MIDWEST GENERATION LLC 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q



(Mark one)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2012
	or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number 333-59348

_______________________

MIDWEST GENERATION, LLC

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	33-0868558 (I.R.S. Employer Identification No.)
235 Remington Boulevard, Suite A Bolingbrook, Illinois (Address of principal executive offices)	60440 (Zip Code)

Registrant's telephone number, including area code: (630) 771-7800

_______________________

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

Number of units outstanding of the registrant's Membership Interests as of July 31, 2012: 100 units (all units held by an affiliate of the registrant).

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TABLE OF CONTENTS



	GLOSSARY	iii
PART I - FINANCIAL INFORMATION		1
	ITEM 1. FINANCIAL STATEMENTS	1
	CONSOLIDATED STATEMENTS OF OPERATIONS	1
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	2
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF CASH FLOWS	4
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5
	Note 1. Summary of Significant Accounting Policies	5
	Note 2. Fair Value Measurements	7
	Note 3. Derivative Instruments and Hedging Activities	9
	Note 4. Income Taxes	11
	Note 5. Compensation and Benefit Plans	11
	Note 6. Commitments and Contingencies	12
	Note 7. Environmental Developments	14
	Note 8. Accumulated Other Comprehensive Loss	15
	Note 9. Supplemental Cash Flows Information	15
	Note 10. Restructuring Activities	15
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
	MANAGEMENT'S OVERVIEW	17
	Midwest Generation Liquidity	17
	EME Liquidity and Restructuring Activities	17
	Midwest Generation's Dependence on EME as a Going Concern	18
	Environmental Compliance Plans and Costs	18
	Environmental Regulation Developments	19
	RESULTS OF OPERATIONS	20
	Summary	20
	Reconciliation of Non-GAAP Disclosures and Statistical Definitions	20
	Average Realized Energy Price	20
	Average Realized Fuel Costs	21
	Statistical Definitions	21
	Seasonality	21
	Operating Income (Loss)	21
	Other Income (Expense)	22
	Income Taxes	22
	New Accounting Guidance	22
	LIQUIDITY AND CAPITAL RESOURCES	23
	Available Liquidity	23
	Capital Investment Plan	23
	Consolidated Cash Flow	23

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	Credit Ratings	24
	Overview	24
	Credit Rating of EMMT	24
	Dividend Restrictions	24
	Powerton-Joliet Lease Payments	24
	Contractual Obligations and Contingencies	24
	Contractual Obligations	24
	Contingencies	24
	Off-Balance Sheet Transactions	25
	Environmental Matters and Regulations	25
	MARKET RISK EXPOSURES	26
	Derivative Instruments	26
	Unrealized Gains and Losses	26
	Fair Value Disclosures	26
	Commodity Price Risk	26
	Energy Price Risk	26
	Capacity Price Risk	28
	Basis Risk	28
	Coal Price Risk	28
	Credit Risk	29
	Interest Rate Risk	29
	CRITICAL ACCOUNTING ESTIMATES AND POLICIES	29
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
	ITEM 4. CONTROLS AND PROCEDURES	29
	Disclosure Controls and Procedures	29
	Internal Control over Financial Reporting	29
PART II - OTHER INFORMATION		30
	ITEM 1. LEGAL PROCEEDINGS	30
	ITEM 1A. RISK FACTORS	30
	ITEM 6. EXHIBITS	30
	SIGNATURES	31

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GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.



ACI	activated carbon injection
ARO(s)	asset retirement obligation(s)
BART	best available retrofit technology
bcf	billion cubic feet
Btu	British thermal units
CAA	Clean Air Act
CAIR	Clean Air Interstate Rule
CAMR	Clean Air Mercury Rule
CO₂	carbon dioxide
Commonwealth Edison	Commonwealth Edison Company
CPS	Combined Pollutant Standard
CSAPR	Cross-State Air Pollution Rule
EIA	Energy Information Administration
EME	Edison Mission Energy
EMMT	Edison Mission Marketing & Trading, Inc.
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
GAAP	United States generally accepted accounting principles
GHG	greenhouse gas
GWh	gigawatt-hours
Illinois EPA	Illinois Environmental Protection Agency
ISO(s)	independent system operator(s)
kV	kilovolt
Lehman	Lehman Brothers Commodity Services, Inc. and Lehman Brothers Holdings, Inc.
LIBOR	London Interbank Offered Rate
MATS	Mercury and Air Toxics Standards
Midwest Generation	Midwest Generation, LLC
MISO	Midwest Independent Transmission System Operator
MMBtu	million British thermal units
Moody's	Moody's Investors Service, Inc.
MW	megawatts
MWh	megawatt-hours
NAAQS	National Ambient Air Quality Standard(s)
NERC	North American Electric Reliability Corporation
NO_X	nitrogen oxide
NSR	New Source Review
PJM	PJM Interconnection, LLC
PRB	Powder River Basin
PSD	Prevention of Significant Deterioration
RPM	Reliability Pricing Model
RTO(s)	regional transmission organization(s)
S&P	Standard & Poor's Ratings Services

iii

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SIP(s)	state implementation plan(s)
SNCR	selective non-catalytic reduction
SO₂	sulfur dioxide
US EPA	United States Environmental Protection Agency

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MIDWEST GENERATION, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Operating Revenues from Marketing Affiliate	$	213		$	280		$	446		$	631
Operating Expenses
Fuel	143			107			260			233
Plant operations	120			164			229			282
Depreciation and amortization	32			40			64			79
Loss on disposal and asset retirements	1			11			4			11
Administrative and general	5			5			10			11
Total operating expenses	301			327			567			616
Operating income (loss)	(88		)	(47		)	(121		)	15
Other Income (Expense)
Interest and other income	27			29			55			58
Interest expense	(8		)	(11		)	(17		)	(22		)
Total other income	19			18			38			36
Income (loss) before income taxes	(69		)	(29		)	(83		)	51
Provision (benefit) for income taxes	(27		)	(11		)	(32		)	21
Net Income (Loss)	$	(42	)	$	(18	)	$	(51	)	$	30

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

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MIDWEST GENERATION, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net Income (Loss)	$	(42	)	$	(18	)	$	(51	)	$	30
Other comprehensive income (loss), net of tax
Pension and postretirement benefits other than pensions
Amortization of net loss and prior service adjustment included in expense, net of tax	—			—			1			1
Unrealized gains (losses) on derivatives qualified as cash flow hedges
Unrealized holding gains (losses) arising during the periods, net of income tax expense (benefit) of $(4) and $(6) for the three months and $8 and $(5) for the six months ended June 30, 2012 and 2011, respectively	(6		)	(9		)	12			(8		)
Reclassification adjustments included in net income (loss), net of income tax benefit of $6 and $3 for the three months and $12 and $7 for the six months ended June 30, 2012 and 2011, respectively	(9		)	(5		)	(19		)	(12		)
Other comprehensive income (loss), net of tax	(15		)	(14		)	(6		)	(19		)
Comprehensive Income (Loss)	$	(57	)	$	(32	)	$	(57	)	$	11

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

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MIDWEST GENERATION, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except unit amounts, unaudited)



	June 30, 2012			December 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	177		$	213
Due from affiliates	64			109
Inventory	163			159
Interest receivable from affiliate	55			55
Derivative assets	29			43
Deferred taxes	3			14
Other current assets	9			17
Total current assets	500			610
Property, plant and equipment, less accumulated depreciation of $1,215 and $1,152 at respective dates	2,135			2,185
Notes receivable from affiliate	1,317			1,323
Long-term derivative assets	2			1
Deferred taxes	84			42
Other long-term assets	24			29
Total Assets	$	4,062		$	4,190
Liabilities and Member's Equity
Current Liabilities
Accounts payable	$	30		$	35
Accrued liabilities	48			49
Due to affiliates	8			18
Interest payable	16			19
Derivative liabilities	1			2
Current portion of lease financing	121			116
Total current liabilities	224			239
Lease financing, net of current portion	381			439
Benefit plans and other long-term liabilities	245			243
Total Liabilities	850			921
Commitments and Contingencies (Notes 3, 6 and 7)
Member's Equity
Membership interests, no par value (100 units authorized, issued and outstanding at each date)	—			—
Additional paid-in capital	3,511			3,511
Accumulated deficit	(276		)	(225		)
Accumulated other comprehensive loss	(23		)	(17		)
Total Member's Equity	3,212			3,269
Total Liabilities and Member's Equity	$	4,062		$	4,190

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

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MIDWEST GENERATION, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)



