UNITEDTable STATES SECURITIESof AND EXCHANGE COMMISSIONContents

~~Washington, D.C.~~UNITED ~~20549~~STATES

~~Form 10-K~~SECURITIES AND EXCHANGE COMMISSION

~~x ANNUAL REPORT~~Washington, ~~PURSUANT~~D.C. TO20549 ~~SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the Fiscal Year Ended December~~Form ~~31,~~10-K ~~2004~~

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

~~o TRANSITION REPORT~~For ~~PURSUANT~~the TOFiscal ~~SECTION 13~~Year OREnded ~~15(d)~~December OF31, ~~THE~~2007 ~~SECURITIES EXCHANGE ACT OF 1934~~

~~For the~~Or ~~Transition Period from to~~

~~Mirant~~¨ ~~Americas~~TRANSITION ~~Generation,~~REPORT ~~LLC~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~(Exact~~For ~~name~~the ofTransition ~~registrant as~~Period ~~specified in its charter)~~from to

Delaware	N/A		51-0390520
(State or other jurisdiction of Incorporation or Organization)	(Commission File Number)		(I.R.S. Employer Identification No.)
1155 Perimeter Center West, Suite 100, Atlanta, Georgia		30338
(Address of Principal Executive Offices)		(Zip Code)
(678) 579-5000		www.mirant.com
(Registrant’s Telephone Number, Including Area Code)		Web Page

Mirant Americas Generation, LLC

~~Securities~~(Exact ~~registered~~name ~~pursuant to Section 12(b)~~ of ~~the~~registrant ~~Act:~~as specified in its charter)

None


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

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

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

Securities registered pursuant to Section 12(gb) of the Act:

None

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

~~Indicate~~None by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is ana ~~accelerated~~well-known ~~filer~~seasoned issuer (as defined by Rule ~~12b-2~~ 405 of the Securities Act). o ¨ Yes x No

~~All~~Indicate ofby ~~our~~check ~~outstanding membership~~mark ~~interests~~if ~~are~~the registrant ~~held~~is bynot ~~our~~required ~~parent,~~to ~~Mirant~~file ~~Americas, Inc.,~~reports sopursuant ~~we have~~to noSection 13 ~~membership~~or ~~interests~~Section 15(d) of ~~held~~the byExchange ~~nonaffiliates~~Act. x Yes ¨ No

~~We have~~Indicate ~~not~~by ~~incorporated~~check bymark ~~reference~~whether ~~any~~the ~~information~~registrant ~~into~~(1) has ~~this~~filed ~~Form~~all reports required to be filed by Section ~~10-K~~13 or 15(d) of the ~~from~~Securities ~~any~~Exchange ~~annual~~Act ~~report~~of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ~~securities~~file ~~holders~~such reports), ~~proxy~~and ~~statement~~(2) has orbeen ~~registration~~subject to such filing requirements for the past ~~statement~~90 days. x Yes ¨ No

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

		Page
	PART I
Item 1.	Business	6
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	50
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	51
Item 6.	Selected Financial Data	51
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 8.	Financial Statements and Supplementary Data	73
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
	PART III
Item 10.	Directors and Executive Officers of the Registrant	75
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management	77
Item 13.	Certain Relationships and Related Transactions	77
Item 14.	Principal Accountant Fees and Services	77
	PART IV
Item 15.	Exhibits and Financial Statements	78

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

2Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer x (Do not check if a smaller reporting company) Smaller reporting company ¨

~~CAUTIONARY~~Indicate ~~STATEMENT~~by ~~REGARDING~~check ~~FORWARD~~mark whether the registrant is a shell company (as defined in Rule 12b-~~LOOKING~~2 of ~~INFORMATION~~the Act). ¨ Yes x No

~~The~~Indicate ~~information~~by ~~presented~~check inmark ~~this~~whether ~~Form 10-K includes~~the ~~forward-looking~~registrant ~~statements~~has ~~within~~filed ~~the~~all ~~meaning~~documents ofand ~~Section 27A of~~reports ~~the~~required ~~Securities~~to ~~Act~~be offiled ~~1933~~by ~~and~~ Section ~~21E~~12, 13 or 15(d) of the Securities Exchange Act of 1934 insubsequent ~~addition~~ to ~~historical~~the ~~information.~~distribution ~~These~~of ~~statements~~securities ~~involve known~~under ~~and~~a ~~unknown risks and uncertainties and relate to future events, our~~plan ~~future~~confirmed ~~financial performance or our projected business results. In some cases, you can identify forward-looking statements~~ by ~~terminology~~a such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “target,” “potential” or “continue” or the negative of these terms or other comparable terminologycourt. x Yes ¨ No

~~Forward-looking statements~~All ~~are~~of ~~only~~our ~~predictions.~~outstanding ~~Actual~~membership ~~events~~interests orare ~~results~~held ~~may~~by ~~differ~~our ~~materially from~~parent, ~~any~~Mirant ~~forward-looking~~Americas, Inc., ~~statement~~so aswe ahave ~~result~~no ofmembership ~~various~~interests ~~factors,~~held ~~which include:~~by nonaffiliates.

~~General~~We ~~Factors~~have not incorporated by reference any information into this Form 10-K from any annual report to securities holders, proxy statement or registration statement.

