matters. The Mirant entities that are parties to the California Settlement are Mirant, Mirant Americas, Mirant Americas Energy Marketing, Mirant Americas Energy Marketing Investments, Inc., the Company, Mirant California Investments, Inc., Mirant California, LLC, Mirant Delta, LLC, Mirant Potrero, LLC, Mirant Special Procurement, Inc., Mirant Services and Mirant Americas Development, Inc. (collectively, the “Mirant Settling Parties”). The California Parties are PG&E, SCE, San Diego Gas and Electric Company, the CPUC, the DWR, the EOB and the Attorney General of the State of California. The effectiveness of the California Settlement was conditioned upon its approval by the CPUC, the Bankruptcy Court, the bankruptcy court having jurisdiction over PG&E’s bankruptcy proceedings initiated in 2001, and the FERC. The CPUC’s execution of the California Settlement signified its approval. The PG&E bankruptcy court approved the California Settlement on March 24, 2005, the FERC approved it on April 13, 2005, and the Bankruptcy Court approved it by order entered April 15, 2005, causing the settlement to become effective April 15, 2005.Contingencies

~~Under~~The ~~the~~Company ~~California~~is ~~Settlement,~~involved ~~(1) Mirant Americas Energy Marketing and the other Mirant Settling Parties have assigned to the California Parties all receivables owed to Mirant Americas Energy Marketing for transactions~~ in ~~the markets administered by the Cal PX or the~~ ~~CAISO~~a ~~for~~number ~~the~~of ~~period~~significant ~~January 1,~~legal ~~2000~~proceedings. ~~through~~In ~~June 20,~~certain ~~2001,~~cases ~~which~~plaintiffs ~~are currently~~seek ~~estimated by the parties~~ to ~~the California Settlement to be~~ ~~approximately~~recover ~~$283~~large ~~million~~ and ~~(2) the~~sometimes ~~California~~unspecified ~~Parties received an allowed~~damages, ~~unsecured~~and ~~claim~~some ~~against~~matters ~~Mirant~~may ~~Americas Energy Marketing in its~~be ~~Chapter~~unresolved ~~11 case~~ for ~~$175~~several ~~million and the DWR received an additional allowed, unsecured claim against Mirant Americas Energy Marketing of $2~~years.25 ~~million.~~The ~~In return,~~Company ~~the~~cannot ~~California~~currently ~~Parties~~determine ~~released all claims they may have against~~ the ~~Mirant~~outcome ~~Settling Parties related to sales~~ of ~~electricity or natural gas at wholesale in western markets 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 ~~before~~described ~~the~~below ~~FERC,~~ or in the ~~four~~ultimate ~~suits filed~~amount ~~against Mirant, the Company and certain~~ of ~~its subsidiaries by the~~potential ~~California~~losses ~~Attorney General in March~~ and ~~April 2002~~therefore ~~and August 2004. The Company estimates that, excluding duplicative claims, this settlement~~ has ~~compromised~~ ~~the~~not ~~bulk~~made of the California energy market claims against Mirant Americas Energy Marketing at issue in the FERC Refund Proceedings. Also, the California Parties have assumed Mirant Americas Energy Marketing’s obligation to pay any ~~refunds~~provision ~~determined by the FERC to be owed by Mirant Americas Energy Marketing to other parties~~ for ~~transactions in the CAISO and Cal PX markets during the Refund Period, with the liability of the California Parties for~~ such ~~refund~~ ~~obligation~~matters ~~limited to the amount of the receivables assigned by Mirant~~unless ~~Americas~~specifically ~~Energy~~noted ~~Marketing to the California Parties under the California Settlement~~below. ~~Subject~~Pursuant to ~~applicable~~SFAS ~~bankruptcy law~~No. 5, ~~Mirant Americas Energy~~“Accounting ~~Marketing~~for ~~continues~~Contingencies,” tomanagement beprovides ~~liable~~ for ~~any~~estimated ~~refunds~~losses ~~that the FERC determines it~~ to ~~owe~~ ~~to (1) participants in~~ the ~~Cal PX or CAISO markets other than the~~ ~~California~~extent ~~Parties~~information ~~(or~~becomes ~~other~~available ~~parties~~indicating that ~~have~~losses ~~opted~~are ~~into~~probable ~~the California~~and ~~Settlement)~~that ~~for periods outside~~ the ~~Refund~~amounts ~~Period~~are orreasonably ~~(2) parties~~estimable. ~~with which~~Additional ~~Mirant~~losses ~~Americas~~could ~~Energy Marketing engaged in bilateral electricity or natural gas transactions other than the California Parties (or other parties that~~ have ~~opted into the California Settlement). This liability of Mirant~~a ~~Americas~~material ~~Energy~~adverse ~~Marketing~~effect ~~could~~on ~~result in additional liability of~~ the Company’s ~~subsidiaries~~ toconsolidated ~~Mirant~~financial ~~Americas Energy Marketing under intercompany agreements~~position, ~~between~~results ~~those~~of ~~subsidiaries~~operations ~~and~~or ~~Mirant~~cash ~~Americas Energy Marketing~~flows.

~~Some~~Chapter of11 the consideration to be received by the California Parties under the California Settlement is available to other market participants that choose to opt into the California Settlement, and several have done so. Those market participants that have elected to opt into the California Settlement have, as a result, given releases of liability to the Mirant Settling Parties that are the same as those given by the California Proceedings

On July 14, 2003 (the “Petition Date”), and various dates thereafter, Mirant Corporation and certain of its subsidiaries (collectively, the “Mirant Debtors”), including the Company and its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Most of the material claims filed against the Mirant Debtors’ estates were disallowed or were resolved and became “allowed” claims before confirmation of the Plan that became effective for Mirant, the Company, and most of the Mirant Debtors on January 3, 2006. Mirant, as the distribution agent under the Plan, has made distributions pursuant to the terms of the Plan on those allowed claims. Some claims, however, remain unresolved.

As of June 30, 2006, approximately 21.3 million of the shares of Mirant common stock to be distributed under the Plan have not yet been distributed and have been reserved for distribution with respect to claims that are disputed by the Mirant Debtors and have not been resolved. A settlement entered into on May 30, 2006, among Pepco, Mirant, MC 2005, LLC f/k/a Mirant Corporation (“Old Mirant”), and various subsidiaries of Mirant, including subsidiaries of the Company, if approved by final order in the Chapter 11 proceedings, would result in the distribution of up to 18 million of the reserved shares to Pepco, as described below in Pepco Litigation. Under the terms of the Plan, to the extent other such unresolved claims are resolved now that the Company has emerged from bankruptcy, the claimants will be paid from the reserved shares on the same basis as if they had been paid when the Plan became effective. That means that their allowed claims will receive the same pro rata distributions of Mirant common stock, cash, or both common stock and cash as previously allowed claims in accordance with the terms of the Plan. To the extent the aggregate amount of the payouts determined to be due with respect to such disputed claims ultimately exceeds the amount of the funded claim reserve, Mirant would have to issue additional shares of common stock to address the shortfall, which would dilute existing Mirant shareholders, and Mirant and the Company would have to pay additional cash amounts as necessary under the terms of the Plan to satisfy such pre-petition claims. The Company will continue to monitor its obligations as the disputed claims are resolved.

The Company’s Lovett and Bowline generation facilities in New York are subject to disputes with local tax authorities regarding property tax assessments. In addition, Mirant Lovett is in discussions with the New York State Department of Environmental Conservation (“NYSDEC”) and the New York State Office of the Attorney General regarding environmental controls. Mirant Lovett is also in discussions with the State of New York and other parties regarding an agreement that would compensate Mirant Lovett for the contribution of the Lovett facility to the reliability of the New York electric power system. The facilities

~~Parties.~~are Inforecasted ~~addition~~ to ~~the~~ ~~claims filed by the California Parties seeking to recover refunds from~~have ~~Mirant~~negative ~~Americas~~operating ~~Energy~~cash ~~Marketing~~flows ~~and~~at ~~other~~their ~~Mirant~~current ~~entities~~property ~~for~~taxation ~~sales~~levels. ofUntil ~~electricity~~a ~~made~~resolution byis ~~Mirant~~reached ~~Americas~~on ~~Energy~~property ~~Marketing~~taxes ~~into the CAISO~~ and ~~Cal~~environmental ~~PX markets~~controls inthat ~~2000 and 2001, the CAISO and the Cal PX have filed claims against~~would ~~Mirant~~permit ~~Americas~~economically ~~Energy~~feasible Marketing and other Mirant Settling Parties seeking to recover refunds on behalf of participants in the markets for which they were responsible. While the CAISO and the Cal PX are not parties to the California Settlementoperation, the ~~FERC~~Company’s ~~approval~~subsidiaries ofthat ~~the~~own ~~California Settlement constitutes its direction to~~ the ~~CAISO and the Cal PX to conform their books and records to the~~ ~~terms~~facilities, ofMirant ~~the~~Lovett ~~settlement~~ and toMirant ~~withdraw~~Bowline, ~~with~~will ~~prejudice~~remain ~~all claims filed by them~~ in ~~the~~ Chapter 11 cases that seek to recover amounts or otherwise obtain relief on behalf of, or for the benefit of, any of the California Parties or any other market participants that opt into the California Settlement. ~~In addition, the~~Until ~~CAISO~~such ~~separately~~issues ~~agreed~~are ~~with~~resolved ~~Mirant~~and ~~to release its claims upon~~ the ~~California Settlement~~companies ~~becoming~~emerge ~~effective. The California Parties also released the Mirant Settling Parties~~ from ~~any liability or refund claims related to the DWR Contract~~bankruptcy, ~~including claims asserted in~~ the ~~complaints filed by CPUC and EOB~~Company ~~with~~will ~~the~~not ~~FERC~~have inaccess ~~February 2002.~~to ~~The FERC’s approval of~~ the ~~California Settlement,~~cash ~~under~~from ~~its~~operations ~~terms,~~generated ~~also~~from ~~had the effect of terminating any pending~~these ~~investigations by the FERC of the conduct of the Mirant Settling Parties in the western energy markets in 2000 and 2001~~subsidiaries.