	Six Months Ended June 30,
	2012			2011
Cash Flows From Operating Activities
Net income (loss)	$	(51	)	$	30
Adjustments to reconcile income (loss) to net cash provided by operating activities:
Depreciation and amortization	64			80
Deferred taxes	(25		)	43
Loss on disposal and asset retirements	4			11
Decrease (increase) in due from affiliates	35			(23		)
Increase in inventory	(4		)	(15		)
Decrease in other assets	9			16
Decrease in emission allowances	—			2
(Decrease) increase in accounts payable and other current liabilities	(2		)	15
Decrease in interest payable	(3		)	(2		)
Decrease in derivative assets and liabilities	1			—
Increase in other liabilities	—			9
Net cash provided by operating activities	28			166
Cash Flows From Financing Activities
Cash distributions to parent	—			(85		)
Repayments of lease financing	(58		)	(53		)
Net cash used in financing activities	(58		)	(138		)
Cash Flows From Investing Activities
Capital expenditures	(16		)	(55		)
Investment in other assets	—			(18		)
Decrease in restricted deposits	2			—
Proceeds from settlement of insurance claims	2			—
Repayment of loan from affiliate	6			4
Net cash used in investing activities	(6		)	(69		)
Net decrease in cash and cash equivalents	(36		)	(41		)
Cash and cash equivalents at beginning of period	213			295
Cash and cash equivalents at end of period	$	177		$	254

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

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MIDWEST GENERATION, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Liquidity and Capital Needs

At June 30, 2012, Midwest Generation, LLC (Midwest Generation) had cash and cash equivalents of $177 million. Midwest Generation's previous $500 million revolving credit facility expired in June 2012 and is no longer a source of liquidity. Midwest Generation is currently experiencing operating losses due to lower realized energy and capacity prices, higher fuel costs and lower generation at the Midwest Generation plants. Forward market prices indicate that these trends are expected to continue for a number of years. Midwest Generation expects that it will incur an operating cash flow deficit and operating losses in 2012 and subsequent years. In order to retrofit its coal-fired plants, Midwest Generation will need to receive additional contributions or repayment of notes receivable from Edison Mission Energy (EME) or other sources. Midwest Generation plans to fund operating cash flow deficits through a combination of cash on hand, management of fuel inventories, deferral of operations and maintenance expenses, receipt of interest and principal repayment on notes receivable from EME, and equity contributions from EME. EME is under no obligation to make such contributions and may be unable to do so.

Midwest Generation's Dependence on EME as a Going Concern

Midwest Generation is largely dependent on EME to fund cash flow deficits and environmental retrofits. As indicated above, EME has no obligation to make capital contributions to Midwest Generation and may be unable to do so. Furthermore, Midwest Generation had $1.329 billion of notes receivable from EME at June 30, 2012 with payments used to meet its rent obligations under the Powerton and Joliet sale-leaseback agreements. If EME is unable to make payments on its notes, Midwest Generation may in turn be unable to make rent payments under the Powerton-Joliet leases. Failure to pay rent would be an event of default under the Powerton-Joliet leases that could result in termination of the leases, loss of control over the use of the Powerton and Joliet Stations and a claim for termination value under the lease agreements. Also, if it became probable that a loss would be incurred on the notes receivable, Midwest Generation would record a material impairment charge.

Accordingly, if Midwest Generation is unable to obtain financial support from EME or other sources, Midwest Generation may need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. A bankruptcy of either EME or Midwest Generation would also be an event of default under the Powerton-Joliet leases. Bankruptcy proceedings could lead to a change of control of Midwest Generation, which would result in the termination of its tax-allocation agreement. At June 30, 2012, Midwest Generation had recognized $87 million of net deferred tax benefits based on continued ownership by Edison International and inclusion in the consolidated income tax returns of Edison International and its subsidiaries. If it is more likely than not that Midwest Generation would no longer continue to participate as part of the consolidated group of Edison International, Midwest Generation would record a valuation allowance to reduce the carrying value of its net deferred tax benefit and record a material charge against earnings.

The accompanying consolidated financial statements have been prepared assuming that Midwest Generation will continue as a going concern. Financial statements prepared on this basis assume the realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date of these financial statements. There is no assurance that Midwest Generation will be able to continue as a going concern.

Basis of Presentation

Midwest Generation's significant accounting policies were described in "Note 1—Summary of Significant Accounting Policies" on page 44 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. Midwest Generation follows the same accounting policies for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2012, as discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with such financial statements and notes.

In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position and results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America (GAAP) for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and six-month periods ended June 30, 2012 are not necessarily indicative of the operating results for the full year.

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The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Cash Equivalents

Cash equivalents included money market funds totaling $160 million and $195 million at June 30, 2012 and December 31, 2011, respectively. The carrying value of cash equivalents equals the fair value as all investments have original maturities of less than three months.

Related Party

Interest income from affiliates, included in interest and other income on Midwest Generation's consolidated statements of operations, was $27 million and $28 million during the three months ended June 30, 2012 and 2011, respectively, and $55 million and $56 million during the six months ended June 30, 2012 and 2011, respectively.

Inventory

Inventory is stated at the lower of weighted-average cost or market. Inventory is recorded at actual cost when purchased and then expensed at weighted-average cost as used. Inventory consisted of the following:



(in millions)	June 30, 2012		December 31, 2011
Coal, fuel oil and other raw materials	$	117	$	117
Spare parts, materials and supplies	46		42
Total inventory	$	163	$	159

New Accounting Guidance

Accounting Guidance Adopted in 2012

Fair Value Measurement

In May 2011, the Financial Accounting Standards Board (FASB) issued an accounting standards update modifying the fair value measurement and disclosure guidance. This guidance prohibits grouping of financial instruments for purposes of fair value measurement and requires the value be based on the individual security. This amendment also results in new disclosures primarily related to Level 3 measurements including quantitative disclosure about unobservable inputs and assumptions, a description of the valuation processes and a narrative description of the sensitivity of the fair value to changes in unobservable inputs. Midwest Generation adopted this guidance effective January 1, 2012. For further information, see Note 2—Fair Value Measurements.

Presentation of Comprehensive Income

In June 2011 and December 2011, the FASB issued accounting standards updates on the presentation of comprehensive income. An entity can elect to present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. Midwest Generation adopted this guidance effective January 1, 2012 and elected to present two separate but consecutive statements. The adoption of these accounting standards updates did not change the items that constitute net income and other comprehensive income.

Accounting Guidance Not Yet Adopted

Offsetting Assets and Liabilities

In December 2011, the FASB issued an accounting standards update modifying the disclosure requirements about the nature of an entity's rights of offsetting assets and liabilities in the statement of financial position under master netting agreements and related arrangements associated with financial and derivative instruments. The guidance requires increased disclosure of the gross and net recognized assets and liabilities, collateral positions and narrative descriptions of setoff rights. Midwest Generation will adopt this guidance effective January 1, 2013.

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Note 2. Fair Value Measurements

Recurring Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk, which was not material as of June 30, 2012 and December 31, 2011.

Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:



	June 30, 2012
(in millions)	Level 1		Level 2		Level 3		Netting¹			Total
Assets at Fair Value
Money market funds²	$	160	$	—	$	—	$	—		$	160
Derivative contracts
Electricity	$	—	$	29	$	1	$	1		$	31
Natural Gas	1		—		—		(1		)	—
Total derivative contracts	$	1	$	29	$	1	$	—		$	31
Total assets	$	161	$	29	$	1	$	—		$	191
Liabilities at Fair Value
Derivative contracts
Electricity	$	—	$	1	$	—	$	—		$	1
Total liabilities	$	—	$	1	$	—	$	—		$	1
	December 31, 2011
(in millions)	Level 1		Level 2		Level 3		Netting¹			Total
Assets at Fair Value
Money market funds²	$	195	$	—	$	—	$	—		$	195
Derivative contracts
Electricity	$	—	$	40	$	—	$	4		$	44
Fuel oil	4		—		—		(4		)	—
Total derivative contracts	$	4	$	40	$	—	$	—		$	44
Total assets	$	199	$	40	$	—	$	—		$	239
Liabilities at Fair Value
Derivative contracts
Electricity	$	—	$	2	$	—	$	—		$	2
Total liabilities	$	—	$	2	$	—	$	—		$	2


¹	Represents the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.


²	Money market funds are included in cash and cash equivalents on Midwest Generation's consolidated balance sheets.

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The fair value of transfers in and out of each level is determined at the end of each reporting period. There were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2012 and 2011.

Valuation Techniques used to Determine Fair Value

Level 1

The fair value of Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded derivatives and money market funds.

Level 2

The fair value of Level 2 assets and liabilities is determined using the income approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument. This level includes over-the-counter derivatives.

Over-the-counter derivative contracts are valued using standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from exchanges (New York Mercantile Exchange and Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.

Level 3

The fair value of Level 3 assets and liabilities is determined using the income approach through various models and techniques that require significant unobservable inputs. This level includes over-the-counter options and derivative contracts that trade infrequently, such as congestion revenue rights and long-term power agreements.

Assumptions are made in order to value derivative contracts in which observable inputs are not available. Changes in fair value are based on changes to forward market prices, including extrapolation of short-term observable inputs into forecasted prices for illiquid forward periods. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts.