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

~~· failure of our assets to~~ ~~perform~~TABLE asOF ~~expected;~~CONTENTS

· our pursuit of potential business strategies, including the disposition or utilization of assets;


		Page
	Glossary of Certain Defined Terms	i - iv

	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	31
Item 3.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	32

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	71
Item 9A.	Controls and Procedures	71
Item 9B.	Other Information	72

	PART III
Item 10.	Directors and Executive Officers of the Registrant	73
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management	75
Item 13.	Certain Relationships and Related Transactions	75
Item 14.	Principal Accountant Fees and Services	75

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	76

· changesTable in market conditions, including developments in energy and commodity supply, demand, volume and pricing or the extent and timing of the entry of additional competition in our markets or those of our subsidiaries and affiliates;Contents

~~· market~~ ~~volatility~~Glossary orof ~~other~~Certain ~~market~~Defined ~~conditions~~Terms ~~that could increase our affiliates’ obligations to post collateral beyond amounts which are expected;~~

~~· our~~APB—Accounting ~~inability to~~Principles ~~access~~Board. effectively the over-the-counter (“OTC”) and exchange-based commodity markets or changes in commodity market liquidity or other commodity market conditions, which may affect our ability to engage in asset hedging activities as expected;

~~· strikes~~APB 22—APB Opinion No. 22, ~~union~~Disclosure ~~activity~~of ~~or labor~~Accounting ~~unrest;~~Policies.

~~· weather~~APSA—Asset Purchase and ~~other~~Sale ~~natural phenomena;~~Agreement dated June 7, 2000, between the Company and Pepco.

~~· war,~~Bankruptcy ~~terrorist activities~~Code—United orStates ~~the~~Bankruptcy ~~occurrence~~Code. ~~of a catastrophic loss;~~

~~· deterioration~~Bankruptcy inCourt—United ~~the financial~~States ~~condition~~Bankruptcy ofCourt ~~our~~for ~~counterparties and~~ the ~~resulting~~Northern ~~failure~~District toof ~~pay amounts~~Texas, ~~owed~~Fort toWorth usDivision. ~~or to perform obligations or services due to us;~~

~~· hazards~~Baseload ~~customary~~Generating toUnits—Units ~~the power~~that ~~generation~~satisfy ~~industry~~minimum ~~and~~baseload ~~the~~requirements ~~possibility~~of ~~that~~the wesystem ~~may~~and ~~not~~produce ~~have~~electricity ~~adequate insurance~~at toan ~~cover~~essentially ~~losses~~constant asrate aand ~~result~~run continuously. ~~of such hazards;~~

~~· price~~CAIR—Clean ~~mitigation~~Air ~~strategies employed~~Interstate byRule. ~~independent system operators that result in a failure to compensate our generation units adequately for all of their costs;~~

~~· volatility~~CAISO—California inIndependent ~~our~~System ~~financial results~~Operator. ~~as a result of our hedging activities;~~

~~· our~~Cal ~~inability~~PX—California toPower ~~enter~~Exchange. ~~into intermediate and long-term contracts to sell power and procure fuel on terms and prices acceptable to us;~~

~~· the~~CAMR—Clean ~~inability~~Air ofMercury ~~our operating~~Rule. ~~subsidiaries to generate sufficient cash flow and our inability to access that cash flow to enable us to make debt service and other payments;~~

3CERCLA—Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980.

~~· our~~Clean ~~substantial indebtedness~~Air ~~and~~Act—Federal ~~the~~Clean ~~possibility~~Air ~~that~~Act. ~~we or our subsidiaries may incur additional indebtedness in the future;~~

~~· restrictions~~Clean onWater ~~the~~Act—Federal ~~ability of~~Water ~~our~~Pollution ~~subsidiaries~~Control toAct. ~~pay dividends, make distributions or otherwise transfer funds to us, including restrictions on Mirant Mid-Atlantic contained in its leveraged lease financing agreements; and~~

~~· the disposition~~CO2—Carbon ~~of the pending litigation described in this Form 10-K~~dioxide.

~~Bankruptcy-Related~~CPUC—California ~~Factors~~Public Utilities Commission.

~~· the~~DOE—United ~~lack~~States ofDepartment ~~comparable financial data due to the restructuring~~ of ~~our~~Energy. ~~business and the adoption of fresh start reporting;~~

~~· the~~DWR—California ~~actions~~Department ~~and decisions~~ of ~~our~~Water ~~creditors and of other third parties with interests in the voluntary petitions for reorganization filed with the U~~Resources.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the “Bankruptcy Court”), on July 14, 2003, July 15, 2003, August 18, 2003, October 3, 2003 and November 18, 2003, by Mirant Corporation (“Mirant”) and substantially all of its wholly-owned and certain non-wholly-owned U.S. subsidiaries (“Mirant Debtors”) under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”), including actions taken by our creditors and other third parties with respect to our proposed plan of reorganization, filed with the Bankruptcy Court on January 19, 2005 as amended on March 25, 2005 and any subsequent amendments thereto (the “Plan”);

~~· the~~EBITDA—Earnings ~~Mirant~~before ~~Debtors’~~interest, ~~ability to satisfy the conditions precedent to the effectiveness of the proposed Plan~~taxes, ~~including~~ ~~their~~depreciation ~~ability~~and ~~to secure the necessary financing;~~amortization.