The ~~California Settlement also resolved all claims asserted by PG&E against the~~ Company’s ~~subsidiaries, Mirant Delta and Mirant Potrero, and the~~ other ~~Mirant~~subsidiaries ~~Settling Parties in the Chapter 11 cases or in proceedings before the FERC that~~ related to ~~refunds~~its ~~potentially owed~~New ~~under~~York ~~the~~business ~~RMR~~operations, ~~Agreements between~~ Mirant ~~Delta~~New ~~and~~York, ~~the~~Hudson ~~CAISO~~Valley ~~and~~Gas ~~Mirant~~Corporation ~~Potrero~~ and ~~the CAISO. Under the California Settlement, PG&E released Mirant Delta~~ ~~and~~ Mirant ~~Potrero~~NY-Gen ~~from~~also ~~any~~remain ~~potential~~in ~~refund~~bankruptcy. ~~liability~~Mirant ~~under~~NY-Gen, ~~the~~which ~~RMR Agreements~~owns ~~for~~hydroelectric ~~the~~facilities ~~period~~at ~~prior~~Swinging ~~to September 30~~Bridge, ~~2004,~~Rio and ~~the~~Mongaup, ~~claims~~and ~~filed by~~small ~~PG&E~~combustion inturbine ~~the~~facilities ~~Chapter~~at 11Hillburn ~~cases~~and ~~seeking~~Shoemaker, tois ~~recover~~insolvent. ~~refunds from Mirant Delta~~Its ~~and~~expenses ~~Mirant~~are ~~Potrero~~being ~~for~~funded ~~sales made~~ under ~~the~~a ~~RMR~~debtor-in-possession ~~Agreements~~facility ~~have~~made ~~been~~by ~~withdrawn~~Mirant Americas with ~~prejudice. Although~~ the ~~CAISO~~approval ~~was not a party to the California Settlement~~of, and under the ~~terms~~supervision of ~~the California Settlement~~, the ~~FERC’s approval~~Bankruptcy ofCourt. ~~the~~Mirant ~~settlement~~NY-Gen ~~constitutes~~is ~~its~~proceeding ~~direction~~with to the ~~CAISO~~implementation toof ~~conform~~a ~~its books~~remediation ~~and~~plan ~~records~~for to the ~~terms~~sinkhole ofdiscovered ~~the~~in ~~California~~May 2005 ~~Settlement and to withdraw with prejudice all claims filed by it~~ in the ~~Chapter~~dam 11at ~~cases~~the ~~that seek to recover~~Swinging ~~amounts~~Bridge ~~related~~facility. toThe ~~sales~~status ~~made~~of ~~under~~ the ~~RMR~~remediation ~~Agreements~~effort inis ~~the~~discussed ~~period~~below ~~prior to September 30,~~in ~~2004.~~Other ~~In addition, the CAISO separately agreed with Mirant to release its claims upon the California Settlement becoming effective~~Contingencies.

InPepco return for the releases it granted to the Mirant Settling Parties described in the previous paragraph, PG&E received allowed, unsecured claims against the Company’s subsidiary Mirant Delta that will receive a distribution of proceeds of $63 million, and either (1) the partially constructed Contra Costa 8 project, which is a planned 530 MW combined cycle generating facility and related equipment (collectively, the “CC8 Assets”) will be transferred to PG&E or (2) PG&E will receive additional alternative consideration in the amount of $70 million (the “CC8 Alternative Consideration”).Litigation

ToIn ~~fund~~2000, ~~the~~Mirant ~~CC8~~purchased ~~Alternative~~power ~~Consideration,~~generating ~~PG&E~~facilities ~~received~~and another ~~allowed,~~assets ~~unsecured~~from ~~claim~~Pepco, ~~against~~including ~~Mirant~~certain ~~Delta~~power ~~that~~purchase ~~will~~agreements (“PPAs”) ~~receive~~between ~~a distribution~~Pepco ofand ~~$70~~third ~~million~~parties. ~~PG&E~~Under ~~will~~the ~~liquidate~~terms ~~any securities received as part~~ of ~~such~~the ~~distribution~~Asset Purchase and ~~place~~Sale ~~the~~Agreement ~~net~~(“APSA”), ~~resulting~~Mirant ~~amount plus any cash~~and ~~received~~Pepco entered into ana ~~escrow~~contractual ~~account.~~agreement To (the ~~extent~~“Back-to-Back ~~that~~Agreement”) ~~the net amount resulting~~with ~~from~~respect ~~the~~to ~~liquidation~~certain ofPPAs, ~~the~~including ~~securities~~Pepco’s ~~received~~long-term byPPA ~~PG&E~~with ~~plus~~Panda-Brandywine ~~any~~L.P. ~~cash~~(“Panda”), under ~~received~~which by(1) Pepco itagreed isto ~~less~~resell ~~than~~to ~~the~~Mirant ~~CC8~~all ~~Alternative~~capacity, ~~Consideration~~energy, ~~the difference~~ancillary ~~will~~services beand ~~made~~other upbenefits byto ~~PG&E~~which ~~withholding~~it ~~and~~is ~~paying~~entitled ~~into~~under ~~the~~those ~~escrow~~agreements ~~account~~and ~~amounts~~(2) Mirant itagreed ~~owes~~ to ~~Mirant~~pay ~~Delta~~Pepco ~~over~~each ~~a three~~ month ~~period~~all ~~under~~amounts ~~the~~due ~~power purchase agreements described below or by payments~~ from ~~Mirant~~Pepco ~~Delta or the~~to ~~Company. If~~ the ~~transfer~~sellers ofunder ~~the~~those ~~CC8~~agreements ~~Assets~~for tothe ~~PG&E~~immediately ~~does~~preceding ~~not~~month associated ~~occur~~with onsuch ~~or before June 30~~capacity, ~~2008~~energy, orancillary ifservices ~~certain~~and ~~specified~~other ~~events~~benefits. The ~~occur~~Panda ~~prior~~PPA toruns ~~that date~~until 2021, ~~such~~and as the ~~failure of the CPUC~~ Back-to-Back ~~approve~~Agreement ~~PG&E’s~~does ~~acquisition~~not ~~of the~~expire ~~CC8~~until ~~Assets,~~all ~~then~~obligations ~~the~~have ~~CC8~~been ~~Alternative~~performed ~~Consideration~~under isthe toPanda bePPA. ~~paid~~Under the Back-to-Back ~~PG&E and~~Agreement, ~~the~~ Mirant ~~Settling~~is ~~Parties~~obligated ~~will~~to ~~retain~~purchase ~~the~~power ~~CC8~~from ~~Assets.~~Pepco ~~If PG&E closes~~at onprices ~~its~~that ~~acquisition~~typically ofare ~~the~~higher ~~CC8~~than ~~Assets,~~ the ~~funds~~market inprices ~~the~~for ~~escrow account will be paid to Mirant Delta~~power.

Mirant assigned its rights and obligations under the Back-to-Back Agreement to Mirant Americas Energy Marketing. In the Chapter 11 cases of the Mirant Debtors, Pepco asserted that an Assignment and Assumption Agreement dated December 19, 2000, that includes as parties Pepco and various subsidiaries of ours causes our subsidiaries that are parties to the agreement to be jointly and severally liable to Pepco for various obligations, including the obligations under the Back-to-Back Agreement. The Mirant Debtors have sought to reject the APSA, the Back-to-Back Agreement, and the Assignment and Assumption Agreement, and the rejection motions have not been resolved. Under the Plan, the obligations of the Mirant Debtors under the APSA (including any other agreements executed pursuant to the terms of the APSA and found by a final court order to be part of the APSA), the Back-to-Back Agreement, and the Assignment and Assumption Agreement are to be performed by Mirant Power Purchase, LLC (“Mirant Power Purchase”), whose performance is guaranteed by Mirant. If any of the agreements is successfully rejected, the obligations of Mirant Power Purchase and Mirant’s guarantee obligations terminate with respect to that agreement, and Pepco would be entitled to a claim in the Chapter 11 proceedings for any resulting damages. That claim would then be addressed under the terms of the Plan. If the Bankruptcy Court were to conclude that the Assignment and Assumption Agreement imposed liability upon the Company’s subsidiaries for the obligations under the Back-to-Back Agreement and the Back-to-Back Agreement were to be rejected, the resulting rejection damages claim could result in a claim in the Chapter 11 proceedings against the Company’s subsidiaries but any such claim would be reduced by the amount recovered by Pepco on its comparable claim against Mirant.

~~PG&E~~On ~~also~~May 30, ~~has~~2006, Mirant, Mirant Power Purchase, Old Mirant, various subsidiaries of Mirant (including subsidiaries of the Company), and a trust established pursuant to the Plan to which ownership of Old Mirant and Mirant Americas Energy Marketing was transferred (collectively the “Mirant Settling Parties”) entered into ~~two~~a ~~power~~Settlement ~~purchase~~Agreement and Release ~~agreements~~(the ~~with~~“Settlement ~~Mirant~~Agreement”) ~~Delta~~with Pepco and ~~Mirant~~various ~~Potrero~~affiliates ~~that~~of Pepco (collectively the “Pepco Settling Parties”). Once it becomes effective, the Settlement Agreement will ~~allow~~fully ~~PG&E~~resolve tothe contract rejection motions that ~~dispatch~~remain pending in the bankruptcy proceedings, as well as other matters currently disputed between Pepco and ~~purchase~~Mirant and its subsidiaries. The Pepco Settling Parties and the ~~power~~Mirant ~~output~~Settling ofParties will release each other from all ~~units~~claims known as of May 30, 2006, including the ~~generating~~fraudulent ~~plants~~transfer ~~owned~~claims brought by ~~those~~Old ~~entities~~Mirant ~~that~~and ~~have~~several of its subsidiaries against Pepco in July 2005. The Settlement Agreement will become effective once it has been ~~designated~~approved by the Bankruptcy ~~CAISO~~Court asand ~~RMR~~that ~~units~~approval order has become a final order no longer ~~under~~subject to appeal. On August 9, 2006, the ~~RMR~~Bankruptcy ~~Agreements.~~Court ~~The~~entered ~~first~~an order ~~agreement~~approving isthe ~~for~~Settlement ~~2005.~~Agreement, ~~The~~but ~~second~~the ~~agreement~~period within which an appeal ~~will~~can be ~~for~~filed ~~2006~~from ~~through~~that ~~2012~~order has not expired, and the order has not yet become a final order.

Under the ~~California~~ Settlement Agreement, ~~PG&E~~Mirant ~~and~~Power ~~Mirant~~Purchase ~~Delta~~will ~~also~~perform ~~are~~any toremaining ~~negotiate~~obligations byunder ~~September 30, 2005 (extended by~~ the ~~parties from the original date of April 30~~APSA, ~~2005)~~and anMirant ~~agreement~~will ~~(the “Option~~guaranty ~~Agreement”)~~its ~~under~~performance. ~~which~~The ~~PG&E~~Back-to-Back ~~would~~Agreement ~~have~~will ~~separate~~be ~~options~~rejected toand ~~purchase each~~terminated ofeffective ~~Mirant~~as ~~Delta’s~~of ~~existing~~May 31, ~~Contra~~2006, ~~Costa~~unless ~~generating~~Mirant ~~plant~~exercises ~~and~~an ~~its~~option ~~existing~~given to ~~Pittsburg~~it ~~generating~~by ~~plant,~~the inSettlement ~~both~~Agreement ~~cases~~to ~~once~~have ~~no unit at~~ the ~~plant~~Back-to-Back ~~has operated~~Agreement ~~for~~assumed a under certain ~~period~~conditions ofas ~~years~~described below. ~~The~~If ~~price~~an atappeal ~~which~~is ~~each~~filed ~~plant~~from ~~could be~~the ~~purchased~~Bankruptcy ~~pursuant~~Court’s toAugust 9, ~~the~~2006, ~~option~~order ~~would~~approving bethe ~~equal~~Settlement Agreement, to the ~~amount~~parties ofwill ~~certain capital~~continue ~~costs~~to ~~not~~perform ~~recovered~~their byobligations ~~Mirant Delta~~ under the ~~terms of the RMR Agreement~~ ~~applicable~~ Back-to-Back ~~that~~Agreement ~~plant~~until at the ~~time~~appeal ofis ~~the~~resolved ~~exercise~~and of the ~~option.~~approval Iforder ~~Mirant~~has ~~Delta~~become ~~and~~a ~~PG&E~~final doorder. ~~not~~Unless ~~reach agreement on~~ the ~~Option~~Back-to-Back Agreement byis ~~September 30~~assumed, Pepco will ~~2005,~~refund orto ifMirant ~~PG&E~~Power ~~cannot~~Purchase ~~obtain~~all ~~CPUC~~payments ~~approval~~received ofunder the ~~Option~~ Back-to-Back Agreement orfor ~~its exercise of its rights thereunder~~energy, ~~Mirant~~capacity ~~Delta~~or ~~and~~other ~~the~~services ~~other~~delivered ~~Mirant~~after ~~Settling~~May 31, ~~Parties~~2006, ~~will~~through ~~have no further obligations to PG&E with respect to~~ the ~~Option Agreement~~date or the ~~rights~~Settlement itAgreement ~~was~~becomes ~~to provide to PG&E~~effective.