The following table sets forth the valuation techniques and significant unobservable inputs used to determine fair value for Level 3 assets and liabilities:

June 30, 2012

Quantitative Information About Level 3 Fair Value Measurements

Fair Value (in millions)

Valuation Technique

Significant Unobservable Input

Range

(Weighted Average)

Assets

Liabilities

Electricity

Power contracts

—

Discounted cash flows

Power prices

$28.70 - $28.70 ($28.70)

Total

—

Level 3 Fair Value Sensitivity

For power contracts, generally, an increase (decrease) in long-term forward power prices at illiquid locations relative to the contract price will increase (decrease) fair value.

Fair Value of Note Receivable from Affiliate

The carrying amount of Midwest Generation's note receivable from affiliate was $1.329 billion at June 30, 2012 and $1.334 billion at December 31, 2011. It is not practicable to estimate the fair value of this financial instrument due to the indemnities and guarantees provided by EME under the provisions of the sale-leaseback agreements for the Powerton and Joliet Stations.

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Note 3. Derivative Instruments and Hedging Activities

Midwest Generation uses derivative instruments to reduce its exposure to market risks that arise from price fluctuations of electricity, capacity, fuel and transmission rights. The derivative financial instruments vary in duration, ranging from a few days to several years, depending upon the instrument. To the extent that Midwest Generation does not use derivative instruments to hedge these market risks, the unhedged portions will be subject to the risks and benefits of spot market price movements.

Risk management positions may be designated as cash flow hedges or economic hedges, which are derivatives that are not designated as cash flow hedges. Economic hedges are accounted for at fair value on Midwest Generation's consolidated balance sheets as derivative assets or liabilities with offsetting changes recorded on the consolidated statements of operations. For derivative instruments that qualify for hedge accounting treatment, the fair value is recognized on Midwest Generation's consolidated balance sheets as derivative assets or liabilities with offsetting changes in fair value, to the extent effective, recognized in accumulated other comprehensive loss until reclassified into earnings when the related forecasted transaction occurs. The portion of a cash flow hedge that does not offset the change in the fair value of the transaction being hedged, which is commonly referred to as the ineffective portion, is immediately recognized in earnings. The results of derivative activities are recorded in cash flows from operating activities on the consolidated statements of cash flows.

Where Midwest Generation's derivative instruments are subject to a master netting agreement and the criteria of authoritative guidance are met, Midwest Generation presents its derivative assets and liabilities on a net basis on its consolidated balance sheets.

Notional Volumes of Derivative Instruments

The following table summarizes the notional volumes of derivatives used for hedging activities:



June 30, 2012
Commodity	Instrument	Classification	Unit of Measure	Cash Flow Hedges		Economic Hedges
Electricity	Forwards/Futures	Sales, net	GWh	4,630	¹	28	³
Fuel oil	Forwards/Futures	Purchases	barrels	—		240,000
December 31, 2011
Electricity	Forwards/Futures	Sales, net	GWh	7,978	¹	227	³
Electricity	Capacity	Sales	GW-Day	61	²	—
Electricity	Congestion	Purchases	GWh	—		608	⁴
Fuel oil	Forwards/Futures	Purchases	barrels	—		240,000


¹	Midwest Generation's hedge products include forward and futures contracts that qualify for hedge accounting.


²	Midwest Generation's hedge transactions for capacity result from bilateral trades. Capacity sold in the PJM Interconnection, LLC Reliability Pricing Model (PJM RPM) auction is not accounted for as a derivative.


³	These positions adjust financial and physical positions, or day-ahead and real-time positions, to reduce costs or increase gross margin. The net sales positions of these categories are primarily related to hedge transactions that are not designated as cash flow hedges.


⁴	Congestion contracts include financial transmission rights, transmission congestion contracts or congestion revenue rights. These positions are similar to a swap, where the buyer is entitled to receive a stream of revenues (or charges) based on the hourly day-ahead price differences between two locations.

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Fair Value of Derivative Instruments

The following table summarizes the fair value of commodity derivative instruments reflected on Midwest Generation's consolidated balance sheets:



June 30, 2012
	Derivative Assets									Derivative Liabilities
(in millions)	Short-term			Long-term			Subtotal			Short-term			Long-term			Subtotal			Net Assets
Cash flow hedges	$	24		$	2		$	26		$	—		$	—		$	—		$	26
Economic hedges	23			1			24			19			1			20			4
	47			3			50			19			1			20			30
Netting¹	(18		)	(1		)	(19		)	(18		)	(1		)	(19		)	—
Total	$	29		$	2		$	31		$	1		$	—		$	1		$	30
December 31, 2011
Cash flow hedges	$	39		$	1		$	40		$	2		$	—		$	2		$	38
Economic hedges	24			—			24			20			—			20			4
	63			1			64			22			—			22			42
Netting¹	(20		)	—			(20		)	(20		)	—			(20		)	—
Total	$	43		$	1		$	44		$	2		$	—		$	2		$	42


¹	Netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists with a derivative counterparty.

Income Statement Impact of Derivative Instruments

The following table provides the cash flow hedge activity as part of accumulated other comprehensive loss:



	Cash Flow Hedge Activity¹ Six Months Ended June 30,						Income Statement Location
(in millions)	2012			2011			Income Statement Location
Beginning of period derivative gains	$	34		$	37
Effective portion of changes in fair value	20			(13		)
Reclassification to earnings	(31		)	(19		)	Operating revenues
End of period derivative gains	$	23		$	5


¹	Unrealized derivative gains are before income taxes. The after-tax amounts recorded in accumulated other comprehensive loss at June 30, 2012 and 2011 were $14 million and $3 million, respectively.

For additional information, see Note 8—Accumulated Other Comprehensive Loss.

Midwest Generation recorded net gains (losses) of $1 million and $(1) million during the three months ended June 30, 2012 and 2011, respectively, and $2 million and $(1) million during the six months ended June 30, 2012 and 2011, respectively, in operating revenues on the consolidated statements of operations representing the amount of cash flow hedge ineffectiveness.

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The effect of realized and unrealized gains (losses) from derivative instruments on the consolidated statements of operations is presented below:



	Income Statement Location	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	Income Statement Location	2012			2011			2012			2011
Economic hedges	Operating revenues	$	5		$	6		$	16		$	7
	Fuel	(6		)	(2		)	(1		)	4

Collateral

Certain derivative instruments contain collateral deposit requirements. Midwest Generation sells merchant energy and capacity through Edison Mission Marketing & Trading, Inc. (EMMT), which has a below investment grade credit rating. Midwest Generation has cash on hand to provide credit support as needed for hedging contracts entered into by EMMT related to the Midwest Generation plants. EMMT may borrow under its revolving credit agreement with Midwest Generation to provide credit support for futures and forward contracts. Loans provided under this revolving credit agreement are repaid by EMMT upon the return of the funds under the terms of the related forward contracts. The amount repaid includes interest earned, if any, under margin agreements supporting such contracts. As of June 30, 2012, EMMT had no borrowings outstanding under this revolving credit agreement. Future increases in power prices could expose Midwest Generation to collateral postings.

Note 4. Income Taxes

Midwest Generation had an effective income tax rate of 39% and 41% for the six months ended June 30, 2012 and 2011, respectively, which varied from the federal statutory rate of 35% primarily due to state income taxes.

Note 5. Compensation and Benefit Plans

Pension Plans and Postretirement Benefits Other Than Pensions

Pension Plans

During the six months ended June 30, 2012, Midwest Generation made contributions of $8 million, and during the remainder of 2012, expects to make $7 million of additional contributions.

The following were components of pension expense:



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011
Service cost	$	3.1		$	3.0		$	6.7		$	6.4
Interest cost	2.0			2.1			4.2			4.2
Expected return on plan assets	(2.4		)	(2.0		)	(4.7		)	(4.2		)
Net amortization	0.6			—			1.1			0.2
Total expense	$	3.3		$	3.1		$	7.3		$	6.6

Postretirement Benefits Other Than Pensions

During the six months ended June 30, 2012, Midwest Generation made contributions of $0.8 million and expects to make no additional contributions during the remainder of 2012.

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The following were components of postretirement benefits expense:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2012		2011		2012		2011
Service cost	$	0.4	$	0.4	$	0.8	$	0.8
Interest cost	0.7		0.8		1.4		1.5
Net amortization	0.4		0.2		0.8		0.4
Total expense	$	1.5	$	1.4	$	3.0	$	2.7

Note 6. Commitments and Contingencies

Coal Transportation Agreements

At June 30, 2012, Midwest Generation had contractual agreements for the transportation of coal. The commitments under these contracts are based on either actual coal purchases derived from committed coal volumes set forth in fuel supply contracts or minimum quantities as set forth in the transportation agreements as adjusted for provisions that mitigate the financial exposure of Midwest Generation related to a plant closure under certain circumstances as specified in the agreements. Estimated contractual obligations for coal transportation agreements are estimated to aggregate $2.4 billion, which consists of: $229 million for the remainder of 2012, $292 million for 2013, $287 million for 2014, $261 million for 2015, $261 million for 2016, and $1.1 billion thereafter. Years subsequent to 2012 reflect a reduction in minimum volumes for the shut down of the Fisk and Crawford Stations.