~~· the~~EITF—The ~~effects~~Emerging ofIssues ~~the~~Task ~~Chapter 11~~Force ~~proceedings~~formed onby ~~our~~the ~~liquidity~~Financial ~~and~~Accounting ~~results~~Standards ofBoard. ~~operations;~~

~~· the~~EITF ~~instructions,~~02-3—EITF ~~orders and~~Issue ~~decisions of the Bankruptcy Court~~No. 02-3, ~~the~~Issues ~~U.S.~~Involved ~~District~~in ~~Court~~Accounting for ~~the~~Derivative ~~Northern District~~Contracts ofHeld ~~Texas,~~for ~~the~~Trading ~~U.S.~~Purposes ~~Court~~and ofContracts ~~Appeals~~Involved ~~for~~in ~~the Fifth Circuit and other~~Energy ~~legal~~Trading and ~~administrative~~Risk ~~proceedings,~~Management ~~settlements,~~Activities. ~~investigations and claims;~~

~~· our~~EITF ~~ability~~06-3—EITF toIssue ~~operate pursuant~~No. 06-3, How Taxes Collected from Customers and Remitted to Governmental ~~the~~Authorities ~~terms~~Should ofBe ~~our~~Presented ~~debtor-~~in~~-possession~~ ~~financing~~the ~~agreement;~~Income Statement (That Is, Gross versus Net Presentation).

~~· our~~EOB—California ~~ability to successfully~~Electricity ~~reject~~Oversight ~~unfavorable~~Board. ~~contracts;~~

~~· the disposition~~EPA—United ofStates ~~unliquidated~~Environmental ~~claims~~Protection ~~against~~Agency. ~~us;~~

~~· our~~EPAct ~~ability~~2005—Energy toPolicy ~~obtain~~Act ~~and maintain~~of ~~normal~~2005. ~~terms with vendors and service providers and to maintain contracts that are critical to our operations;~~

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

~~· the possibility~~FERC—Federal ~~that~~Energy ~~certain~~Regulatory ofCommission. ~~our subsidiaries may remain in bankruptcy after our emergence;~~

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

~~· the~~FIN ~~duration~~39—FIN No. 39, Offsetting of ~~our~~Amounts ~~Chapter 11~~Related ~~proceedings~~to Certain Contracts.

~~The~~FIN ~~ultimate~~45—FIN ~~outcome~~No. 45, ofGuarantor’s ~~matters~~Accounting ~~with~~and ~~respect~~Disclosure toRequirements ~~which we~~for ~~make~~Guarantees, ~~forward-looking~~Including ~~statements~~Indirect ~~and~~Guarantees ~~the terms~~ of ~~any~~Indebtedness ~~reorganization~~of ~~plan~~Others—An ~~ultimately~~Interpretation ~~confirmed can affect the value~~ of ~~our~~FASB ~~various~~Statements ~~pre-petition liabilities and other securities~~Nos. No5, ~~assurance~~57, ~~can~~and be107 ~~given~~and asRescission toof ~~what~~FASB ~~values, if~~Interpretation ~~any,~~No. 34. ~~will be ascribed in the~~

4FIN 47—FIN No. 47, Accounting for Conditional Asset Retirements—an interpretation of FASB Statement No. 143.

~~bankruptcy~~i ~~proceedings to each of these constituencies. Accordingly, we urge that caution be exercised with respect to existing and future investments in these liabilities and/or securities.~~

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

~~Factors that~~FIN ~~Could~~48—FIN ~~Affect~~No. 48, ~~Future~~Accounting ~~Performance~~for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.

Other factors that could affect our future performance (business, financial condition or results of operations and cash flows) are set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsFSP—~~Factors~~FASB ~~that~~Staff ~~Could Affect Future Performance~~Position.”

5FSP FIN 39-1—FSP FIN No. 39-1, Amendment of FASB Interpretation No. 39 (FIN 39).

~~PART~~FSP FIN 48-1—FSP FIN No. I48-1, Definition of Settlement in FASB Interpretation No. 48 (FIN 48).

~~Item~~GAAP—Generally 1accepted accounting principles in the United States. ~~Business~~

~~Overview~~Gross Margin—Operating revenue less cost of fuel, electricity and other products.

WeHudson ~~are~~Valley anGas—Hudson ~~indirect~~Valley ~~wholly-owned~~Gas ~~subsidiary of Mirant~~ Corporation ~~(“Mirant”)~~. We were incorporated in Delaware on May 12, 1999 and, effective November 1, 2001, we changed our form of organization from a corporation to a limited liability company. We own or lease approximately 11,000 megawatts (“MW”) of electric generation capacity in the United States. We operate 56 generating units at 19 plants serving customers located near major metropolitan load centers in Maryland, Virginia, California, New York, Massachusetts and Texas. Our portfolio of generating facilities is diversified by geographic regions, fuel types, power markets and dispatch types.

WeIBEW—International ~~are~~Brotherhood ~~a national independent power provider that produces and sells electricity. We sell most~~ of ~~the~~Electrical ~~output from our generating facilities to an affiliate, Mirant Americas Energy Marketing, L~~Workers.P. (“Mirant Americas Energy Marketing”), and receive as proceeds the amount received by Mirant Americas Energy Marketing from selling into the forward and spot markets. The remainder of our output is sold under contracts with third parties. Mirant Americas Energy Marketing arranges for the supply of substantially all of the fuel used by our generating units and emissions allowances which are utilized in connection with the business. We use derivative financial instruments, such as commodity forwards, futures, options and swaps, to manage our exposure to fluctuations in electric energy and fuel commodity prices. We execute these transactions with Mirant Americas Energy Marketing.

~~The~~InterContinental ~~annual,~~Exchange—InterContinental ~~quarterly and current reports~~Exchange, and any amendments to those reports, that we file with or furnish to the SEC are available free of charge on Mirant’s website at www.mirant.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information contained in this website is not incorporated into this Form ~~10-K~~Inc.

AsIntermediate ~~used~~Generating inUnits—Units ~~this~~that ~~report,~~meet ~~“we,” “us,”~~system ~~“our,”~~requirements ~~the~~that ~~“Company”~~are ~~and~~greater ~~“Mirant~~than ~~Americas~~baseload ~~Generation” refer to Mirant Americas Generation, LLC~~ and ~~its~~less ~~subsidiaries,~~than ~~unless the context requires otherwise~~peaking.