~~Accounting~~With ~~Impact~~respect to the other agreements executed as part of ~~California~~the ~~Settlement. At~~closing ~~March 31,~~of ~~2005,~~the APSA (the ~~Company~~ ~~had~~“Ancillary ~~recorded~~Agreements”) ~~receivables~~and other agreements between Pepco and ~~related~~subsidiaries ~~reserves~~of ~~associated~~Mirant, ~~with~~including ~~amounts~~subsidiaries of the ~~due~~Company, tothe Mirant ~~Americas~~subsidiary ~~Energy~~that ~~Marketing~~is ~~from~~a party to each agreement will assume the ~~CAISO~~agreement and ~~Cal~~Mirant PXwill ~~related~~guaranty tothat subsidiary’s performance. Mirant Power Purchase’s obligations under the ~~period~~APSA ~~from~~do ~~October 2000~~not include any obligations related to ~~June 2001~~the ~~and~~Ancillary ~~reserves~~Agreements. ~~related~~If the Back-to-Back Agreement is rejected ~~refunds~~pursuant ~~under~~to the ~~RMR~~terms ~~Agreements.~~of ~~The~~the ~~California~~Settlement Agreement, the Settlement ~~resulted~~Agreement provides inthat a future breach of the APSA or any Ancillary Agreement by a party to such agreement will not entitle the non-~~cash~~defaulting ~~gain~~party to terminate, suspend performance under, or exercise any other right or remedy under or with respect to any of the ~~Company~~remainder of ~~approximately~~such ~~$161~~agreements. ~~million~~If, however, Mirant elects to behave ~~recorded~~the Back-to-Back Agreement assumed and assigned to Mirant Power Purchase under the conditions set out in the Settlement Agreement, then the Settlement Agreement provides that nothing in its terms prejudices the ~~second~~argument currently ~~quarter~~being made by Pepco in the contract rejection proceedings that the APSA, the Back-to-Back Agreement, and the Ancillary Agreements constitute a single non-severable agreement, the material breach of ~~2005~~which would entitle Pepco to suspend or terminate its performance thereunder, or any defense of Mirant and its subsidiaries to such an argument by Pepco.

The Settlement Agreement grants Pepco a claim against Old Mirant ~~Americas~~in ~~Generation~~Old ~~Bondholder~~Mirant’s ~~Suit~~bankruptcy proceedings that will result in Pepco receiving common stock of Mirant and cash having a value, after liquidation of the stock by Pepco, equal to $520 million, subject to certain adjustments. Upon the Settlement Agreement becoming effective, Mirant will distribute up to 18 million shares of Mirant common stock to Pepco to satisfy its claim and Pepco will liquidate those shares. The shares are to be distributed to Pepco in two distributions, the first totaling 13.5 million shares and the second to be determined by Mirant after the Settlement Agreement becomes effective so as to produce upon liquidation total net proceeds from both share distributions as near to $520 million as possible, subject to the overall cap on the shares to be distributed of 18 million shares. If the net proceeds received by Pepco from the

On June 10, 2003, certain holders of senior notes of the Company maturing after 2006 filed a complaint in the Court of Chancery of the State of Delaware, California Public Employees’ Retirement System, et al. v. Mirant Corporation, et al., that named as defendants Mirant, Mirant Americas, the Company, certain past and present Mirant directors, and certain past and present Company managers. Among other claims, the plaintiffs assert that a restructuring plan pursued by the Company prior to its filing a petition for reorganization under Chapter 11 of the Bankruptcy Code was in breach of fiduciary duties allegedly owed to them by Mirant, Mirant Americas and the Company’s managers. In addition, plaintiffs challenge certain dividends and distributions made by the Company prior to the Petition Date. Plaintiffs seek damages in excess of $1 billion. Mirant has removed this suit to the United States District Court for the District of Delaware. This action is stayed with respect to the Mirant entities that are defendants by the filing of the Chapter 11 proceedings of these entities. On November 19, 2003, the Bankruptcy Court entered an order staying this action also with respect to the individual defendants to avoid the suit impeding the ability of the Mirant Debtors to reorganize or having a negative effect upon the assets of the Mirant Debtors. The Mirant Americas Generation Creditor Committee in 2003 filed a motion in Mirant’s bankruptcy proceedings seeking to pursue claims against Mirant, Mirant Americas, certain past and present Mirant directors, and certain past and present managers of the Company similar to those asserted in this suit. The Bankruptcy Court ruled that while the committee has standing to assert claims on behalf of the estate of the Company, no such claims could be filed without the Bankruptcy Court’s approval and no motions seeking such approval could be filed at least through April 2004. On June 15, 2005, the Mirant Americas Generation Creditor Committee again filed a motion in Mirant’s bankruptcy proceedings seeking to pursue claims against Mirant, Mirant Americas, certain past and present Mirant directors, and certain past and present managers of the Company similar to those asserted in this suit. On June 30, 2005, the Bankruptcy Court issued an oral ruling that if the Mirant Debtors had not by July 8, 2005 entered into agreements with the individual defendants in this action tolling the running of any statute of limitations, then the Mirant Americas Generation Creditor Committee would be authorized to file claims against those defendants on behalf of the estate of Mirant Americas Generation. The Mirant Debtors did obtain tolling agreements from each of the individual defendants.

Onliquidation of ~~December 15,~~the ~~2003~~shares are less than $520 million, ~~Lehman~~Mirant ~~Commercial~~will ~~Paper~~pay Pepco cash equal to ~~Inc~~the difference. ~~(“Lehman”),~~If asthe ~~agent~~closing ~~for~~price ~~various~~of ~~lenders~~Mirant’s ~~under~~stock ~~certain~~is ~~pre-petition~~less ~~credit~~than $16.00 on ~~agreements,~~four ~~filed~~business days in a ~~claim~~20 ~~against~~consecutive ~~the~~business ~~Company~~day inperiod ~~the~~prior ~~bankruptcy~~to any ~~proceedings. On~~distribution ~~December 15,~~of ~~2003,~~shares ~~Wells~~to ~~Fargo~~Pepco ~~Bank~~on its claim, ~~N.A.~~then ~~(“Wells Fargo”)~~Mirant ~~also~~can ~~filed~~elect ~~claims~~to inhave the Back-to-Back ~~bankruptcy~~Agreement ~~proceedings~~assumed asand ~~successor~~assigned ~~indenture~~to Mirant Power Purchase rather than ~~trustee~~rejecting ~~for~~it. ~~bond~~If ~~indebtedness~~Mirant ~~under~~exercises athis ~~certain~~right ~~indenture~~to ~~against~~have the ~~Company.~~Back-to-Back InAgreement ~~addition~~assumed, tothen ~~their~~the ~~original~~$520 ~~claims,~~million onis ~~that~~reduced ~~same~~to ~~date,~~$70 ~~Lehman~~million and ~~Wells~~Mirant ~~Fargo~~Power ~~filed~~Purchase ~~supplemental~~would ~~claims~~continue ~~against~~to perform the ~~Company,~~Back-to-Back ~~Mirant~~Agreement ~~and~~through aits expiration ~~number~~in of2021 ~~other subsidiaries~~with of Mirant ~~(the~~guaranteeing ~~“Supplemental~~its ~~Claims”)~~performance. ~~seeking~~The ~~recovery of~~Settlement ~~principal,~~Agreement ~~interest,~~allocates ~~fees,~~the ~~and~~$70 ~~costs~~million ~~under~~to ~~the~~various ~~Mirant~~claims ~~Americas~~asserted ~~Generation~~by ~~loan~~Pepco that do ~~documents~~not ~~and~~arise ~~bond~~from ~~documents,~~the ~~respectively. In~~rejection ~~their~~of ~~Supplemental~~the ~~Claims~~Back-to-Back Agreement, ~~Lehman~~ ~~and~~including ~~Wells~~claims asserted ~~Fargo~~under ~~essentially~~the ~~seek~~Local toArea ~~preserve~~Support ~~for~~Agreement ~~themselves~~between ~~the~~Pepco ~~claims~~and Mirant ~~previously~~Potomac ~~sought~~River tothat beare ~~asserted~~discussed bybelow ~~the~~in ~~Mirant~~Pepco ~~Americas~~Assertion ~~Generation~~of ~~Creditor~~Breach ~~Committee~~of Local Area Support Agreement.

OnCalifornia ~~November 3, 2004, the Mirant Debtors objected to the Supplemental Claims against the Company~~ and ~~the~~ ~~other~~Western ~~Mirant~~Power entities on the grounds that: (1) Lehman and Wells Fargo lack standing to pursue the Supplemental Claims, which are derivative claims belonging to each respective Mirant Debtor’s estate; (2) there is no factual basis for any of the “potential” causes of action against the Company and no basis whatsoever for the claims against any other Mirant entities; and (3) the Supplemental Claims are duplicative and contingent. In addition to the objection, the Mirant Debtors also filed a motion to dismiss the Supplemental Claims on the basis that the Supplemental Claims do not allege any independent harm to Lehman and Wells Fargo and assert nothing more than derivative claims belonging to the Mirant Debtors’ estates that cannot be asserted by Lehman and Wells Fargo. The Bankruptcy Court issued an order on April 12, 2005, ruling that (A) the Supplemental Claims will be withdrawn, (B) the withdrawal of the Supplemental Claims, to the extent that they are not property of the estates or derivative of a Mirant Debtor (the “Withdrawn Claims”), will be without prejudice and the Bar Date shall be extended through the date of confirmation of a plan in the Mirant Debtors Chapter 11 proceedings, and (C) the withdrawal of the Supplemental Claims does not impair the ability of Lehman or Wells Fargo to raise those claims as issues in the plan confirmation process.Markets

~~Mirant~~California Rate Payer Litigation. Certain of our subsidiaries have been subject to litigation related to their activities in California and the western power markets and the high prices for wholesale electricity experienced in the western markets during 2000 and 2001. Various lawsuits were filed in 2000 through 2003 that asserted claims under California law based on allegations that certain owners of electricity generation facilities in California and energy marketers, including the Company, Mirant Americas ~~Generation~~Energy ~~Securities~~Marketing ~~Class~~and our subsidiaries owning generating facilities in California, engaged in various unlawful and anti-competitive acts that served to manipulate wholesale power markets and inflate wholesale electricity prices in California. All of these suits had been dismissed by final orders except for six such suits that were filed between November ~~Action~~27, 2000, and May 2, 2001, in various California Superior Courts and consolidated before the Superior Court for the County of San Diego for pretrial purposes. Although the plaintiffs dismissed Mirant from those suits, they had not filed to dismiss certain of the Company’s subsidiaries that were also defendants. On October 3, 2005, the California state court dismissed those six consolidated suits on the grounds that the plaintiffs’ claims were barred by federal preemption as a result of the Federal Power Act. On December 5, 2005, the plaintiffs filed an appeal of the dismissal. On April 14, 2006, the California Court of Appeal dismissed the appeal as to the remaining Mirant defendants pursuant to a stipulation and remanded the suits to the superior court. On May 9, 2006, the California state court dismissed the suits with respect to the remaining Mirant defendants.