Guarantees and Indemnities

Environmental Indemnities Related to the Midwest Generation Plants

In connection with the acquisition of the Midwest Generation plants, Midwest Generation agreed to indemnify Commonwealth Edison Company (Commonwealth Edison) with respect to specified environmental liabilities before and after December 15, 1999, the date of sale. The indemnification obligations are reduced by any insurance proceeds and tax benefits related to such indemnified claims and are subject to a requirement that Commonwealth Edison takes all reasonable steps to mitigate losses related to any such indemnification claim. Also, in connection with the sale-leaseback transaction related to the Powerton and Joliet Stations in Illinois, EME agreed to indemnify the owner-lessors for specified environmental liabilities. These indemnities are not limited in term or amount. Due to the nature of the obligations under these indemnities, a maximum potential liability cannot be determined. Commonwealth Edison has advised Midwest Generation that Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that it may be required to bear as a result of the litigation discussed below under "—Contingencies—New Source Review and Other Litigation," and one of the Powerton-Joliet owner-lessors has made a similar request for indemnification. Except as discussed below, Midwest Generation has not recorded a liability related to these environmental indemnities.

Midwest Generation entered into a supplemental agreement with Commonwealth Edison and Exelon Generation Company LLC on February 20, 2003 to resolve a dispute regarding interpretation of Midwest Generation's reimbursement obligation for asbestos claims under the environmental indemnities set forth in the Asset Sale Agreement. Under this supplemental agreement, Midwest Generation agreed to reimburse Commonwealth Edison and Exelon Generation for 50% of specific asbestos claims pending as of February 2003 and related expenses less recovery of insurance costs, and agreed to a sharing arrangement for liabilities and expenses associated with future asbestos-related claims as specified in the agreement. The obligations under this agreement are not subject to a maximum liability. The supplemental agreement had an initial five-year term with an automatic renewal provision for subsequent one-year terms (subject to the right of either party to terminate); pursuant to the automatic renewal provision, it has been extended until February 2013. There were approximately 218 cases for which Midwest Generation was potentially liable that had not been settled and dismissed at June 30, 2012. Midwest Generation had recorded a liability of $53 million at June 30, 2012 related to this contractual indemnity, included in benefit plans and other long-term liabilities on its consolidated balance sheets.

Indemnities Provided under Sale-Leaseback Agreements

In connection with the sale-leaseback transactions related to the Powerton and Joliet Stations and, previously, the Collins Station, EME, Midwest Generation and another wholly owned subsidiary of EME entered into tax indemnity agreements. Under certain of these tax indemnity agreements, Midwest Generation, as the lessee in the sale-leaseback transactions agreed to indemnify the respective lessors for specified adverse tax consequences that could result from certain situations set forth in

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each tax indemnity agreement, including specified defaults under the respective leases. Although the Collins Station lease terminated in April 2004, Midwest Generation's indemnities in favor of its former lease equity investors are still in effect. EME provided similar indemnities in the sale-leaseback transactions related to the Powerton and Joliet Stations in Illinois. The potential indemnity obligation under these tax indemnity agreements could be significant. Due to the nature of these potential obligations, Midwest Generation cannot determine a range of estimated obligations which could be triggered by a valid claim from the lessors. Midwest Generation has not recorded a liability for these matters.

Other Indemnities

Midwest Generation provides other indemnifications through contracts entered into in the normal course of business. Midwest Generation's obligations under these agreements may or may not be limited in terms of time and/or amount, and in some instances Midwest Generation may have recourse against third parties. Midwest Generation cannot determine a range of estimates and has not recorded a liability related to these indemnities.

Contingencies

In addition to the matters disclosed in these notes, Midwest Generation is involved in other legal, tax and regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of business. Midwest Generation believes the outcome of these other proceedings, individually and in the aggregate, will not materially affect its results of operations or liquidity.

New Source Review and Other Litigation

In August 2009, the United States Environmental Protection Agency (US EPA) and the State of Illinois filed a complaint in the Northern District of Illinois alleging that Midwest Generation or Commonwealth Edison performed repair or replacement projects at six Illinois coal-fired electric generating stations in violation of the Prevention of Significant Deterioration (PSD) requirements and of the New Source Performance Standards of the Clean Air Act (CAA), including alleged requirements to obtain a construction permit and to install controls sufficient to meet best available control technology (BACT) emission rates. The US EPA also alleged that Midwest Generation and Commonwealth Edison violated certain operating permit requirements under Title V of the CAA. Finally, the US EPA alleged violations of certain opacity and particulate matter standards at the Midwest Generation plants. In addition to seeking penalties ranging from $25,000 to $37,500 per violation, per day, the complaint called for an injunction ordering Midwest Generation to install controls sufficient to meet BACT emission rates at all units subject to the complaint and other remedies. The remedies sought by the plaintiffs in the lawsuit could go well beyond the requirements of the Combined Pollutant Standard (CPS). Several Chicago-based environmental action groups intervened in the case.

Nine of the ten PSD claims raised in the complaint have been dismissed, along with claims related to alleged violations of Title V of the CAA, to the extent based on the dismissed PSD claims, and all claims asserted against Commonwealth Edison and EME. The court denied a motion to dismiss a claim by the Chicago-based environmental action groups for civil penalties in the remaining PSD claim, but noted that the plaintiffs will be required to convince the court that the statute of limitations should be equitably tolled. The court did not address other counts in the complaint that allege violations of opacity and particulate matter limitations under the Illinois State Implementation Plan and Title V of the CAA. The dismissals have been certified as "partial final judgments" capable of appeal, and an appeal is pending before the Seventh Circuit Court of Appeals. The remaining claims have been stayed pending the appeal. In February 2012, certain of the environmental action groups that had intervened in the case entered into an agreement with Midwest Generation to dismiss without prejudice all of their opacity claims as to all defendants. The agreed upon motion to dismiss was approved by the court on March 26, 2012.

In January 2012, two complaints were filed against Midwest Generation in Illinois state court by residents living near the Crawford and Fisk Stations on behalf of themselves and all others similarly situated, each asserting claims of nuisance, negligence, trespass, and strict liability. The plaintiffs seek to have their suits certified as a class action and request injunctive relief, as well as compensatory and punitive damages. The complaints are similar to two complaints previously filed in the Northern District of Illinois, which were dismissed in October 2011 for lack of federal jurisdiction. In March 2012, Midwest Generation filed motions to dismiss the cases, which are pending.

Adverse decisions in these cases could involve penalties, remedial actions and damages that could have a material impact on the financial condition and results of operations of Midwest Generation. Midwest Generation cannot predict the outcome of these matters or estimate the impact on the Midwest Generation plants, or its results of operations, financial position or cash flows. Midwest Generation has not recorded a liability for these matters.

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Environmental Remediation

Legislative and regulatory activities by federal, state and local authorities in the United States relating to energy and the environment impose numerous restrictions and requirements with respect to the operation of the Midwest Generation plants and affect the timing, cost and construction of capital improvements to the Midwest Generation plants as well as the cost of mitigating the environmental impacts of past operations.

With respect to potential liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, commonly referred to as CERCLA, or similar laws for the investigation and remediation of contaminated property, Midwest Generation accrues a liability to the extent the costs are probable and can be reasonably estimated. Midwest Generation had accrued a probable amount of approximately $9 million at June 30, 2012 for estimated environmental investigation and remediation costs for four stations at the Midwest Generation plants. This estimate is based upon the number of sites, the scope of work and the estimated costs for investigation and/or remediation where such expenditures could be reasonably estimated. Midwest Generation also has identified stations for which a reasonable estimate cannot be made. Future estimated costs may vary based on changes in regulations or requirements of federal, state or local governmental agencies, changes in technology, and actual costs of disposal. In addition, future remediation costs will be affected by the nature and extent of contamination discovered at the sites that require remediation. Given the prior history of the operations at its facilities, Midwest Generation cannot be certain that the existence or extent of all contamination at its sites has been fully identified.

Note 7. Environmental Developments

Hazardous Air Pollutant Regulations

In December 2011, the US EPA announced the Mercury and Air Toxics Standards (MATS) rule, limiting emissions of hazardous air pollutants from coal- and oil-fired electrical generating units. The rule was published in the Federal Register on February 16, 2012, and became effective on April 16, 2012. A number of parties have filed notices of appeal challenging the rule.

Greenhouse Gas Regulation

In March 2012, the US EPA announced proposed carbon dioxide emissions limits for new power plants. The status of the US EPA's efforts to develop greenhouse gas emissions performance standards for existing plants is unknown.

In June 2012, the U.S. Court of Appeals for the D.C. Circuit dismissed the challenge by industry groups and some states to the Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, known as the "GHG tailoring rule."