~~Proceedings under~~ISO—Independent ~~Chapter~~System 11Operator. ~~of the Bankruptcy Code~~

~~On July 14, 2003 and July 15, 2003 (collectively, the “Petition Date”), the Company and its subsidiaries were among the 74 wholly~~ISO-~~owned Mirant subsidiaries in the United States that, along~~NE—Independent ~~with~~System Mirant (collectively, the “Original Debtors”), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (“Bankruptcy Court”). On August 18, 2003, October 3, 2003 and November 18, 2003, four additional whollyOperator-~~owned~~New ~~subsidiaries and four affiliates of Mirant commenced Chapter 11 cases under the Bankruptcy Code (together with the Original Debtors, the “Mirant Debtors”)~~England. ~~The Chapter 11 cases of the Mirant Debtors are being jointly administered for procedural purposes only under case caption In re Mirant Corporation et al., Case No. 03-46590 (DML).~~

We, along with the other Mirant Debtors, are operating our business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders, as well as other applicable laws and ruleskW—Kilowatt. In general, each of the Mirant Debtors, as a debtor-in-possession, is authorized under the Bankruptcy Code to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.

~~The~~LIBOR—London ~~Office~~InterBank ofOffered the United States Trustee has established a committee of unsecured creditors for Mirant and a committee of unsecured creditors for Mirant Americas Generation (collectively, the “Creditor Committees”)Rate. ~~The Office of the United States Trustee also has established a committee of~~

6LTSA—Long-term service agreement.

~~equity~~MAAC—Mid-Atlantic ~~security~~Area ~~holders of Mirant (the “Equity Committee” and, collectively with the Creditor Committees, the “Statutory Committees”)~~Council. Pursuant to an order of the Bankruptcy Court, the Office of the United States Trustee appointed an examiner (the “Examiner”) in these cases to analyze certain potential causes of action and to act as a mediator with respect to certain disputes that may arise among the Mirant Debtors, the Statutory Committees and other parties in interest.

~~Subject to certain exceptions in the Bankruptcy Code,~~MDE—Maryland ~~the~~Department ~~Chapter 11 proceedings automatically stayed the initiation or continuation~~ of ~~most actions against~~ the ~~Mirant Debtors, including most actions to collect pre-petition indebtedness or to exercise control over the property of the bankruptcy estates~~Environment. As a result, absent an order of the Bankruptcy Court, creditors of the Mirant Debtors are precluded from collecting pre-petition debts and substantially all pre-petition liabilities are subject to compromise under a plan or plans of reorganization currently being developed by the Mirant Debtors in the bankruptcy proceedings. One exception to this stay of litigation is for an action or proceeding by a governmental agency to enforce its police or regulatory power.

~~Under~~Mirant—Old ~~the Bankruptcy Code, the~~ Mirant ~~Debtors~~prior ~~have the right~~ to ~~assume~~January 3, ~~assign or reject certain executory contracts and unexpired leases~~2006, ~~subject to the approval of the Bankruptcy Court~~ and ~~satisfaction~~New ~~of certain other conditions. The~~ Mirant ~~Debtors~~on ~~are~~or ~~continuing~~after ~~to evaluate their executory contracts~~January 3, ~~including our operating leases, in order to determine which contracts will be assumed, assigned, recharacterized or rejected~~2006.

~~On August 21, 2003 and September 8, 2003, the Bankruptcy Court entered orders establishing a December 16, 2003 bar date (the “Bar Date”) for filing proofs of claim against the~~ Mirant ~~Debtors’~~ estates. As of December 31, 2004, approximately 775 proofs of claim were filed against our Chapter 11 estates. Those claims total approximately $90 billion. Of this amount, approximately $87 billion represents claims to which the Americas—Mirant ~~Debtors have objected or redundant claims~~Americas, ~~which are primarily similar claims filed against multiple Mirant Debtors. We have not fully analyzed the validity and enforceability of the remaining $3~~ ~~billion of submitted proofs of claim or whether such claims should ultimately be allowed in the Chapter 11 proceedings~~Inc. In addition, there are approximately $1.2 billion of estimated liabilities for which claims either have not been filed or have been filed with an undetermined amount primarily related to our operating leases. As such, the amounts of distributions received by claimants under the plan or plans of reorganization may substantially vary from the amounts of the proofs of claim filed against the Chapter 11 estates. There were no claims for which an allowed claim was probable and estimable and exceeded liabilities previously recorded as a liability subject to compromise on our consolidated balance sheet as of December 31, 2004.

~~In response to a motion filed under section 502(c) of the Bankruptcy Code (the “Estimation Motion”) by the~~ Mirant ~~Debtors, the Bankruptcy Court entered an order establishing~~Americas ~~procedures~~Energy ~~for estimating proofs of claim under section 502(c) of the Bankruptcy Code that are binding for all purposes, including voting on, feasibility of and distribution under a Chapter 11 plan for the~~ Marketing—Mirant ~~Debtors.~~ AsAmericas aEnergy ~~result~~Marketing, ~~the Mirant Debtors filed approximately 60 material claim objections and three notices of intent to contest claims~~LP.

~~Plan~~Mirant ofBowline—Mirant ~~Reorganization~~Bowline, LLC.