FERC Refund Proceedings. On ~~June~~July 1125, ~~2003~~2001, athe Federal ~~purported~~Energy ~~class~~Regulatory ~~action lawsuit~~Commission ~~alleging~~(the ~~violations~~“FERC”) ofissued ~~Sections~~an 11order ~~and~~requiring proceedings 15(the of“FERC ~~the~~Refund ~~Securities~~Proceedings”) ~~Act~~to ofdetermine ~~1933 was~~the ~~filed~~amount inof ~~the~~any refunds ~~Superior~~and ~~Court~~amounts ofowed ~~Fulton~~for ~~County,~~sales ~~Georgia~~made ~~entitled~~by ~~Wisniak~~market v.participants, including Mirant Americas ~~Generation,~~Energy ~~LLC~~Marketing, etto ~~al.~~the ~~The lawsuit~~California ~~names~~Independent asSystem ~~defendants~~Operator (“CAISO”) or the ~~Company~~California ~~and~~Power ~~certain~~Exchange ~~current~~(“Cal ~~and~~PX”) ~~former~~from ~~officers~~October 2, ~~and~~2000, ~~managers~~through ofJune 20, 2001 (the ~~Company~~“Refund Period”). ~~The~~Various ~~plaintiff~~parties ~~seeks~~have appealed these FERC orders to ~~represent~~the aUnited ~~putative~~States ~~class~~ Court of ~~all~~Appeals ~~persons~~for ~~who~~the ~~purchased~~Ninth Circuit ~~debt~~(the ~~securities~~“Ninth Circuit”) seeking review of ~~the~~a ~~Company~~number ~~pursuant~~of toissues, orincluding ~~traceable~~changing tothe anRefund ~~exchange~~Period ~~offer~~to ~~completed~~include byperiods ~~the~~prior ~~Company~~to ~~in May~~October ~~2002~~2, in2000, ~~which~~and ~~$750 million~~expanding the sales of ~~bonds~~electricity ~~registered~~subject ~~under~~to ~~the~~potential ~~Securities~~refund ~~Act~~to ~~were~~include ~~exchanged~~bilateral ~~for~~sales ~~$750 million~~made ofto ~~previously~~the ~~issued~~California ~~senior~~Department ~~notes~~ of Water Resources (the “DWR”) ~~Company~~and other parties. ~~The~~On ~~plaintiff~~August 2, ~~alleges~~2006, ~~among~~the ~~other~~Ninth ~~things,~~Circuit ~~that~~issued ~~the~~an ~~Company’s~~opinion ~~restatement~~addressing insome ~~April 2003~~ of ~~prior financial statements rendered~~ the ~~registration~~ ~~statement~~issues ~~filed~~raised ~~for~~by ~~the~~these ~~May 2002~~appeals. ~~exchange~~The ~~offer~~Ninth ~~materially~~Circuit ~~false.~~remanded ~~The~~to ~~complaint~~the ~~seeks~~FERC ~~damages,~~for ~~interest~~further ~~and~~proceedings ~~attorneys~~the FERC’s ~~fees.~~denial ~~The defendants~~of ~~have~~relief ~~removed~~for sales ~~the~~of ~~suit~~electricity tomade in the ~~United~~CAISO ~~States~~and ~~District~~Cal ~~Court~~PX ~~for~~markets ~~the Northern~~prior ~~District~~to ofOctober 2, 2000, ~~Georgia.~~at ~~This~~rates ~~action~~found isto ~~stayed~~be asunjust toand directed the ~~Company~~FERC byto address the parties’ ~~filing~~request offor ~~its~~a ~~Chapter~~market-wide 11remedy ~~proceeding.~~for Ontariff ~~November 19, 2003,~~violations ~~the Bankruptcy~~that ~~Court~~may ~~entered~~have anoccurred prior ~~order~~to ~~staying~~October 2, ~~this~~2000. ~~action~~In ~~also~~addition, ~~with~~the ~~respect~~Ninth toCircuit found that the ~~individual~~FERC ~~defendants~~had tonot ~~avoid~~adequately ~~the~~supported ~~suit~~its ~~impeding~~decision ~~the~~to ~~ability~~exclude offrom the ~~Company~~FERC toRefund ~~reorganize~~Proceedings or(i) sales ~~having~~made ain ~~negative~~the ~~effect~~CAISO ~~upon~~and ~~its~~Cal ~~assets.~~PX Onthat ~~December 8, 2003,~~had ~~the~~a ~~district~~term ~~court~~of greater ~~took~~than ~~notice~~24 ofhours, ~~the~~and ~~Bankruptcy~~(ii) energy ~~Court’s~~exchange ~~order~~transactions, ~~dated~~and ~~November 19,~~remanded ~~2003~~these ~~staying~~issues to the ~~litigation~~FERC ~~and~~for ~~administratively~~further ~~closed~~proceedings. ~~the~~The ~~action.~~Ninth OnCircuit ~~December 16,~~affirmed ~~2003,~~ the ~~plaintiff~~FERC’s ~~dismissed~~decision ~~the~~to ~~Company~~exclude asbilateral asales ~~defendant,~~to ~~without~~the ~~prejudice, and~~DWR ~~filed~~from athe ~~proof~~FERC ofRefund Proceeding. ~~claim~~If ~~against~~ the ~~Company~~FERC ingrants the ~~bankruptcy~~parties’ ~~proceedings asserting~~requested ~~the~~relief ~~same~~with ~~claims~~respect ~~set~~to the ~~forth~~issues inremanded by the ~~lawsuit.~~Ninth Circuit, any

The Company and the plaintiff have entered into a stipulation of settlement of the Wisniak suit and the claim filed against the Company that was approved by the Bankruptcy Court on January 19, 2005. Under the terms of the stipulation of settlement, the plaintiff will seek certification of a class by the district

~~court that~~expansion ~~will~~of ~~receive $2.25 million to be paid by insurers for~~ the ~~Company and an~~Refund ~~allowed,~~Period ~~unsecured claim for $2 million against Mirant, subordinated~~ to ~~the claims~~include ofperiods ~~its~~prior ~~other unsecured creditors. Members of the plaintiff class will have the opportunity~~ to ~~opt~~October 2, ~~out of the settlement~~2000, ~~and~~or ~~if class members who choose to opt out own in the aggregate more than 1%~~ of the ~~Company’s~~types ~~bonds that are the subject~~ of ~~the suit, then the Mirant defendants have the option to~~ ~~withdraw~~sales ~~from the settlement. The stipulation~~ of ~~settlement~~electricity ~~must~~potentially ~~also~~subject ~~be approved by the district court~~ to ~~become~~refund ~~effective.~~could Onincrease ~~June 27, 2005,~~ the ~~district~~ ~~court entered an order granting preliminary approval to the~~refund ~~settlement,~~exposure ~~certifying~~of aMirant ~~settlement~~Americas ~~class,~~Energy ~~and~~Marketing ~~scheduling~~in athis ~~hearing for final approval of the settlement for September 6, 2005~~proceeding.

~~PEPCO~~In ~~Litigation~~the July 25, 2001, order, the FERC also ordered that a preliminary evidentiary proceeding be held to develop a factual record on whether there had been unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest from December 25, 2000, through June 20, 2001. In that proceeding, the California Attorney General, the California Public Utility Commission (the “CPUC”) and the California Electricity Oversight Board (the “EOB”) filed to recover certain refunds from parties, including Mirant Americas Energy Marketing, for bilateral sales of electricity to the DWR at the California/Oregon border, claiming that such sales took place in the Pacific Northwest. In an order issued June 25, 2003, the FERC ruled that no refunds were owed and terminated the proceeding. On November 10, 2003, the FERC denied requests for rehearing filed by various parties. Various parties have appealed the FERC’s decision to the Ninth Circuit.