In July 2012, the US EPA published a final rule maintaining the CO₂equivalent emissions thresholds (for purposes of PSD and Title V permitting) originally established in the GHG tailoring rule.

Greenhouse Gas Litigation

In March 2012, the federal district court in Mississippi dismissed, in its entirety, the purported class action complaint filed by private citizens in May 2011, naming a large number of defendants, including Midwest Generation's parent company, EME, for damages allegedly arising from Hurricane Katrina. In April 2012, the plaintiffs filed an appeal with the Fifth Circuit Court of Appeals. Plaintiffs allege that the defendants' activities resulted in emissions of substantial quantities of greenhouse gases that have contributed to climate change and sea level rise, which in turn are alleged to have increased the destructive force of Hurricane Katrina. The lawsuit alleges causes of action for negligence, public and private nuisance, and trespass, and seeks unspecified compensatory and punitive damages. The claims in this lawsuit are nearly identical to a subset of the claims that were raised against many of the same defendants in a previous lawsuit that was filed in, and dismissed by, the same federal district court where the current case has been filed.

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Note 8. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following:



(in millions)	Unrealized Gains on Cash Flow Hedges, Net			Unrecognized Losses and Prior Service Adjustments, Net¹			Accumulated Other Comprehensive Loss
Balance at December 31, 2011	$	21		$	(38	)	$	(17	)
Current period change	(7		)	1			(6		)
Balance at June 30, 2012	$	14		$	(37	)	$	(23	)


¹	For further detail, see Note 5—Compensation and Benefit Plans.

Unrealized gains on cash flow hedges, net of tax, at June 30, 2012, consist of futures and forward electricity contracts that qualify for hedge accounting. These gains arise because current forecasts of future electricity prices are lower than the contract prices. Approximately $13 million of unrealized gains on cash flow hedges, net of tax, are expected to be reclassified into earnings during the next 12 months. Management expects that reclassification of net unrealized gains will increase energy revenues recognized at market prices. Actual amounts ultimately reclassified into earnings over the next 12 months could vary materially from this estimated amount as a result of changes in market conditions. The maximum period over which a commodity cash flow hedge is designated is December 31, 2013.

Note 9. Supplemental Cash Flows Information



	Six Months Ended June 30,
(in millions)	2012		2011
Cash paid
Interest	$	19	$	23
Income taxes	—		8

Accrued capital expenditures at June 30, 2012 were $2 million. Accrued capital expenditures will be included as an investing activity in the consolidated statements of cash flows in the period paid.

Note 10. Restructuring Activities

In conjunction with the decision to shut down its Fisk and Crawford Stations in September 2012, Midwest Generation plans to reduce approximately 175 positions from its plant operation and administrative staff in 2012 and recorded charges of approximately $6 million (pre-tax) related to severance and other employee benefits due to employees affected by the planned shutdowns during the second quarter of 2012. The charges were included in administrative and general expense on Midwest Generation's consolidated statements of operations.

Midwest Generation has sold capacity forward through May 31, 2015 for both Fisk and Crawford. However, Midwest Generation has not sold its full capacity forward during those periods. Midwest Generation would expect to cover its capacity obligations associated with the Fisk and Crawford units through a combination of improved fleet performance, fleet capacity not previously sold forward and, if necessary, market transactions.

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

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect Midwest Generation's current expectations and projections about future events based on Midwest Generation's knowledge of present facts and circumstances and assumptions about future events and include any statement that does not directly relate to a historical or current fact. Other information distributed by Midwest Generation that is incorporated in this report, or that refers to or incorporates this report, may also contain forward-looking statements. In this quarterly report on Form 10-Q, the words "expects," "believes," "anticipates," "estimates," "projects," "intends," "plans," "probable," "may," "will," "could," "would," "should," and variations of such words and similar expressions, or discussions of strategy or plans, are intended to identify forward-looking statements. Such statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of the risks, uncertainties and other important factors that could cause results to differ from those currently expected, or that otherwise could impact Midwest Generation or its subsidiaries, include but are not limited to:


•	Midwest Generation's significant cash requirements and its limited ability to borrow funds and access the capital markets on reasonable terms;


•	Midwest Generation's dependence on EME to fund cash flow deficits and environmental retrofits;


•	supply and demand for electric capacity and energy, and the resulting prices and dispatch volumes, in the wholesale markets to which Midwest Generation's generating units have access;


•	volatility of market prices for energy and capacity;


•	the difficulty of predicting wholesale prices, transmission congestion energy demand, and other aspects of the complex and volatile markets in which Midwest Generation participates;


•	environmental laws and regulations, at both state and federal levels, or changes in the application of those laws, that could require additional expenditures or otherwise affect Midwest Generation's cost and manner of doing business, including compliance with the CPS and CAIR or CSAPR (as applicable) and the MATS rule;


•	the cost and availability of fuel, sorbents, and other commodities used for power generation and emission controls, and of related transportation services;


•	the cost and availability of emission credits or allowances;


•	transmission congestion in and to each market area and the resulting differences in prices between delivery points;


•	the availability and creditworthiness of counterparties, and the resulting effects on liquidity in the power and fuel markets in which Midwest Generation operates and/or the ability of counterparties to pay amounts owed in excess of collateral provided in support of their obligations;


•	governmental, statutory, regulatory or administrative changes or initiatives affecting Midwest Generation or the electricity industry generally, including market structure rules and price mitigation strategies adopted by ISOs and RTOs;


•	market volatility and other market conditions that could increase Midwest Generation's obligations to post collateral beyond the amounts currently expected, and the potential effect of such conditions on the ability of Midwest Generation to provide sufficient collateral in support of its hedging activities and purchases of fuel;


•	completion of permitting and construction of Midwest Generation's capital projects;


•	weather conditions, natural disasters and other unforeseen events;

•

the extent of additional supplies of capacity, energy and ancillary services from current competitors or new market entrants, including the development of new generation facilities, and technologies that may be able to produce electricity at a lower cost than Midwest Generation's generating facilities and/or increased access by competitors to Midwest Generation's markets as a result of transmission upgrades;


•	competition in all aspects of Midwest Generation's business;


•	operating risks, including equipment failure, availability, heat rate, output, costs of repairs and retrofits, and availability and cost of spare parts;

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•	creditworthiness of suppliers and their ability to deliver goods and services under their contractual obligations to Midwest Generation or to pay damages if they fail to fulfill those obligations;


•	effects of legal proceedings, changes in or interpretations of tax laws, rates or policies, and changes in accounting standards; and


•	general political, economic and business conditions.

Additional information about risks and uncertainties, including more detail about the factors described above, is contained throughout this MD&A and in "Item 1A. Risk Factors" on page 12 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. Readers are urged to read this entire quarterly report on Form 10-Q and the annual report on Form 10-K for the year ended December 31, 2011, including the information incorporated by reference, and to carefully consider the risks, uncertainties and other factors that affect Midwest Generation's business. Forward-looking statements speak only as of the date they are made, and Midwest Generation is not obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by Midwest Generation with the Securities and Exchange Commission.

This MD&A discusses material changes in the results of operations, financial condition and other developments of Midwest Generation since December 31, 2011, and as compared to the second quarter ended June 30, 2011. This discussion presumes that the reader has read or has access to the MD&A included in Item 7 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

MANAGEMENT'S OVERVIEW

Midwest Generation had a net loss of $42 million and $51 million for the second quarter and six months ended June 30, 2012, respectively, compared to net income (loss) of $(18) million and $30 million in the corresponding periods of 2011. The decrease in earnings in the first half of 2012 compared to the first half of 2011 was primarily attributable to lower average realized energy prices, lower capacity prices, higher fuel prices and reduced generation, partially offset by lower planned maintenance costs. Reduced generation primarily resulted from lower economic dispatch. The abundance of low-priced natural gas has continued to result in increased competition from natural gas-fired generating units in the markets in which Midwest Generation operates, and generation has been correspondingly affected. In addition, effective January 1, 2012, a favorable long-term rail contract that supplied Midwest Generation's fleet expired and was replaced by a higher priced contract.

Midwest Generation Liquidity

At June 30, 2012, Midwest Generation had cash and cash equivalents of $177 million. Midwest Generation's previous $500 million revolving credit facility expired in June 2012 and is no longer a source of liquidity. As indicated above, Midwest Generation is currently experiencing operating losses due to lower realized energy and capacity prices, higher fuel costs and lower generation at the Midwest Generation plants. Forward market prices indicate that these trends are expected to continue for a number of years. Midwest Generation expects that it will incur an operating cash flow deficit and operating losses in 2012 and subsequent years. In order to retrofit its coal-fired plants, Midwest Generation will need to receive additional contributions or repayment of notes receivable from EME or other sources. Midwest Generation plans to fund operating cash flow deficits through a combination of cash on hand, management of fuel inventories, deferral of operations and maintenance expenses, receipt of interest and principal repayment on notes receivable from EME, and equity contributions from EME. EME is under no obligation to make such contributions and may be unable to do so.