OnMirant ~~January 19,~~Chalk ~~2005, the~~ Point—Mirant ~~Debtors~~Chalk ~~filed a proposed Plan of Reorganization (as amended~~Point, ~~the “Plan”) and Disclosure Statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court~~LLC. A First Amended Plan and a First Amended Disclosure Statement were filed on March 25, 2005. The proposed Plan sets forth the proposed structure of the Mirant Debtors at emergence and outlines how the claims of creditors and stockholders are proposed to be treated. If the Disclosure Statement is found by the Bankruptcy Court to contain adequate information, then the Mirant Debtors will solicit votes on the

7Mirant Delta—Mirant Delta, LLC.

~~proposed~~Mirant ~~Plan~~Energy ~~from~~Trading—Mirant ~~those creditors~~Energy Trading, ~~security holders and interest holders who are entitled to vote on the proposed Plan~~LLC.

~~Under the proposed Plan, (1) the intermediate holding company subsidiaries of~~ Mirant ~~Americas Generation (excluding~~ Kendall—Mirant ~~Mid-Atlantic~~ ~~and~~Kendall, ~~absent a resolution of certain outstanding property tax disputes, Mirant New York) will be merged and consolidated to form Mirant North America,~~ LLC (“Mirant North America”), a single intermediate holding company subsidiary of Mirant Americas Generation; (2) Mirant Mid-Atlantic will be merged into a subsidiary of Mirant North America and (3) in the event it is excluded from the Plan, the capital stock of Mirant New York will be contributed to Mirant North America. ~~Mirant North America will directly or indirectly own 100% of the equity interests in the operating subsidiaries of Mirant Americas Generation, including Mirant Mid-Atlantic.~~

~~The~~Mirant ~~proposed Plan~~Las ~~implements~~Vegas—Mirant ~~and~~Las isVegas, ~~built~~LLC. ~~around the following key elements:~~

~~· the business of the~~ Mirant ~~Debtors~~ ~~will continue to be operated in substantially its current form, subject to (1) certain internal structural changes that the~~ Lovett—Mirant ~~Debtors believe will improve operational efficiency~~Lovett, ~~facilitate~~LLC. and optimize their ability to meet financing requirements and accommodate their debt structure as contemplated at emergence and (2) organizing the new parent entity for the Mirant Debtors’ ongoing business operations (“New Mirant”) in a jurisdiction outside the United States;

~~· the estates of the~~ Mirant ~~Debtors~~ ~~(excluding~~ Mid-Atlantic—Mirant ~~Americas Generation and its debtor subsidiaries) (collectively~~Mid-Atlantic, ~~the~~ ~~“Consolidated Mirant Debtors”) will be substantively consolidated solely for purposes of voting on the Plan (except as set forth in Section 7~~LLC.3 ~~of the Plan), confirmation of the Plan and determining the treatment of claims against and equity interests in such Consolidated Mirant Debtors under the proposed Plan;~~

~~· the~~Mirant ~~estates~~New of York—Mirant ~~Americas~~ ~~Generation~~New ~~and its debtor subsidiaries (collectively~~York, ~~the “Mirant Americas Generation Debtors”) will be substantively consolidated solely for purposes of voting on the Plan (except as set forth in Section 7~~Inc.3 ~~of the Plan), confirmation of the Plan and determining the treatment of claims against and equity interests in the Mirant Americas Generation Debtors under the proposed Plan;~~

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

~~· the unsecured claims against the~~ Mirant ~~Americas Generation Debtors will be paid in full through (1) the~~ ~~issuance to general unsecured creditors and holders of the~~ NY-Gen—Mirant Americas Generation revolving credit facilities and senior notes maturing in 2006 and 2008 of (a) new debt securities of Mirant North America or, at the option of the Mirant Debtors, cash proceeds from thirdNY-~~party financing transactions~~Gen, in anLLC. amount equal to 90% of the full amount owed to such creditors (as determined by the Bankruptcy Court) and (b) common stock in New Mirant having a value equal to 10% of such amount owed; and (2) the reinstatement of Mirant Americas Generation senior notes maturing in 2011, 2021 and 2031;

~~· allowed~~Mirant ~~convenience~~Peaker—Mirant ~~claims (unsecured claims up to $25~~Peaker,~~000~~ inLLC. ~~amount) shall receive a single cash payment equal to the claim amount;~~

~~· the intercompany claims between and among the Consolidated~~ Mirant ~~Debtors~~Potomac ~~and the~~ River—Mirant ~~Americas Generation~~Potomac ~~Debtors~~River, ~~will~~LLC. ~~be resolved as part of a global settlement under the proposed Plan whereby intercompany claims will not receive a distribution under the proposed Plan;~~

8Mirant Potrero—Mirant Potrero, LLC.

~~· the~~ii prospective working capital requirements of Mirant Americas Generation and its subsidiaries are expected to be met with a new senior secured revolving credit facility of Mirant North America in the amount of $750 million to $1 billion. In addition the Mirant Americas Generation consolidated business will have approximately $3.05 billion of debt (as compared to approximately $2.8 billion of debt at the commencement of the Chapter 11 cases) comprised of $1.7 billion of reinstated debt at Mirant Americas Generation and $1.35 billion of new debt incurred by Mirant North America in partial satisfaction of certain existing Mirant Americas Generation debt, which amount does not include the Mirant Mid-Atlantic operating leases related to the Morgantown Station and Dickerson Station;