InOn ~~2000~~September 9, ~~Mirant purchased certain power generating assets and certain other assets from Potomac Electric Power Company (“PEPCO”)~~2004, ~~including~~ ~~certain power purchase agreements (“PPAs”). Under~~ the ~~terms~~Ninth ofCircuit ~~the~~reversed ~~Asset Purchase and Sale Agreement (~~the ~~“APSA”), Mirant and PEPCO entered into a contractual arrangement (the “Back-to-Back Agreement”) with respect to certain PPAs, including PEPCO~~FERC’s ~~long-term~~dismissal ~~PPAs~~of ~~with~~a ~~Ohio~~complaint ~~Edison~~filed ~~Company~~in ~~(“Ohio~~2002 ~~Edison”) and~~by ~~Panda-Brandywine~~the ~~L.P.~~California ~~(“Panda”), under which (1) PEPCO agreed to~~Attorney ~~resell~~General tothat ~~Mirant~~sought ~~all~~refunds ~~capacity,~~for ~~energy,~~transactions ~~ancillary~~conducted ~~services~~in ~~and~~markets ~~other benefits to~~administered ~~which~~by itthe isCAISO ~~entitled under those agreements;~~ and ~~(2) Mirant~~the ~~agreed~~Cal toPX ~~pay PEPCO~~outside ~~each month all amounts due from PEPCO to~~ the ~~sellers~~Refund ~~under~~Period ~~those agreements~~set ~~for~~by the ~~immediately~~FERC ~~preceding month associated with such capacity, energy, ancillary services~~ and ~~other benefits. The Panda and Ohio Edison PPAs~~for ~~run~~transactions ~~until~~between ~~2021 and 2005, respectively. Under~~ the ~~Back-to-Back~~DWR ~~Agreement,~~and ~~Mirant is~~various ~~obligated~~owners ~~to purchase power from PEPCO at prices that are significantly higher than existing market prices for power. In the Chapter 11 cases~~ of ~~the Mirant~~generation ~~Debtors, PEPCO has asserted that an Assignment~~ and ~~Assumption~~power ~~Agreement dated December 19~~marketers, ~~2000 that includes as parties PEPCO, various~~ ~~subsidiaries~~including ~~of the Company,~~ Mirant ~~Potomac River, and Mirant~~ Americas Energy Marketing~~, causes~~ ~~the~~and ~~Company’s~~ subsidiaries ~~that~~of ~~are parties to~~ the ~~agreement~~Company. ~~to be~~The ~~jointly~~Ninth ~~and~~Circuit ~~severally~~remanded ~~liable to PEPCO for various obligations, including~~ the ~~obligations~~ ~~under~~proceeding ~~the Back-~~to~~-Back~~ ~~Agreement. PEPCO also asserts that~~ the ~~Assignment~~ ~~and~~FERC ~~Assumption Agreement causes the Company’s subsidiaries to be jointly and severally liable~~ for ait ~~claim of $105 million filed by PEPCO in the Chapter 11 cases related~~ to ~~modifications~~determine ~~agreed to between Mirant Americas~~what ~~Energy~~remedies, ~~Marketing~~including ~~and~~potential ~~PEPCO~~refunds, ~~related~~are toappropriate ~~the~~where ~~Transition Power Agreements in place~~entities, ~~between~~including ~~PEPCO and~~ Mirant Americas Energy Marketing, ~~through~~purportedly ~~January 2005. The~~did ~~Company~~not iscomply ~~disputing this interpretation of the Assignment and Assumption~~with ~~Agreement~~certain infiling ~~proceedings~~requirements ~~before~~for ~~the~~transactions ~~Bankruptcy~~conducted ~~Court,~~under ~~but~~market-based ~~the outcome of those~~rate ~~proceedings is uncertain~~tariffs. ~~If the Company’s subsidiaries are determined to be jointly and severally liable for the obligations of~~ Mirant ~~and Mirant~~ Americas Energy Marketing ~~to PEPCO under the Assignment~~ and ~~Assumption~~other ~~Agreement,~~parties ~~then the~~have ~~claim~~filed ~~related to the Transition Power Agreements and the proceedings~~a ~~described~~petition ~~below~~for ~~involving~~rehearing ~~the~~with ~~Back-to-Back Agreement could have an adverse effect upon~~ the ~~Company’s~~Ninth ~~financial~~Circuit ~~condition,~~that ~~although~~remains ~~such an effect would be mitigated by Mirant and Mirant Americas Energy Marketing also having responsibility for those obligations~~pending.

~~Back-to-Back Agreement Litigation.~~ On ~~August~~ January 2814, ~~2003~~2005, ~~the~~ Mirant and ~~Debtors~~certain ~~filed~~of aits ~~motion~~subsidiaries, inincluding the ~~bankruptcy~~Company, entered into a ~~proceedings~~Settlement toand ~~reject~~Release ~~the~~of ~~Back-to-Back~~Claims Agreement (the “~~Rejection~~California ~~Motion~~Settlement”) with PG&E, Southern California Edison Company (“SCE”), San Diego Gas and ~~along~~Electric ~~with~~Company, anthe ~~adversary~~CPUC, ~~proceeding~~the toDWR, ~~enjoin~~the ~~PEPCO~~EOB and the Attorney General of the State of California (collectively, the “California Parties”) and with the Office of Market Oversight and Investigations of the FERC. ~~from~~The ~~taking~~California ~~certain~~Settlement ~~actions~~settled ~~against~~a number of disputed lawsuits and regulatory proceedings that were pursued originally in state and federal courts and before the FERC. The Mirant ~~Debtors~~entities that are parties to the California Settlement (collectively, the “~~Injunction~~Mirant ~~Litigation~~Settling Parties”) include Mirant Corporation, Mirant Americas Energy Marketing, the Company, and Mirant North America (as the successor to Mirant California Investments, Inc.). OnThe ~~October~~California Settlement was approved by the FERC on April 913, 2005, and became ~~2003~~effective April 15, ~~the~~2005, ~~United~~upon ~~States~~its ~~District~~approval by the Bankruptcy Court. ~~for~~The California Settlement resulted in the ~~Northern~~release ~~District~~of most of ~~Texas~~Mirant Americas Energy ~~entered~~Marketing’s anpotential ~~order~~liability ~~that~~(1) in ~~had~~the FERC Refund Proceedings for sales made in the ~~effect~~CAISO ofor ~~transferring~~the Cal PX markets, (2) in the proceeding also initiated by the FERC in July 2001 to ~~that~~determine ~~court~~whether there had been unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest from December 25, 2000, through June 20, 2001, and (3) in any proceedings at the FERC resulting from the Ninth Circuit’s reversal of the ~~Bankruptcy~~FERC’s ~~Court~~dismissal of the ~~Rejection~~complaint ~~Motion~~filed ~~and~~in 2002 by the ~~Injunction~~California ~~Litigation~~Attorney General. InUnder ~~December 2003~~the California Settlement, the California Parties and those other market participants who have opted into the ~~district~~settlement ~~court~~have ~~denied~~released the Mirant ~~Rejection~~Settling ~~Motion~~Parties from any liability for refunds related to sales of electricity and, ~~thereafter,~~natural ~~dismissed~~gas in the western markets from January 1, 1998, ~~Injunction~~through ~~Litigation~~July 14, 2003. ~~The~~Also, ~~district~~the ~~court~~California ~~ruled~~Parties ~~that~~have assumed the obligation ~~Federal~~of ~~Power~~Mirant ~~Act preempts~~Americas Energy Marketing to pay any refunds determined by the ~~Bankruptcy~~FERC ~~Code~~to ~~and~~be ~~that~~owed aby ~~bankruptcy~~Mirant ~~court~~Americas ~~cannot~~Energy ~~affect~~Marketing ato ~~matter~~other parties that ~~within~~do not opt into the ~~FERC’s~~settlement ~~jurisdiction~~for ~~under~~transactions in the ~~Federal~~CAISO ~~Power~~and ~~Act~~Cal PX markets during the Refund Period, ~~including~~with the ~~rejection~~ liability of athe ~~wholesale~~California ~~power~~Parties ~~purchase~~for ~~agreement~~such refund ~~regulated~~obligation limited to the amount of certain receivables assigned by Mirant Americas Energy Marketing to the ~~FERC~~California Parties under the California Settlement. Subject to applicable bankruptcy law, however, Mirant

~~The~~Americas ~~Mirant~~Energy ~~Debtors appealed the district court’s~~Marketing ~~orders~~will continue to ~~the~~be ~~United~~liable ~~States Court of Appeals~~ for ~~the~~any ~~Fifth~~refunds ~~Circuit (the “Fifth Circuit”). The Fifth Circuit reversed the district court’s decision, holding~~ that the ~~Bankruptcy~~FERC ~~Code~~determines ~~authorizes~~it ato ~~district~~owe ~~court~~ (~~or bankruptcy court~~1) to ~~reject~~participants ain ~~contract~~the ~~for~~Cal ~~the~~PX ~~sale~~and ofCAISO ~~electricity~~markets that isare ~~subject~~not toCalifornia ~~the FERC’s~~Parties ~~regulation~~(or ~~under the Federal Power Act as part of a bankruptcy proceeding and~~ that ~~the~~did ~~Federal Power Act does~~ not ~~preempt~~elect ~~that~~to ~~authority.~~opt ~~The~~into ~~Fifth Circuit remanded~~ the ~~proceeding~~settlement) ~~to the district court~~ for ~~further~~periods ~~action~~outside onof ~~that~~the ~~motion.~~Refund ~~The~~Period ~~Fifth~~and ~~Circuit~~(2) to ~~indicated~~participants ~~that~~in onbilateral ~~remand~~transactions ~~the district court could~~with ~~consider~~Mirant ~~applying~~Americas aEnergy ~~more~~Marketing ~~rigorous~~that ~~standard~~are ~~than~~not ~~the~~California ~~business~~Parties ~~judgment~~(or ~~standard~~that did ~~typically~~not ~~applicable~~elect to ~~contract~~opt ~~rejection decisions by debtors in bankruptcy, which more rigorous standard would take~~ into ~~account~~ the ~~public interest in the transmission and sale of electricity~~settlement).

OnThe ~~December 9,~~Company’s ~~2004,~~view ~~the~~is ~~district court held~~ that the ~~Back-to-Back~~bulk ~~Agreement was a part~~ of ~~and~~any ~~not severable from, and therefore~~obligations ~~could~~of ~~not~~Mirant beAmericas ~~rejected~~Energy ~~apart~~Marketing ~~from,~~to ~~the~~make ~~APSA.~~refunds ~~The~~as ~~district~~a ~~court~~result ~~also~~of ~~noted that~~sales ifcompleted ~~the~~prior ~~Fifth~~to ~~Circuit~~July 14, ~~overturned the district court’s ruling with respect to severability~~2003, in the ~~Back-to-Back~~CAISO ~~Agreement~~or ~~should~~Cal bePX ~~rejected~~markets ~~only~~or ~~if Mirant can~~in ~~prove~~bilateral ~~that~~transactions ~~the~~either ~~Back-to-Back~~have ~~Agreement~~been ~~burdens~~addressed by the ~~bankrupt~~California ~~estates; that, after~~Settlement ~~scrutiny~~or ~~and~~have ~~giving~~been ~~significant~~resolved ~~weight~~as topart ~~the comments~~ of ~~the~~Mirant ~~FERC~~Americas ~~relative~~Energy toMarketing’s bankruptcy ~~the~~proceedings. ~~effect~~To ~~of rejection on~~ the ~~public~~extent ~~interest,~~that ~~the~~Mirant ~~equities~~Americas ~~balance~~Energy inMarketing’s ~~favor~~potential ofrefund ~~rejecting~~liability ~~the~~arises ~~Back-to-Back~~from ~~Agreement;~~contracts ~~and~~ that ~~rejection~~were oftransferred ~~the Back-~~to~~-Back Agreement~~ ~~would~~Mirant ~~further~~Energy Trading ~~the~~as ~~Chapter~~part ~~11 goal~~ of ~~permitting~~ the ~~successful rehabilitation~~transfer of the ~~Mirant~~trading ~~Debtors.~~and ~~The~~marketing ~~Mirant~~business ~~Debtors~~under ~~have appealed~~ the ~~district court’s December 9~~Plan, ~~2004~~Mirant ~~decision~~Energy toTrading ~~the~~may ~~Fifth~~have ~~Circuit~~exposure ~~and requested~~to ~~that~~any ~~the~~refund ~~Fifth~~liability ~~Circuit hear this appeal on an expedited basis. On March 8,~~related ~~2005, the Fifth Circuit denied the Mirant Debtor’s request~~ to ~~have~~transactions ~~the~~under ~~appeal expedited~~those contracts.