EME Liquidity and Restructuring Activities

At June 30, 2012, EME had $3.7 billion of unsecured notes outstanding, $500 million of which mature in June 2013. EME is currently experiencing operating losses, including the results of Midwest Generation, and EME expects that it will incur further reductions in cash flow and losses in the current year and in subsequent years. A continuation of these adverse trends coupled with pending debt maturities and the need to retrofit its Midwest Generation plants to comply with governmental regulations will exhaust EME's liquidity. Consequently, EME will need to consider all options available to it, including potential sales of assets, restructuring, reorganization of its capital structure, or conservation of cash that would be otherwise applied to the payment of obligations. EME has entered into non-disclosure and engagement agreements with advisors representing certain of its unsecured bondholders for the purpose of engaging in discussions with such advisors and Edison International regarding EME's financial condition. Absent a restructuring of its obligations, based on current projections, EME is not expected to have sufficient liquidity to repay the $500 million debt obligation due in June 2013. As a result, EME

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may need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. Bankruptcy proceedings could lead to a change of control of EME.

Midwest Generation's Dependence on EME as a Going Concern

Environmental Compliance Plans and Costs

During the second quarter of 2012, Midwest Generation continued to develop and implement a compliance program that includes the operation of ACI systems for mercury removal, upgrades to particulate removal systems and the use of dry sorbent injection, combined with the use of low sulfur PRB coal, to meet emissions limits for criteria pollutants, such as NO_x and SO₂ as well as for hazardous air pollutants, such as mercury, acid gas and non-mercury metals.

Apart from the Fisk and Crawford Stations, which will be shut down in September 2012, decisions whether or not to proceed with retrofitting of any particular remaining units to comply with CPS requirements for SO₂emissions, including those that have received permits, are subject to a number of factors, such as market conditions, regulatory and legislative developments, liquidity and forecasted commodity prices and capital and operating costs applicable at the time decisions are required or made. Midwest Generation may also elect to shut down units, instead of installing controls, to be in compliance with the CPS. Final decisions on whether to install controls, to install particular kinds of controls, and to actually expend capital or continue with the expenditure of capital will be made as required, subject to the requirements of the CPS and other applicable regulations. Units that are not retrofitted may continue to operate for as long as regulations and law allow.

Based on work to date, Midwest Generation estimates the remaining cost of retrofitting Powerton Units 5 and 6, Joliet Units 7 and 8 and Will County Units 3 and 4, using dry scrubbing with sodium-based sorbents and upgrading particulate removal systems, to be approximately $625 million at June 30, 2012. In order to retrofit its coal-fired plants, Midwest Generation will need to borrow funds or receive additional contributions from EME. It is less likely that retrofits will be made to Joliet Unit 6 and the Waukegan Station. The estimated cost of retrofitting Joliet Unit 6, if made, would be approximately $75 million, while the estimated cost of retrofitting the Waukegan Station, if made, would be approximately $160 million. Final decisions to shut down units will be made in light of the timing requirements under the CPS and other applicable environmental regulations, based on the economic projections of those retrofits, on a unit-by-unit basis, at the time the decision is made. For further discussion related to the impairment policy on Midwest Generation's unit of account, refer to "Critical Accounting Estimates and Policies—Impairment of Long-Lived Assets" in Item 7 on page 33 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

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Environmental Regulation Developments

For a discussion of environmental regulation developments, see "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 7. Environmental Developments."

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RESULTS OF OPERATIONS

Summary

The table below summarizes total revenues as well as key performance measures related to coal-fired generation, which represents the majority of Midwest Generation's operations.



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Operating Revenues (in millions)	$	213		$	280		$	446		$	631
Statistics
Generation (in GWh)	5,467			5,560			10,806			13,030
Aggregate plant performance
Equivalent availability	77.4		%	63.7		%	79.2		%	75.3		%
Capacity factor	48.5		%	49.3		%	47.9		%	58.1		%
Load factor	62.7		%	77.4		%	60.5		%	77.2		%
Forced outage rate	4.6		%	5.0		%	4.5		%	5.1		%
Average realized price/MWh	$	32.43		$	37.59		$	33.02		$	37.05
Capacity revenues only (in millions)	$	35		$	68		$	84		$	145
Average realized fuel costs/MWh	$	24.82		$	18.88		$	23.68		$	17.65

Reconciliation of Non-GAAP Disclosures and Statistical Definitions

Average Realized Energy Price

The average realized energy price reflects the average price at which energy is sold into the market including the effects of hedges, real-time and day-ahead sales and PJM fees and ancillary services. It is determined by dividing (i) operating revenues less unrealized gains (losses) and other non-energy related revenues by (ii) generation as shown in the table below. Revenues related to capacity sales are excluded from the calculation of average realized energy price.



(in millions)	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011
Operating revenues	$	213		$	280		$	446		$	631
Less:
Unrealized gains	1			(2		)	(3		)	(2		)
Capacity and other revenues	(36		)	(69		)	(86		)	(146		)
Realized revenues	$	178		$	209		$	357		$	483
Generation (in GWh)	5,467			5,560			10,806			13,030
Average realized energy price/MWh	$	32.43		$	37.59		$	33.02		$	37.05

The average realized energy price is presented as an aid in understanding the operating results of the Midwest Generation plants. Average realized energy price is a non-GAAP performance measure since such statistical measure excludes unrealized gains or losses recorded as operating revenues. This measure may not be comparable to those of other companies. Management believes that the average realized energy price is meaningful for investors as this information reflects the impact of hedge contracts at the time of actual generation in period-over-period comparisons or as compared to real-time market prices.

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Average Realized Fuel Costs

The average realized fuel costs reflect the average cost per MWh at which fuel is consumed for generation sold into the market, including emission allowance costs and the effects of hedges. It is determined by dividing (i) fuel costs adjusted for unrealized gains (losses) by (ii) generation as shown in the table below:



(in millions)	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011
Fuel costs	$	143		$	107		$	260		$	233
Add back:
Unrealized gains (losses)	(7		)	(1		)	(4		)	(2		)
Realized fuel costs	$	136		$	106		$	256		$	231
Generation (in GWh)	5,467			5,560			10,806			13,030
Average realized fuel costs/MWh	$	24.82		$	18.88		$	23.68		$	17.65

The average realized fuel costs are presented as an aid in understanding the operating results of the Midwest Generation plants. Average realized fuel costs are a non-GAAP performance measure since such statistical measure excludes unrealized gains or losses recorded as fuel costs. This measure may not be comparable to those of other companies. Management believes that average realized fuel costs are meaningful for investors as this information reflects the impact of hedge contracts at the time of actual generation in period-over-period comparisons.

Statistical Definitions

•

Equivalent availability reflects the impact of the unit's inability to achieve full load, referred to as derating, as well as outages which result in a complete unit shutdown. The coal plants are not available during periods of planned and unplanned maintenance. The equivalent availability factor is defined as the number of MWh the coal plants are available to generate electricity divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period.


•	The capacity factor indicates how much power a unit generated compared to the maximum amount of power that could be generated according to its rating. It is defined as the actual number of MWh generated by the coal plants divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period.


•	The load factor indicates how much power a unit generated compared to the maximum amount of power that a unit was available to generate electricity. It is determined by dividing capacity factor by the equivalent availability factor.


•	The forced outage rate refers to forced outages and deratings excluding events outside of management's control as defined by NERC. Examples include floods, tornado damage and transmission outages.

Seasonality

Due to fluctuations in electric demand resulting from warm weather during the summer months and cold weather during the winter months, electric revenues from the Midwest Generation plants normally vary substantially on a seasonal basis. In addition, maintenance outages generally are scheduled during periods of lower projected electric demand (spring and fall), further reducing generation and increasing major maintenance costs which are recorded as an expense when incurred. Accordingly, earnings from the Midwest Generation plants are seasonal and have significant variability from quarter to quarter. Seasonal fluctuations may also be affected by changes in market prices. For further discussion regarding market prices, see "Market Risk Exposures—Commodity Price Risk—Energy Price Risk."

Operating Income (Loss)

Operating loss from the Midwest Generation plants increased $41 million for the second quarter of 2012, compared to the corresponding period of 2011. The second quarter increase in operating loss was primarily attributable to lower average realized energy prices, lower capacity prices and higher fuel prices, partially offset by lower planned maintenance costs.

Operating income from the Midwest Generation plants decreased $136 million for the six months ended June 30, 2012, compared to the corresponding period of 2011. The 2012 decrease in operating income was primarily attributable to lower

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average realized energy prices, lower capacity prices, higher fuel prices and reduced generation, partially offset by lower planned maintenance costs. Reduced generation primarily resulted from lower economic dispatch.

Included in fuel costs were unrealized losses of $7 million and $1 million during the second quarters of 2012 and 2011, respectively, and $4 million and $2 million for the six months ended June 30, 2012 and 2011, respectively, due to oil futures contracts that were accounted for as economic hedges. These contracts were entered into as hedges of the variable fuel price component of rail transportation costs.