· toTable help support the feasibility of the proposed Plan with respect to the Mirant Americas Generation Debtors, Mirant shall contribute value to Mirant North America, including Mirant’s trading and marketing business (subject to an obligation to return a portion of the embedded cash collateral in the trading and marketing business to Mirant provided that, under certain circumstances, the Mirant Debtors may elect to satisfy this obligation by transferring $250 million to Mirant Americas, Inc (“Mirant Americas”) from Mirant North America), the Mirant Peaker, LLC (“Mirant Peaker”), Mirant Potomac River, LLC (“Mirant Potomac River”) and Mirant Zeeland, LLC generating facilities and commitments to make prospective capital contributions of $150 million to Mirant Americas Generation (for refinancing) and, under certain circumstances, up to $265 million to Mirant North America (for sulfur dioxide (“SO2”) capital expenditures). Under the proposed Plan, Mirant Peaker and Mirant Potomac River will become subsidiaries of Mirant Mid-Atlantic;Contents

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

~~· the~~Mirant ~~bulk of the contingent liabilities of the~~ Services—Mirant ~~Debtors~~Services, ~~associated with the California energy crisis and certain related matters are resolved pursuant to a global settlement as described in “Item 3~~LLC. ~~Legal Proceedings” contained elsewhere in this report;~~

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

~~· the~~Mirant ~~outstanding~~Wichita ~~common stock in~~ Falls—Mirant ~~will~~Wichita ~~be cancelled and the holders thereof will receive any surplus value after creditors are paid in full~~Falls, ~~plus the right to receive a pro rata share of warrants issued by New Mirant if they vote to accept the proposed Plan~~LLC.

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

~~At present, the proposed~~MISO—Midwest ~~Plan~~Independent ~~has~~Transmission ~~not~~System ~~been approved by any of the Statutory Committees~~Operator. ~~As such, the Mirant Debtors anticipate that negotiations will continue between the Mirant Debtors and each of the~~

9MW—Megawatt.

~~Statutory Committees.~~MWh—Megawatt ~~Negotiations with the Statutory Committees, whether or not successful, could lead to material changes to certain components of the proposed Plan~~hour.

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

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

~~Mirant~~NERC—North ~~Mid-Atlantic~~American ~~Leases~~Electric Reliability Council.

InNet ~~conjunction~~Capacity ~~with~~Factor—The ~~Mirant Mid-Atlantic’s~~average ~~acquisition~~production ofas certain assets from Potomac Electric Power Company (“PEPCO”), Mirant Mid-Atlantic leased the Morgantown and the Dickerson baseload units and associated property for terms of 33.75 and 28.5 years, respectively. Mirant Mid-Atlantic has an option to renew the leases for a ~~period~~ ~~that~~percentage ~~would cover up to 75%~~ of the ~~economic~~potential ~~useful~~net ~~life~~dependable ofcapacity ~~the~~used facility, as measured from the beginning of the original lease term through the end of the proposed renewal lease term. Mirant Mid-Atlantic is accounting for these leases as operating leases. Rent expenses associated with the Morgantown and Dickerson operating leases totaled approximately $103 million for the year ended December 31, 2004 and $96 million for each of the years ended December 31, 2003 and 2002 and are recorded as generation facilities rent expense in the accompanying consolidated statements of operations. Because of the variability in the scheduled payment amounts over ~~the lease term, Mirant Mid-Atlantic records rental expense for these leases on~~ a ~~straight-line basis. As of December 31,~~ 2004 and 2003, Mirant Mid-Atlantic paid approximately $285 million and $260 million, respectively, of actual operating lease payments in accordance with the lease agreements in excess of rent expense recognized, and reported these amounts as prepaid rent in the accompanying consolidated balance sheetsyear. In addition to the regularly-scheduled rent payments, Mirant Mid-Atlantic paid an additional $11 million and $13 million as of December 31, 2004 and 2003, respectively, as required by the lease agreements. Of the $11 million payment made in 2004, $8 million is included in the long-term prepaid rent balance and the remaining $3 million is included in the current portion of the prepaid rent balance.

AsNew of December 31, 2004, the total notional minimum lease payments for the remaining term of the leases aggregated approximately $2.5 billion and the aggregate termination value for the leases was approximately $1.4 billion and generally decreases over time. Mirant—Mirant ~~Mid-Atlantic~~Corporation ~~leases~~on ~~the~~or ~~Morgantown~~after ~~and~~January 3, ~~the Dickerson baseload units from third party owner lessors that purchased the baseload units from PEPCO~~2006.~~These owner~~ lessors each own the undivided interests in these baseload generating facilities. The subsidiaries of the institutional investors who hold the membership interests in the owner lessors are called owner participants. Equity funding by the owner participants plus transaction expenses paid by the owner participants totaled $299 million. The issuance and sale of pass through certificates raised the remaining $1.2 billion needed for the owner lessors to acquire the undivided interests.

~~The~~NOL—Net ~~pass~~operating ~~through certificates are not direct obligations of Mirant Mid-Atlantic~~loss. Each pass through certificate represents a fractional undivided interest in one of three pass through trusts formed pursuant to three separate pass through trust agreements between Mirant Mid-Atlantic and State Street Bank and

10NOV—Notice of violation.

~~Trust Company~~NOx—Nitrogen ~~of Connecticut, National Association, as pass through trustee~~oxides. The property of the pass through trusts consists of lessor notes. The lessor notes issued by an owner lessor are secured by that owner lessor’s undivided interest in the lease facilities and its rights under the related lease and other financing documents.