FERC Show Cause Proceeding Relating to Trading Practices. On ~~January~~June 2125, ~~2005~~2003, the FERC issued a show cause order (the “Trading Practices Order”) to more than 50 parties, including Mirant Americas ~~Debtors~~Energy ~~filed~~Marketing and subsidiaries of Mirant Americas Generation, that a FERC staff report issued on March 26, 2003, identified as having ~~motion~~potentially engaged in ~~the~~one ~~bankruptcy~~or ~~proceedings~~more totrading ~~reject~~strategies of the ~~APSA~~type employed by Enron Corporation and its affiliates (“Enron”), ~~including~~as described in Enron memos released by the FERC in May 2002. The Trading Practices Order identified ~~Back-to-Back~~certain ~~Agreement~~specific ~~but~~trading ~~not~~practices ~~including~~that ~~other~~the ~~agreements~~FERC ~~entered~~indicated ~~into~~could ~~between~~constitute ~~Mirant~~gaming ~~and~~or ~~its~~anomalous ~~subsidiaries~~market behavior in violation of the CAISO and ~~PEPCO~~Cal ~~under~~PX tariffs. The Trading Practices Order requires the ~~terms~~CAISO ofto identify transactions between January 1, 2000, and June 20, 2001, that may involve the ~~APSA~~identified (trading strategies, and then requires the ~~“Second~~applicable ~~Rejection~~sellers ~~Motion”)~~involved in those transactions to demonstrate why such transactions were not violations of the CAISO and Cal PX tariffs. On ~~February~~September 1030, ~~2005~~ 2003, ~~PEPCO~~the Mirant entities filed with the FERC for approval of a ~~motion~~settlement agreement ~~requesting~~(the “Trading Settlement Agreement”) entered into between certain Mirant entities and the ~~district~~FERC ~~court~~Trial Staff, under which Mirant Americas Energy Marketing would pay $332,411 to ~~assert~~settle ~~jurisdiction~~the ~~over~~show ~~and~~cause ~~rule~~proceeding, except for an issue related to sales of ancillary services, which is discussed below. In a November ~~upon~~14, 2003, order in a different proceeding, the ~~Second~~FERC ruled that certain allegations ~~Rejection~~of ~~Motion~~improper ~~rather~~trading ~~than~~conduct ~~having~~with respect to the ~~Bankruptcy~~selling ~~Court~~of ~~rule on~~ancillary ~~that~~services ~~motion~~during 2000 should be resolved in the show cause proceeding. On ~~March~~December 119, ~~2005~~ 2003, the ~~district~~Mirant ~~court~~entities ~~ruled~~filed ~~that~~with itthe ~~would~~FERC ~~withdraw~~for approval of an amendment to the ~~reference~~Trading toSettlement Agreement reached with the ~~Bankruptcy~~FERC ~~Court~~Trial Staff with respect to the sale of ancillary services. Under that amendment, the FERC would have an allowed unsecured claim in Mirant ~~Debtors~~Americas Energy Marketing’s ~~January 21,~~bankruptcy ~~2005~~proceeding ~~motion~~for ~~seeking~~$3.67 million in settlement of the allegations with respect to ~~reject~~the sale of ancillary services. The FERC approved the ~~APSA~~Trading Settlement Agreement, as amended, on June 27, 2005, and ~~would~~the ~~itself~~Bankruptcy ~~hear~~Court ~~that~~approved it ~~motion~~on August 24, 2005. Certain parties have filed motions for rehearing with the FERC, which motions remain pending.

~~Suspension~~Mirant Americas ofEnergy ~~PEPCO~~Marketing ~~Back-to-Back~~Contract ~~Payments~~Dispute with Nevada Power. On December 95, ~~2004~~2001, inNevada anPower ~~effort~~Co. tofiled ~~halt further out-of-market payments~~a ~~under~~complaint at the ~~Back-to-Back~~FERC ~~Agreement~~seeking ~~while~~reformation ~~awaiting resolution~~ of ~~issues related to~~ the ~~potential~~purchase ~~rejection~~price of ~~the~~energy ~~Back-to-Back~~under a ~~Agreement~~contract ~~(but~~it ~~prior~~had toentered ~~notice~~with ~~of entry~~Mirant ofAmericas ~~the~~Energy ~~district court’s order of December 9~~Marketing, ~~2004),~~claiming ~~Mirant filed a~~that ~~notice in~~ the ~~Bankruptcy~~prices ~~Court~~under that ~~Mirant~~contract ~~was~~were ~~suspending~~unjust ~~further~~and ~~payments~~unreasonable tobecause, when it ~~PEPCO~~entered ~~under~~into the ~~Back-to-Back~~contract, ~~Agreement~~Western ~~absent~~power ~~further~~markets ~~order~~were ofdysfunctional ~~the court (the “Suspension~~and ~~Notice”)~~non-competitive markets. On ~~December~~June 1025, ~~2004~~2003, ~~in response to~~ the ~~Suspension~~FERC ~~Notice,~~dismissed this ~~PEPCO~~complaint. ~~filed~~Nevada aPower ~~motion~~has inappealed ~~the~~that ~~district~~dismissal ~~court~~to ~~seeking~~the aUnited ~~temporary~~States ~~restraining~~Court ~~order~~of ~~and~~Appeals ~~injunctive~~for ~~relief~~the toNinth ~~require~~Circuit. ~~Mirant~~The tosales ~~perform~~made under the ~~Back-to-Back Agreement~~contract ~~(the~~with ~~“Injunctive~~Nevada Power ~~Relief~~have ~~Motion”).~~been ~~On December 13~~completed, ~~2004,~~and ~~the~~we ~~district court~~expect ~~issued~~that anany ~~order~~refund ~~referring~~claim ~~the~~related ~~Injunctive Relief Motion~~ to ~~the Bankruptcy~~that ~~Court. On December 21~~contract, ~~2004,~~if ~~the~~not ~~Bankruptcy~~now ~~Court~~barred, ~~issued~~will anbe ~~order~~addressed ~~denying~~ in the ~~temporary~~Chapter ~~restraining~~11 ~~order sought by PEPCO~~proceedings.

OnMirant ~~December 14,~~Americas ~~2004, PEPCO filed the following~~Energy ~~additional~~Marketing ~~litigation:~~Contract ~~(1) a~~Dispute ~~motion~~with ~~seeking~~Southern ~~relief~~California ~~from~~Water. On ~~the automatic stay provision of Bankruptcy Code section 362(a)~~December ~~to permit PEPCO to terminate performance under the APSA (the “Lift Stay Motion”); (2) a motion to compel the Mirant Debtors to pay~~21, ~~as administrative expenses~~2001, ~~payments~~Southern ~~that~~California ~~had~~Water ~~been~~Co. ~~suspended~~filed ~~under~~a ~~the~~complaint ~~Back-to-Back~~at ~~Agreement (~~the ~~“Administrative~~FERC ~~Expense Motion”); and (3) an adversary proceeding~~ seeking toreformation ~~compel~~of the ~~Mirant Debtors~~purchase toprice ~~make~~of energy ~~payments~~ under ~~the~~a ~~Back~~long-~~to-Back~~term ~~Agreement~~contract ~~(the~~it ~~“PEPCO~~had ~~Lawsuit”). On~~entered ~~December 16, 2004, PEPCO filed a motion requesting the district court to withdraw the reference to the Bankruptcy Court~~ with ~~respect~~Mirant toAmericas ~~the~~Energy ~~litigation filed by PEPCO on December 14~~Marketing, ~~2004, as well as the Injunctive Relief Motion (the “Second Withdrawal Motion”). On January 4, 2005, the district court denied the Second Withdrawal Motion in its entirety.~~

Onclaiming ~~January 19,~~that ~~2005,~~ the prices ~~Bankruptcy~~under ~~Court~~that ~~entered an~~contract ~~order~~were ~~embodying~~unjust aand ~~ruling~~unreasonable ~~made~~because, ~~orally~~when byit entered the ~~court on January 14~~contract, ~~2005, in~~Western ~~which~~power itmarkets ~~denied~~were ~~the~~dysfunctional ~~Lift Stay Motion~~ and non-competitive ~~the~~markets. ~~Administrative~~On ~~Expense~~June 25, ~~Motion~~2003, ~~but~~ ~~required~~ the ~~Mirant~~FERC ~~Debtors~~dismissed tothis proceeding. ~~pay~~Southern ~~amounts~~California ~~due~~Water ~~under~~has ~~the~~appealed ~~Back-to-Back Agreement~~that indismissal ~~January 2005~~to ~~and thereafter until (1)~~ the ~~Mirant Debtors~~United ~~filed~~States aCourt ~~motion~~of toAppeals ~~reject~~for the ~~APSA,~~Ninth ~~(2) the Fifth~~ Circuit. ~~issued~~The ancontract ~~order~~with Southern ~~reversing~~California ~~the~~Water ~~district~~Company ~~court’s~~continues ~~order~~through of2006. ~~December 9,~~Upon ~~2004 denying~~ the ~~motion~~ totransfer ~~reject~~of the assets ~~Back-to-Back~~of ~~Agreement, or (3)~~ the ~~Mirant~~trading ~~Debtors were~~and ~~successful~~marketing inbusiness ~~having~~to ~~the~~Mirant ~~obligations~~Energy Trading under the ~~Back-to-Back Agreement~~ ~~recharacterized~~Plan, asMirant ~~debt~~Energy ~~obligations.~~Trading ~~PEPCO~~assumed ~~filed~~Mirant anAmericas ~~appeal~~Energy ~~of the Bankruptcy Court~~Marketing’s ~~January 19,~~contract obligations ~~2005~~to ~~order.~~Southern OnCalifornia ~~January 21,~~Water ~~2005~~Company, ~~the~~including ~~Mirant~~any potential ~~Debtors~~refund ~~filed the Second Rejection Motion~~obligations.