Other Income (Expense)



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011
Interest and other income	$	—		$	1		$	—		$	2
Interest income from affiliates	27			28			55			56
Interest expense	(8		)	(11		)	(17		)	(22		)
Total other income	$	19		$	18		$	38		$	36

Income Taxes

Midwest Generation's effective tax rates were 39% and 41% for the six months ended June 30, 2012 and 2011, respectively, which varied from the federal statutory rate of 35% primarily due to state income taxes.

New Accounting Guidance

For a discussion of new accounting guidance affecting Midwest Generation, see "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Guidance."

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LIQUIDITY AND CAPITAL RESOURCES

Available Liquidity

At June 30, 2012, Midwest Generation had cash and cash equivalents of $177 million. Midwest Generation's working capital facility matured in June 2012 as per its terms. Midwest Generation's liquidity is also composed of cash flow generated from operations and payments by EME under the intercompany notes issued in connection with the Powerton-Joliet facilities sale-leaseback. For further discussion of liquidity, see "Management's Overview" and refer to "Item 1A. Risk Factors—Liquidity Risks" on page 12 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

Capital Investment Plan

Forecasted capital expenditures through 2014 by Midwest Generation are as follows:



(in millions)	July through December 2012		2013		2014
Environmental¹	$	28	$	103	$	311
Plant capital	6		47		16
Total	$	34	$	150	$	327


¹	For additional information, see "Management's Overview—Environmental Compliance Plans and Costs."

Midwest Generation plants' forecasted environmental expenditures include retrofitting Powerton Units 5 and 6, Joliet Units 7 and 8 and Will County Units 3 and 4, using dry scrubbing with sodium-based sorbents and upgrading particulate removal systems to comply with CPS requirements for SO₂ emissions and the US EPA's regulation on hazardous air pollutant emissions. Apart from the Fisk and Crawford Stations, which will be shut down in September 2012, decisions regarding whether or not to proceed with retrofitting any particular remaining units to comply with CPS requirements for SO₂emissions, including those that have received permits, are subject to a number of factors, such as market conditions, regulatory and legislative developments, liquidity and forecasted commodity prices and capital and operating costs applicable at the time decisions are required or made. Final decisions on whether to install controls, to install particular kinds of controls, and to actually expend capital or continue with the expenditure of capital will be made as required, subject to the requirements of the CPS and other applicable regulations. Furthermore, the timing of commencing capital projects may vary from the amounts set forth in the above table. For additional discussion, see "Management's Overview—Environmental Compliance Plans and Costs."

Plant capital expenditures for Midwest Generation includes capital projects for boiler and turbine controls, major boiler components and electrical systems.

Consolidated Cash Flow

At June 30, 2012, Midwest Generation had cash and cash equivalents of $177 million compared to $213 million at December 31, 2011. Net cash provided by operating activities decreased $138 million in the first six months of 2012 compared to the same period in the prior year. The 2012 decrease in net cash provided by operating activities was primarily attributable to lower average realized energy prices, lower capacity prices, higher fuel prices and reduced generation.

Net cash used in financing activities decreased $80 million in the first six months of 2012 compared to the same period in the prior year. The decrease was primarily due to lower distributions by Midwest Generation to its parent in 2012 as compared to 2011.

Net cash used in investing activities decreased $63 million in the first six months of 2012 compared to the same period in the prior year, primarily due to lower capital expenditures.

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Credit Ratings

Overview

Credit ratings for EME and EMMT as of June 30, 2012 were as follows:



	Moody's Rating	S&P Rating	Fitch Rating
EME¹	Caa3	CCC	C
EMMT	Not Rated	CCC	Not Rated


¹	Senior unsecured rating.

All the above ratings are on negative outlook. Midwest Generation cannot provide assurance that the current credit ratings above will remain in effect for any given period of time or that one or more of these ratings will not be lowered. Midwest Generation notes that these credit ratings are not recommendations to buy, sell or hold securities and may be revised at any time by a rating agency.

Midwest Generation's coal contracts include provisions that provide the right to request additional collateral to support payment obligations for delivered coal and may vary based on Midwest Generation's credit ratings.

Credit Rating of EMMT

For a discussion of EMMT's credit rating and the credit support arrangements related to EMMT's forward sales of power from the Midwest Generation plants, refer to "Credit Rating of EMMT and Credit Support for Energy Contracts" in Item 7 on page 26 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

Dividend Restrictions

For a detailed description of the restrictions binding Midwest Generation, refer to "Equity Distributions and Tax Payments" in Item 7 on page 27 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. Upon the expiration of the Midwest Generation credit facility on June 29, 2012, the debt-to-capitalization ratio as discussed in the Form 10-K is no longer required and Midwest Generation is also no longer contractually restricted in its ability to make distributions to EME.

Powerton-Joliet Lease Payments

As part of the sale-leaseback of the Powerton Station and Units 7 and 8 of the Joliet Station, Midwest Generation loaned the proceeds (in the original amount of $1.367 billion) to EME in exchange for promissory notes in the same aggregate amount. EME's obligations under the promissory notes payable to Midwest Generation are general corporate obligations of EME and are not contingent upon receiving distributions from its subsidiaries. There is no assurance that EME will have sufficient cash flow to meet these obligations. Furthermore, EME has guaranteed Midwest Generation's lease obligations under these leases. If EME fails to pay under its guarantee, including payments due under the Powerton-Joliet leases in the event that Midwest Generation could not make such payments, this would result in an event of default under the Powerton and Joliet leases. This event would have a material adverse effect on Midwest Generation.

Contractual Obligations and Contingencies

Contractual Obligations

For a discussion of coal transportation agreements, see "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 6. Commitments and Contingencies—Coal Transportation Agreements."

Contingencies

Midwest Generation has contingencies related to the NSR and other litigation and environmental remediation, which are discussed in "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 6. Commitments and Contingencies—Contingencies."

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Off-Balance Sheet Transactions

For a discussion of Midwest Generation's off-balance sheet transactions, refer to "Off-Balance Sheet Transactions" in Item 7 on page 28 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. There have been no significant developments with respect to Midwest Generation's off-balance sheet transactions that affect disclosures presented in Midwest Generation's annual report.

Environmental Matters and Regulations

For a discussion of Midwest Generation's environmental matters, refer to "Environmental Matters and Regulations" in Item 1 on page 9 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. There have been no significant developments with respect to environmental matters specifically affecting Midwest Generation since the filing of Midwest Generation's annual report, except as set forth in "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 7. Environmental Developments."

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MARKET RISK EXPOSURES

For a detailed discussion of Midwest Generation's market risk exposures, including commodity price risk, credit risk and interest rate risk, refer to "Market Risk Exposures" in Item 7 on page 29 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

Derivative Instruments

Unrealized Gains and Losses

Midwest Generation classifies unrealized gains and losses from derivative instruments (other than the effective portion of derivatives that qualify for hedge accounting) as part of operating revenues or fuel costs. The following table summarizes unrealized gains (losses):



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2012			2011			2012			2011
Non-qualifying hedges	$	(7	)	$	2		$	(1	)	$	1
Ineffective portion of cash flow hedges	(1		)	(1		)	—			(1		)
Total unrealized gains (losses)	$	(8	)	$	1		$	(1	)	$	—

At June 30, 2012, cumulative unrealized gains of $7 million were recognized from non-qualifying hedge contracts or the ineffective portion of cash flow hedges related to subsequent periods ($6 million for the remainder of 2012 and $1 million for 2013).

Fair Value Disclosures

In determining the fair value of Midwest Generation's derivative positions, Midwest Generation uses third-party market pricing where available. For further explanation of the fair value hierarchy and a discussion of Midwest Generation's derivative instruments, see "Midwest Generation, LLC and Subsidiaries Notes to Consolidated Financial Statements—Note 2. Fair Value Measurements" and "—Note 3. Derivative Instruments and Hedging Activities," respectively.

Commodity Price Risk

Energy Price Risk

Energy and capacity from the Midwest Generation plants are sold under terms, including price, duration and quantity, arranged by EMMT with customers through a combination of bilateral agreements (resulting from negotiations or from auctions), forward energy sales and spot market sales. Power is sold into PJM at spot prices based upon locational marginal pricing.

The following table depicts the average historical market prices for energy per megawatt-hour for the first six months of 2012 and 2011:



	24-Hour Average Historical Market Prices¹
	2012		2011
Northern Illinois Hub	$	26.70	$	34.29


¹	Energy prices were calculated at the Northern Illinois Hub delivery point using historical hourly day-ahead prices as published by PJM or provided on the PJM web-site.