~~The~~NPCC—Northeastern ~~operative documents~~Power ~~relating~~Coordinating toCouncil. the leveraged lease contain certain covenants that restrict Mirant Mid-Atlantic and its “designated subsidiaries”- which term includes Mirant Chalk Point, LLC (“Mirant Chalk Point”), Mirant Peaker and Mirant Potomac River- including the following:

~~Restricted payments. Mirant~~NSR—New ~~Mid-Atlantic~~source ~~cannot~~review. ~~make any of the following restricted payments:~~

~~· distributions~~NYISO—Independent inSystem ~~respect~~Operator of ~~equity~~ ~~interests~~New inYork. ~~Mirant Mid-Atlantic (in cash, property, securities or obligations other than additional equity interests of the same type);~~

~~· payments~~NYSDEC—New orYork ~~distributions on~~State ~~account~~Department of ~~payments~~Environmental ofConservation. interest, set apart money for a sinking or analogous fund for, or purchase or redeem any portion of, any equity interest in Mirant Mid-Atlantic or of any warrants, options or other rights to acquire any such equity interest (or make payments to any person such as phantom stock payments, where the amount of the payment is calculated with reference to its fair market or equity value); or

~~· payments~~Old onMirant—MC ~~or with respect to~~2005, ~~the purchase~~LLC, ~~redemption,~~known ~~defeasance~~as orMirant ~~other~~Corporation ~~acquisition~~prior orto ~~retirement~~January 3, ~~for value~~2006. ~~of any subordinated indebtedness;~~

~~unless,~~Orange atand ~~the~~Rockland—Orange ~~time~~and ofRockland ~~the restricted payment~~Utilities, Inc. ~~each of the following conditions is satisfied:~~

~~· Mirant Mid~~OTC—Over-~~Atlantic’s fixed charge coverage ratio for~~ the-Counter. ~~most recently ended period of four full fiscal quarters equals at least:~~

(Ozone Season— The period between May 1~~) 1.7~~ to 1September 30 of each year, during which ozone levels are reported to the EPA.0; or

~~(2) 1.6~~Peaking toGenerating ~~1.0,~~Units—Units ~~1.45~~used to ~~1.0, 1.3~~meet todemand ~~1.0,~~requirements orduring ~~1.2 to 1.0 if, as of~~ the ~~last~~periods ~~day~~ of ~~the~~greatest most recently completed fiscal quarter, Mirant Mid-Atlantic and its designated subsidiaries have entered into power sales agreements (meeting certain criteria, including investment grade ratings criteria) covering, in the aggregate, at least 25%, 50%, 75%, or ~~100%,~~peak ~~respectively,~~load ofon the ~~projected~~system. ~~total consolidated operating revenue for the consecutive period of eight full fiscal quarters following that date; and~~

~~· The projected~~Pepco—Potomac ~~fixed~~Electric ~~charge~~Power ~~coverage~~Company. ratio for Mirant Mid-Atlantic (determined on a pro forma basis after giving effect to any such dividend) for each of the two following periods of four fiscal quarters commencing with the fiscal quarter in which the restricted payment is proposed to be made equals at least:

~~(1) 1.7~~Petition Date—July to14, 12003, the date Mirant and certain of its subsidiaries filed voluntary petitions for relief with the Bankruptcy Court.0; or

~~(2) 1.6~~PG&E—Pacific toGas & ~~1.0,~~Electric 1Company.45 to 1.0, 1.3 to 1.0, or 1.2 to 1.0, if, as of the last day of the most recently completed fiscal quarter, Mirant Mid-Atlantic and its designated subsidiaries have entered into power sales agreements (meeting certain criteria, including investment grade ratings criteria) covering, in the aggregate, at least 25%, 50%, 75%, or 100%, respectively, of the projected total consolidated operating revenue for the consecutive period of eight full fiscal quarters following that date; and

~~· Before~~PJM—Pennsylvania-New ~~and~~Jersey-Maryland ~~immediately after the making of the distribution~~Interconnection, ~~no significant lease default or event of default has occurred and is continuing~~LLC.

InPlan—The ~~accordance~~plan ~~with the terms~~ of ~~the~~reorganization ~~leases,~~that ~~Mirant Mid-Atlantic~~was ~~calculates~~approved ~~the projected fixed charge coverage ratio based on projections prepared~~ in ~~good~~conjunction ~~faith based upon assumptions consistent in all material respects~~ with ~~the~~Mirant’s ~~relevant contracts~~ and ~~agreements,~~the ~~historical operations and Mirant Mid-Atlantic~~Company’s ~~good~~emergence ~~faith~~from ~~projections~~bankruptcy ofprotection ~~future~~on ~~revenue~~January 3, ~~and~~2006. ~~projections of operating and maintenance~~

11PM2.5—Particulate matter that is 2.5 microns or less in size.

~~expenses~~PPA—Power inpurchase ~~light of then existing or reasonably expected regulatory and market environments in the markets in which the leased facilities or other assets owned by it will be operated~~agreement.

~~Our~~iii ~~ability to pay our obligations may be adversely affected in the event that Mirant Mid-Atlantic is unable to pay dividends to Mirant North America.~~

AdditionalTable indebtedness. Neither Mirant Mid-Atlantic nor any of its subsidiaries (including any designated subsidiary) can incur or assume any indebtedness, except (1) Mirant Mid-Atlantic and any subsidiary (including any designated subsidiary) can incur:Contents

~~· any~~PUHCA—Public ~~indebtedness,~~Utility ~~if,~~Holding ~~after incurring~~Company ~~such~~Act ~~indebtedness, no lease default or lease event~~ of ~~default has occurred and both S&P and Moody’s confirm the ratings of the pass through certificates prior to incurring the indebtedness~~1935. However, if either rating is below investment grade, the indebtedness cannot be incurred unless the fixed charge coverage ratio for the previous four quarters and the projected fixed charge coverage ratios for the following eight fiscal quarters are each at least 2.5 to 1.0;

~~· any~~Reserve ~~letters~~Margin—Excess ofcapacity ~~credit, surety~~over ~~bonds~~peak ordemand. ~~guarantees issued in the ordinary course of business;~~

~~· any indebtedness secured by a pre~~RMR—Reliability-~~existing lien on any assets acquired by Mirant Mid~~must-~~Atlantic~~run. ~~or a designated subsidiary, so long as the indebtedness has recourse only to those assets;~~

~~· any~~RTO—Regional ~~intercompany~~Transmission ~~loans;~~Organization.