On March 1, 2005, the district court withdrew the reference to the Bankruptcy Court of the Second Rejection Motion and the Administrative Expense Motion, ordered the Mirant Debtors to pay PEPCO all past-due, unpaid obligations under the Back-to-Back Agreement by March 10, 2005 and dismissed as moot, PEPCO’s appeal of the January 19, 2005 order denying the Administrative Expense MotionU. The Mirant Debtors on March 4, 2005 filed a motion requesting the district court to reconsider its order of March 1, 2005 or alternatively to stay that order while the Mirant Debtors appeal it to the Fifth CircuitS. OnGovernment March 7, 2005, the district court modified the March 1, 2005 order to require PEPCO to file a response to the Mirant Debtors’ motion for reconsideration by March 14, 2005 and to delay until March 18, 2005, the date by which the Mirant Debtors were to pay past-due, unpaid obligations under the Back-to-Back Agreement.Inquiries

OnDepartment ~~March~~of Justice Inquiries. In November 162002, Mirant ~~2005,~~received a subpoena from the ~~Mirant~~Department ~~Debtors~~of ~~filed~~Justice a(the “DOJ”), acting ~~petition~~through ~~for~~the ~~writ~~United ofStates ~~mandamus~~Attorney’s ~~with~~office for the ~~Fifth~~Northern ~~Circuit~~District ~~asking~~of California, itrequesting toinformation ~~order~~about ~~the district~~its ~~court~~activities toand ~~vacate~~those of its subsidiaries for the ~~March~~period since January 1, ~~2005~~1998. ~~order,~~The assubpoena ~~modified,~~requested information ~~and~~related to the California energy markets and other topics, ~~reinstate~~including ~~PEPCO’s~~the ~~appeal~~reporting of inaccurate information to the ~~Bankruptcy~~trade ~~Court~~press that publish natural gas or electricity spot price data. The subpoena was issued as part of a grand jury investigation. The DOJ’s ~~order~~investigation of ~~January 19~~the reporting of inaccurate natural gas price information is continuing, and Mirant has held ~~2005~~discussions ~~denying~~with the ~~Administrative~~DOJ ~~Expense~~regarding ~~Motion~~the disposition of this matter. The ~~petition~~DOJ’s investigation ~~asked~~is based upon the ~~Fifth Circuit~~same ~~alternatively~~circumstances tothat ~~stay~~were the ~~March 1,~~subject ~~2005~~of ~~order~~an investigation ~~until~~by the ~~Mirant Debtors’~~Commodity ~~appeal~~Futures ofTrading ~~that~~Commission ~~order~~(“CFTC”) that was settled ~~resolved~~in December 2004. ~~Also~~As described in Mirant’s Annual Report on ~~March~~Form 1610-K for the year ended December 31, ~~2005~~2004, ~~the~~in Legal ~~district~~Proceedings—Other ~~court~~Governmental ~~further~~Proceedings—CFTC ~~modified~~Inquiry, ~~its~~Mirant ~~order~~and Mirant ofAmericas ~~March 1,~~Energy ~~2005~~Marketing pursuant to ~~clarify that~~ the ~~amounts~~settlement consented to bethe entry ~~paid~~of an order by the ~~Mirant~~CFTC ~~Debtors~~in bywhich ~~March 18~~it made findings, ~~2005~~which ~~did~~are ~~not~~neither ~~include~~admitted ~~any~~nor ~~amounts~~denied ~~that~~by ~~became~~Mirant ~~due~~and ~~prior~~Mirant toAmericas ~~the~~Energy ~~filing~~Marketing, ofthat ~~the~~(1) from January 2000 ~~Chapter~~through 11December 2001, ~~cases~~certain Mirant Americas Energy onMarketing ~~July 14,~~natural ~~2003.~~gas Ontraders ~~March~~(a) ~~16,~~knowingly ~~2005~~reported inaccurate price, volume, ~~the~~and/or ~~Mirant~~counterparty ~~Debtors~~information ~~also~~regarding ~~appealed~~natural gas cash transactions ~~the~~to ~~district~~publishers ~~court’s~~of ~~March 1,~~natural ~~2005~~gas ~~order,~~indices asand ~~modified,~~(b) inaccurately reported to index publishers transactions observed in the ~~Fifth~~market as Mirant Americas Energy ~~Circuit.~~Marketing Ontransactions ~~March~~and (2) ~~17,~~from ~~2005~~January to October 2000, certain ~~the~~Mirant ~~Fifth~~Americas ~~Circuit~~Energy ~~issued~~Marketing awest ~~temporary~~region ~~stay~~traders ofknowingly delivered the ~~March 1,~~false ~~2005~~reports ~~order,~~in asan ~~modified.~~attempt Onto ~~April 11,~~manipulate ~~2005,~~ the ~~Fifth~~price of natural ~~Circuit~~gas. ~~vacated~~Under the ~~temporary~~settlement, ~~stay~~the ~~entered~~CFTC onreceived ~~March 17,~~a ~~2005~~subordinated allowed, ~~denied the~~unsecured ~~petition~~claim ~~for~~against ~~writ~~Mirant Americas Energy Marketing of ~~mandamus~~$12.5 ~~and~~million ~~denied~~in the ~~Mirant~~Chapter 11 ~~Debtors’~~proceedings. ~~request~~On ~~for~~June 19, a2006, ~~stay pending~~two ~~appeal.~~former Inemployees ~~its~~of ~~order~~Mirant ~~the~~pled guilty ~~Fifth~~to ~~Circuit~~charges ~~concluded~~of ~~that~~conspiracy to manipulate the ~~Mirant Debtors’~~price ~~challenges~~of tonatural ~~the~~gas ~~district~~in interstate ~~court’s~~commerce ~~order~~during ofthe ~~March~~period from July 1, ~~2005~~2000, asuntil November 1, ~~modified~~2000, ~~could~~while bethey ~~remedied~~were inwest ~~their~~region ~~pending~~traders ~~appeals~~for ~~and~~Mirant Americas Energy Marketing. The DOJ could decide that ~~the~~further action against Mirant and Mirant Americas ~~Debtors~~Energy ~~had~~Marketing is not ~~shown~~appropriate ~~they~~or ~~would~~could ~~suffer~~seek ~~irreparable~~indictments ~~harm~~against ifone or more Mirant entities, or the ~~order~~DOJ ~~was~~and ~~not~~Mirant could agree to a disposition that ~~stayed~~might ~~pending~~involve ~~appeal~~undertakings or a fine. OnMirant’s ~~April 20,~~current ~~2005,~~assessment is that the amount ~~district~~of ~~court~~any ~~entered~~such ~~an order~~fine ~~directing~~would ~~the~~not be material. Mirant ~~Debtors~~has cooperated fully with the DOJ and intends to ~~pay~~continue ~~PEPCO~~to bydo ~~April 25~~so. At this time, ~~2005~~the ~~all~~Company’s view is ~~unpaid~~that ~~amounts~~any ~~due~~action ~~under~~taken by the ~~Back-to-Back~~DOJ ~~Agreement~~against ~~accruing~~Mirant ~~since~~or ~~the~~its ~~Petition Date~~subsidiaries torelated to the ~~extent~~reporting ~~they~~of ~~had~~natural ~~not~~gas ~~already~~price ~~done~~information ~~so,~~would ~~and~~not toinvolve ~~continue~~the ~~performance~~Company ofor ~~all~~its ~~obligations~~subsidiaries ~~under~~except to the ~~agreement~~extent ~~until~~that ~~further~~any ~~order~~disposition of ~~the~~this ~~district court.~~matter ~~The~~results ~~Mirant~~in ~~Debtors~~ongoing ~~have~~undertakings ~~paid~~by ~~all~~Mirant ~~amounts~~Energy ~~due~~Trading ~~under~~as the ~~Back-to-Back~~recipient ~~Agreement~~of ~~accruing~~the ~~since~~assets ~~the~~of ~~Petition~~Mirant ~~Date~~Americas Energy Marketing under the Plan.

Potential Adjustment Related to Panda Power Purchase Agreement. At the time of the acquisition of the Mirant Mid-Atlantic assets from PEPCO, Mirant also entered into an agreement with PEPCO that, as subsequently modified, provided that the price paid by Mirant for its December 2000 acquisition of PEPCO assets would be adjusted if by April 8, 2005 a binding court order had been entered finding that the Back-to-Back Agreement violated PEPCO’s power purchase agreement with Panda (the “Panda PPA”) as a prohibited assignment, transfer or delegation of the Panda PPA or because it effected a prohibited delegation or transfer of rights, duties or obligations under the Panda PPA that was not severable from the rest of the Back-to-Back Agreement. Panda initiated legal proceedings in 2000 asserting that the Back-to-Back Agreement violated provisions in the Panda PPA prohibiting PEPCO from assigning the Panda PPA or delegating its duties under the 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 the assignment of certain rights and delegation of certain duties by PEPCO to Mirant did violate the non-assignment provision of the Panda PPA and was unenforceable. The court, however, left open the issues whether the provisions found to violate the Panda PPA could be severed and the rest of the Back-to-Back Agreement enforced and whether Panda’s refusal to consent to the assignment of the Panda PPA by PEPCO to Mirant was unreasonable and violated the Panda PPA. The Company believes that the June 10, 2003 decision by the Maryland Court of Appeals does not suffice to trigger a purchase price adjustment under the agreement between Mirant and PEPCO. If that court order were found to have triggered the purchase price adjustment, the agreement between Mirant and PEPCO provides that the amount of the adjustment would be negotiated in good faith by the parties or determined by binding arbitration so as to compensate PEPCO for the termination of the benefit of the Back-to-Back Agreement while also holding Mirant economically indifferent from such court order.

PEPCO Avoidance Action. On July 13, 2005, Mirant and several of its subsidiaries, including Mirant Mid-Atlantic and Mirant Americas Generation, filed a lawsuit against PEPCO before the Bankruptcy Court to avoid and recover fraudulent transfers under 11 U.S.C. §§ 544 and 550 and applicable state law in connection with the acquisition of PEPCO’s assets by Mirant in December 2000 and disallow PEPCO’s proofs of claim. The suit asserts that Mirant did not receive fair value in return for the PEPCO assets and that the acquisition occurred at a time when Mirant was either insolvent or was rendered insolvent as a result of the transaction. The likely outcome of this proceeding cannot now be determined, and the Company cannot estimate what recovery, if any, it may obtain in this action.

Environmental Matters

EPA Information Request. In January 2001, the Environmental Protection Agency (the “EPA”) issued a request for information to Mirant concerning the air permitting and air emissions control implications under the EPA’s new source review (“NSR”) regulations promulgated under the Federal Clean Air Act (the “~~NSR~~Clean Air Act”) of past repair and maintenance activities at ~~Mirant~~the Potomac River’s plant in Virginia and ~~Mirant~~ ~~Mid-Atlantic’s~~the Chalk Point, Dickerson and Morgantown plants in Maryland. ~~The~~ The requested information concerns the period of operations that predates ~~Mirant~~ ~~Mid-Atlantic’s ownership and lease of~~ the ~~plants. Mirant has responded~~ ~~fully to this request. Under the sales agreement with PEPCO for those plants, PEPCO is responsible for fines and penalties arising from any violation associated with historical operations prior to the~~ Company subsidiaries’s ~~acquisition~~ownership ~~or lease of the plants. If a violation is determined to have occurred at any of the plants, the Mirant entity owning or leasing the plant may be responsible for the cost of purchasing~~ and installing emissions control equipment, the cost of which may be material. If such violation is determined to have occurred after the Company acquired or leased the plants or, if occurring prior to the acquisition or lease, is determined to constitute a continuing violation, the Mirant entity owning or leasing the plant at issue would also be subject to fines and penalties by the state or federal government for the period subsequent to its acquisition or lease of the plant, the cost of which may be material.

lease of those plants. Mirant has responded fully to this request. Under the APSA, Pepco is responsible for fines and penalties arising from any violation associated with historical operations prior to the Company subsidiaries’ acquisition or lease of the plants. If a violation is determined to have occurred at any of the plants, the Company subsidiary owning or leasing the plant may be responsible for the cost of purchasing and installing emissions control equipment, the cost of which may be material. If such violation is determined to have occurred after the Company’s subsidiaries acquired or leased the plants or, if occurring prior to the acquisition or lease, is determined to constitute a continuing violation, the Company subsidiary owning or leasing the plant at issue would also be subject to fines and penalties by the state or federal government for the period subsequent to its acquisition or lease of the plant, the cost of which may be material.