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The following table sets forth the forward market prices for energy per megawatt-hour as quoted for sales into the Northern Illinois Hub at June 30, 2012:



	24-Hour Forward Energy Prices¹ Northern Illinois Hub
2012
July		$	33.16
August		31.99
September		24.05
October		24.09
November		24.41
December		27.89
2013 calendar "strip"²		$	28.79


¹	Energy prices were determined by obtaining broker quotes and information from other public sources relating to the Northern Illinois Hub delivery point.


²	Market price for energy purchases for the entire calendar year.

Power prices remained low in the first six months of 2012 due to an abundance of low-priced natural gas and the sales volume from the Midwest Generation plants has been correspondingly affected. Forward market prices at the Northern Illinois Hub fluctuate as a result of a number of factors, including natural gas prices, transmission congestion, changes in market rules, electricity demand (which in turn is affected by weather, economic growth, and other factors), plant outages in the region, and the amount of existing and planned power plant capacity. The actual spot prices for electricity delivered by the Midwest Generation plants into these markets may vary materially from the forward market prices set forth in the preceding table.

EMMT engages in hedging activities for the Midwest Generation plants to hedge the risk of future change in the price of electricity. The following table summarizes Midwest Generation's hedge positions for transactions primarily entered into at the Northern Illinois Hub and to a lesser extent the AEP/Dayton Hub, both in PJM, and the Indiana Hub in MISO at June 30, 2012 for electricity expected to be generated during the remainder of 2012 and in 2013:

The above hedge positions include forward contracts for the sale of power and futures contracts during different periods of the year and the day. Market prices tend to be higher during on-peak periods and during summer months, although there is significant variability of power prices during different periods of time. Accordingly, the above hedge positions are not directly comparable to the 24-hour Northern Illinois Hub prices set forth above.

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Capacity Price Risk

Under the RPM, capacity commitments are made in advance to provide a long-term pricing signal for construction and maintenance of capacity resources. The following table summarizes the status of capacity sales for Midwest Generation at June 30, 2012:



	Installed Capacity MW		Oversold/(Unsold) Capacity¹ MW		Capacity Sold MW	RPM Capacity Sold in Base Residual Auction			Other Capacity Sales, Net of Purchases²			Aggregate Average Price per MW-day
	Installed Capacity MW		Oversold/(Unsold) Capacity¹ MW		Capacity Sold MW	MW	Price per MW-day		MW	Average Price per MW-day		Aggregate Average Price per MW-day
July 1, 2012 to May 31, 2013	5,477		(773	)	4,704	4,704	$	16.46	—	$	—	$	16.46
June 1, 2013 to May 31, 2014	4,619	³	31		4,650	4,650	27.73		—	—		27.73
June 1, 2014 to May 31, 2015	4,619		6		4,625	4,625	125.99		—	—		125.99
June 1, 2015 to May 31, 2016	4,619		(999	)	3,620	3,620	136.00		—	—		136.00


¹	Capacity not sold arises from: (i) capacity retained to meet forced outages under the RPM auction guidelines, and (ii) capacity that PJM does not purchase at the clearing price resulting from the RPM auction.


²	Other capacity sales and purchases, net includes contracts executed in advance of the RPM base residual auction to hedge the price risk related to such auction, participation in RPM incremental auctions and other capacity transactions entered into to manage capacity risks.


³	Reduction in installed capacity beginning June 1, 2013 is due to the shut down of Fisk and Crawford Stations in September 2012.

The RPM auction capacity prices for the delivery period of July 1, 2012 to May 31, 2013 and June 1, 2013 to May 31, 2014 varied between different areas of PJM. In the western portion of PJM, affecting Midwest Generation, the prices of $16.46 per MW-day and $27.73 per MW-day were substantially lower than other areas' capacity prices. The impact of lower capacity prices for these periods compared to previous years will have an adverse effect on Midwest Generation's revenues unless such lower capacity prices are offset by an unavailability of competing resources and increased energy prices.

Revenues from the sale of capacity from Midwest Generation beyond the periods set forth above will depend upon the amount of capacity available and future market prices either in PJM or nearby markets if Midwest Generation has an opportunity to capture a higher value associated with those markets. Midwest Generation has sold capacity forward through May 31, 2015 for both Fisk and Crawford. Midwest Generation would expect to cover its capacity obligations associated with the Fisk and Crawford units through a combination of improved fleet performance, fleet capacity not previously sold forward and, if necessary, market transactions.

Basis Risk

During the six months ended June 30, 2012, day-ahead prices at the individual busbars of the Midwest Generation plants compared to the AEP/Dayton Hub, Indiana Hub (Cinergy Hub) and Northern Illinois Hub were on average lower by 7%, lower by 2% and higher by 1%, respectively. During the six months ended June 30, 2011, day-ahead prices at the individual busbars of the Midwest Generation plants were lower compared to the AEP/Dayton Hub, Indiana Hub (Cinergy Hub) and Northern Illinois Hub by an average of 13%, 4% and 1%, respectively. Differences in day-ahead pricing between the individual busbars of the Midwest Generation plants generally arise due to transmission congestion.

Coal Price Risk

The Midwest Generation plants purchase coal primarily from the Southern PRB of Wyoming. Coal purchases are made under a variety of supply agreements. The following table summarizes the amount of coal under contract at June 30, 2012 for the remainder of 2012 and the following two years:



	July through December 2012		2013		2014
Amount of Coal Under Contract in Millions of Equivalent Tons¹		9.4		10.6	9.8


¹	The amount of coal under contract in equivalent tons is calculated based on contracted tons and applying an 8,800 Btu equivalent.

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Midwest Generation is subject to price risk for purchases of coal that are not under contract. Market prices of PRB coal based on 8,800 Btu per pound heat content and 0.8 pounds of SO2 per MMBtu sulfur content decreased to a price of $8.50 per ton at June 29, 2012, compared to a price of $12.75 per ton at December 30, 2011, as reported by the EIA.

On July 11, 2012, Midwest Generation agreed to sell one million tons of coal scheduled to be delivered in the second half of 2012 in order to better manage coal inventories. This transaction will result in a loss of approximately $6 million, which will be recorded in the third quarter of 2012.

Credit Risk

Midwest Generation derives a significant source of its operating revenues from electric power sold into the PJM market by EMMT as its agent. Sales into PJM accounted for approximately 88% of Midwest Generation's consolidated operating revenues for the six months ended June 30, 2012.

Interest Rate Risk

Interest rate changes can affect earnings and the cost of capital for capital improvements and impact future financings to the extent they are available. Midwest Generation's $500 million working capital facility expired June 2012 as per its terms.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

For a discussion of Midwest Generation's critical accounting policies, refer to "Critical Accounting Estimates and Policies" in Item 7 on page 33 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of market risk sensitive instruments, refer to "Market Risk Exposures" in Item 7 on page 29 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. For an update to that disclosure, see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk Exposures."

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Midwest Generation's management, under the supervision and with the participation of the company's President and Chief Financial Officer, has evaluated the effectiveness of Midwest Generation's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the second quarter of 2012. Based on that evaluation, the President and Chief Financial Officer concluded that, as of the end of the second quarter of 2012, Midwest Generation's disclosure controls and procedures were effective.

Internal Control over Financial Reporting

There were no changes in Midwest Generation's internal control over financial reporting (as that term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the second quarter of 2012 that have materially affected, or are reasonably likely to materially affect, Midwest Generation's internal control over financial reporting.

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PART II - OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

For a discussion of Midwest Generation's legal proceedings, refer to "Note 8. Commitments and Contingencies—Contingencies" on page 66 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. There have been no significant developments with respect to legal proceedings specifically affecting Midwest Generation since the filing of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011, except as follows:

New Source Review and Other Litigation

In February 2012, certain of the environmental action groups that had intervened in the US EPA's New Source Review case entered into an agreement with Midwest Generation to dismiss without prejudice all of their opacity claims as to all defendants. The agreed upon motion to dismiss was approved by the court on March 26, 2012.


ITEM 1A.	RISK FACTORS

For a discussion of the risks, uncertainties, and other important factors which could materially affect Midwest Generation's business, financial condition, or future results, refer to "Item 1A. Risk Factors" on page 12 of Midwest Generation's annual report on Form 10-K for the year ended December 31, 2011. The risks described in Midwest Generation's annual report on Form 10-K and in this report are not the only risks facing Midwest Generation. Additional risks and uncertainties that are not currently known, or that are currently deemed to be immaterial, also may materially adversely affect Midwest Generation's business, financial condition or future results.

ITEM 6. EXHIBITS



Exhibit No.	Description
31.1	Certification of the President pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32	Statement Pursuant to 18 U.S.C. Section 1350.
101	Financial statements from the quarterly report on Form 10-Q of Midwest Generation, LLC for the quarter ended June 30, 2012, filed on July 31, 2012, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.

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SIGNATURES

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



	MIDWEST GENERATION, LLC (REGISTRANT)
	By:	/s/ Maria Rigatti
		Maria Rigatti Manager and Vice President (Duly Authorized Officer and Principal Financial Officer)
	Date:	July 31, 2012

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MWh (in thousands)

Average price/MWh¹