New York State Administrative Claim. On January 24, 2006, the State of New York and the NYSDEC filed a notice of administrative claims in the Mirant Debtors’ Chapter 11 proceedings asserting a claim seeking to require the Mirant Debtors to provide funding to the Company’s subsidiaries owning generating facilities in New York to satisfy certain specified environmental compliance obligations. The State of New York alleges that during the pendency of the Chapter 11 proceedings the Mirant Debtors that have emerged from bankruptcy made decisions on behalf of the Company’s subsidiaries owning generating facilities in New York and did not appropriately maintain the corporate separateness between themselves and those subsidiaries. The Company disputes those allegations. The State of New York cites various existing outstanding matters between the State and the Company’s subsidiaries owning generating facilities in New York related to compliance with environmental laws and regulations, most of which are not material. The most significant compliance obligation identified by the State of New York in its notice of administrative claim relates to a consent decree entered into on June 11, 2003 (the “2003 Consent Decree”), by Mirant New York and Mirant Lovett with the State of New York to resolve issues related to NSR requirements under the Clean Air Act related to the Lovett plant. Under the 2003 Consent Decree, Mirant Lovett is required to make an election to install certain environmental controls on units 4 and 5 of the Lovett facility or shut down those units by 2007 to 2008. The State of New York notes in its notice of administrative claim that the cost of implementing such environmental controls could exceed $200 million. The State of New York and the NYSDEC have executed a stipulated order with the Company, its New York subsidiaries and the other Mirant Debtors to stay resolution of this administrative claim. That stipulated order was approved by the Bankruptcy Court on February 23, 2006.

Mirant Potomac River Notice of Violation. On September 10, 2003, the Virginia Department of Environmental Quality (“Virginia DEQ”) issued a Notice of Violation (“NOV”) to Mirant Potomac River alleging that it violated its Virginia Stationary Source Permit to Operate by emitting nitrogen oxide (“NOx”) in excess of the “cap” established by the permit for the 2003 summer ozone season. Mirant Potomac River responded to the NOV, asserting that the cap is unenforceable, noting that it can comply through the purchase of emissions allowances and raising other equitable defenses. Virginia’s civil enforcement statute provides for injunctive relief and penalties. On January 22, 2004, the EPA issued an NOV to Mirant Potomac River alleging the same violation of its Virginia Stationary Source Permit to Operate as set out in the NOV issued by the Virginia DEQ.

On September 27, 2004, Mirant Potomac River, Mirant Mid-Atlantic, the Virginia DEQ, the Maryland Department of the Environment (the “MDE”), the DOJ and the EPA entered into, and filed for approval with the United States District Court for the Eastern District of Virginia, a proposed consent decree (the “Original Consent Decree”) that, if approved, would resolve Mirant Potomac River’s potential liability for matters addressed in the NOVs previously issued by the Virginia DEQ and the EPA. The Original Consent Decree requires Mirant Potomac River and Mirant Mid-Atlantic to (1) install pollution control equipment at the Potomac River plant and at the Morgantown plant leased by Mirant Mid-Atlantic in Maryland, (2) comply with declining system-wide ozone season NOx emissions caps from 2004 through 2010, (3) comply with system-wide annual NOx emissions caps starting in 2004, (4) meet seasonal system

~~will resolve Mirant~~average Potomac River’s potential liability for matters addressed in the NOVs previously issued by the Virginia DEQ and the EPA. The consent decree requires Mirant Potomac River and Mirant Mid-Atlantic to (1) install pollution control equipment at the Potomac River plant and at the Morgantown plant leased by Mirant Mid-Atlantic in Maryland, (2) comply with declining system-wide ozone season NOx emissions ~~caps from 2004 through 2010, (3) comply with system-wide annual NOx emissions caps starting in 2004, (4) meet seasonal system average emissions~~ rate targets in 2008 and (5) pay civil penalties and perform supplemental environmental projects in and around the Potomac River ~~plant~~ plant expected to achieve additional environmental benefits. Except for the installation of the controls planned for the Potomac River units and the installation of selective catalytic reduction (“SCR”) or equivalent technology at Mirant Mid-Atlantic’s Morgantown Units 1 and 2 in 2007 and 2008, the ~~consent~~ ~~decree~~Original Consent Decree does not obligate the ~~Mirant~~Company’s ~~entities~~subsidiaries to install specifically designated technology, but rather to reduce emissions sufficiently to meet the various NOx caps. Moreover, as to the required installations of SCRs at Morgantown, Mirant Mid-Atlantic may choose not to install the technology by the applicable deadlines and leave the units off either permanently or until such time as the SCRs are installed. The ~~aggregate~~Original ~~amount~~Consent Decree ofis ~~the~~subject ~~civil penalties~~ to bethe ~~paid~~approval ~~and costs~~of tothe bedistrict ~~incurred~~court byand ~~Mirant~~the ~~Potomac~~Bankruptcy Court. ~~River~~As ~~for~~described below, the ~~supplemental~~Original ~~environmental projects~~Consent isDecree ~~$1.5~~has ~~million.~~not ~~The~~yet ~~consent~~been approved ~~decree~~and ~~is subject to~~ the ~~approval~~parties ofhave ~~the district~~filed ~~court~~an ~~and~~amended ~~the~~proposed ~~Bankruptcy~~consent ~~Court~~decree.

~~Mirant~~The ~~Potomac~~owners/lessors ~~River~~under ~~Downwash Study. On September 23, 2004,~~ the ~~Virginia DEQ~~ ~~and~~lease-financing ~~Mirant~~transactions ~~Potomac~~covering ~~River entered into an order by consent with respect to~~ the ~~Potomac~~ ~~River~~Morgantown plant under which Mirant Potomac River agreed to perform a modeling analysis to assess the potential effect of “downwash” from the plant (1) on ambient concentrations of SO2, nitrogen dioxide (“NO2”), carbon monoxide (“CO”) and ~~particulate~~Dickerson ~~matter~~plants ~~less than or equal to 10 micrometers~~ (~~“PM10”) for comparison to~~ the ~~applicable national ambient air quality standards (~~“~~NAAQS~~Owners/Lessors”) ~~and~~objected ~~(2) on ambient concentrations of mercury for comparison~~ to ~~Virginia Standards~~the ofOriginal ~~Performance~~Consent ~~for~~Decree ~~Toxic~~in ~~Pollutants. Downwash is~~ the ~~effect~~Bankruptcy ~~that occurs~~Court ~~when~~and ~~aerodynamic~~filed ~~turbulence induced by nearby structures causes~~a ~~pollutants~~motion ~~from an elevated source, such as a smokestack,~~ to beintervene ~~mixed~~in ~~rapidly toward~~ the ~~ground~~district ~~resulting~~court ~~in higher ground level concentrations of pollutants~~action. IfAs ~~the~~part ~~modeling analysis indicates that emissions from the facility may cause exceedances~~ of ~~the~~a ~~NAAQS~~resolution ~~for SO2, NO2, CO or PM10, or exceedances~~ of ~~mercury~~disputed ~~compared~~matters toin ~~Virginia~~the ~~Standards~~Chapter 11 ~~of Performance for Toxic Pollutants~~proceedings, the ~~consent~~ ~~order~~Owners/Lessors ~~requires~~agreed not ~~Mirant Potomac River~~ to ~~submit~~object to the ~~Virginia~~Original ~~DEQ~~Consent ~~a plan~~Decree, ~~and~~subject ~~schedule~~ to ~~eliminate~~certain ~~and~~terms ~~prevent such exceedances on a timely basis.~~set ~~Upon~~forth ~~approval~~in by the ~~Virginia~~Plan ~~DEQ of the plan~~ and ~~schedule,~~ the ~~approved~~order ~~plan and~~entered ~~schedule is to be incorporated~~ by ~~reference into~~ the ~~consent~~Bankruptcy ~~order.~~Court To the extent that the downwash study indicates that emissions from the Potomac River plant exceed either the NAAQS or the Virginia Standards of Performance for Toxic Pollutants, the remedial actions required could include material modifications to the plant or to its operation. The financial and operational implications of any such remedial actions are not known at this time. Mirant Potomac River received the Virginia DEQ’s approval of the modeling protocol on ~~June~~December 209, 2005, ~~and~~approving ~~has 60 days from that date to complete~~ the ~~modeling analysis~~Plan.

~~Mirant~~On ~~NY-Gen Pipeline Leak. In the fall of~~July ~~2003~~22, ~~Mirant NY-Gen~~2005, ~~LLC~~the ~~(“Mirant~~district ~~NY-Gen”)~~court ~~discovered~~granted a ~~leaking~~motion ~~underground~~filed ~~pipeline~~by at the ~~Hillburn generating~~City ~~facility~~of Alexandria seeking to intervene in ~~Ramapo,~~the ~~New~~district ~~York.~~court ~~The~~action, ~~underground~~although ~~line~~the ~~was~~district ~~used~~court ~~for~~imposed ~~supplying~~certain ~~kerosene~~limitations ~~fuel~~on to the ~~gas~~City ~~turbines~~of ~~located~~Alexandria’s onparticipation ~~site.~~in ~~After confirmatory~~the ~~testing~~proceedings. ~~revealed~~On aSeptember 23, ~~potential leak~~2005, the ~~line~~City ~~was~~of ~~removed~~Alexandria ~~from~~filed ~~service~~a ~~and plans~~motion ~~were~~seeking ~~undertaken~~authority to ~~excavate~~file ~~and~~an ~~sample~~amended ~~portions~~complaint ofin the ~~line~~action toseeking ~~determine the~~injunctive ~~extent~~relief ofand ~~the~~civil ~~line~~penalties ~~damage~~under ~~and~~ the ~~possible~~Clean ~~soil~~Air ~~contamination.~~Act ~~Upon~~for ~~initial~~alleged violations by ~~discovery~~Mirant ~~the~~Potomac ~~leak~~River ~~was~~of ~~reported~~its toVirginia ~~the~~Stationary ~~New~~Source ~~York~~Permit ~~State~~to ~~Department~~Operate ofand ~~Environmental~~the ~~Conservation~~State ~~(“NYSDEC”)~~of ~~and~~Virginia’s ~~the~~State ~~Rockland~~Implementation ~~County Health Department~~Plan. InBased upon a computer modeling, the ~~summer~~City of ~~2004~~Alexandria ~~soil~~asserted ~~contamination~~that ~~was~~emissions ~~discovered~~from ~~and~~the aPotomac River ~~subsequent~~plant ~~testing~~cause ofor ~~portions~~contribute ofto ~~the~~exceedances ~~line~~of ~~revealed~~national aambient ~~small~~air ~~hole. Currently,~~quality ~~investigations~~standards ~~are~~(“NAAQS”) ~~continuing~~for tosulfur

At June 30,
2006

At December 31,
2005

Items, absent the bankruptcy filings, that would have been considered current:

Accounts payable and accrued liabilities—affiliate

Accounts payable and accrued liabilities—nonaffiliate