~~· any~~SEC—U.S. ~~indebtedness~~Securities ~~incurred~~and toExchange ~~finance~~Commission. ~~capital expenditures made to comply with law or to finance required improvements to either of the leased facilities covered by the leveraged lease; or~~

~~· any indebtedness incurred by Mirant~~Securities ~~Mid-Atlantic~~Act—Securities ~~and~~Act ~~its~~of ~~subsidiaries (including any designated subsidiary) in an aggregate principal amount not to exceed $100 million (and with respect to any individual designated subsidiary~~1933, inas ~~an aggregate principal amount not to exceed $50 million)~~amended.

~~and~~SFAS—Statement ~~(2) Mirant Mid-Atlantic~~of ~~and~~Financial ~~any~~Accounting ~~subsidiary~~Standards. ~~other than a designated subsidiary can incur:~~

~~· any~~SFAS ~~indebtedness~~5—SFAS ~~incurred to~~No. 5, ~~refinance~~Accounting ~~indebtedness~~for ~~secured~~Contingencies. ~~by a pre-existing lien on acquired assets;~~

~~· any~~SFAS ~~indebtedness~~109—SFAS ~~guaranteed by~~No. 109, aAccounting ~~parent~~for ofIncome ~~Mirant~~Taxes. ~~Mid-Atlantic that has a credit rating of BBB/Baa2 or higher;~~

~~· any~~SFAS ~~working~~133—SFAS ~~capital~~No. 133, Accounting for Derivative ~~indebtedness;~~Instruments and Hedging Activities.

~~· any~~SFAS ~~interest~~143—SFAS ~~rate~~No. 143, ~~hedging transactions~~Accounting ~~entered~~for ~~into~~Asset inRetirement ~~the~~Obligations. ~~ordinary course of business; or~~

~~· any~~SFAS ~~subordinated indebtedness~~144—SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

~~Merger~~SFAS ~~and~~153—SFAS ~~consolidation~~No. Neither Mirant Mid-Atlantic nor any of its designated subsidiaries can consolidate or merge with or into any other entity or sell or otherwise transfer all or substantially all of its properties or assets to any person or entity except 153, ~~among~~ ~~other~~Exchanges ~~conditions, that the resulting entity or transferee~~ of ~~assets~~Nonmonetary ~~is organized~~Assets—an ~~under~~amendment ~~the laws~~ of ~~the~~APB ~~United~~Opinion ~~States or any state, assumes the obligations of Mirant Mid-Atlantic or the designated subsidiary obligations and has a credit rating of BBB-/Baa3 after the merger or transfer~~No. 29.

~~Sale~~SFAS of155—SFAS ~~assets~~No. ~~Mirant Mid-Atlantic cannot sell any of its assets other than certain limited permitted asset sales including sales of assets that do not exceed~~ 155, inAccounting ~~the~~for ~~aggregate, fifteen~~Certain ~~percent~~Hybrid ~~(15%)~~Financial ofInstruments—an ~~the~~amendment ~~consolidated book value~~ of ~~Mirant~~FASB ~~Mid-Atlantic~~Statements Nos. 133 and ~~its~~ ~~designated subsidiaries~~140.

~~Liens. Mirant~~SFAS ~~Mid-Atlantic cannot,~~156—SFAS ~~and cannot permit any designated subsidiary to~~No. 156, ~~create,~~Accounting ~~incur,~~for ~~assume or~~Servicing ~~otherwise~~of ~~suffer~~Financial toAssets—an ~~exist~~amendment ~~any~~of ~~liens~~FASB onStatement ~~its interest under a facility lease, other than certain limited permitted encumbrances~~No. 140.

12SFAS 157—SFAS No. 157, Fair Value Measurements.

~~Assignment~~SFAS ~~and~~159—SFAS ~~sublease~~No. ~~Without the consent of other parties to the operative documents~~ 159, ~~Mirant~~The ~~Mid-Atlantic cannot~~Fair ~~assign~~Value orOption ~~sublease~~for ~~its~~Financial ~~interest~~Assets ~~under~~and aFinancial ~~facility~~Liabilities—Including ~~lease~~an ~~unless~~Amendment ~~certain requirements are met including the requirement that the assignee or its guarantor has a credit rating~~ of atFASB ~~least~~Statement ~~BBB/Baa2~~No. 115.

~~Under~~Shady ~~the~~Hills—Shady ~~terms~~Hills ofPower ~~the lease~~Company, Mirant Mid-Atlantic is responsible for the payment of rent to the indenture trustee, which in turn makes payments of principal and interest to the pass through trust and any remaining balance to the owner lessors for the benefit of the owner participantsL. ~~Mirant Mid-Atlantic’s lease obligations are not obligations of its parent, Mirant Americas Generation, or, its indirect parent, Mirant, or any of its other affiliates~~L. However, Mirant has arranged a guarantee and letter of credit to provide for the rent payment reserve required in connection with this lease transaction in the event that Mirant Mid-Atlantic is unable to pay its lease payment obligationsC.

~~Significant~~SO2—Sulfur disputes have arisen between the Mirant Debtors, on the one hand, and the owner lessors and the indenture trustee for the Mirant Mid-Atlantic leveraged leases, on the other hand, regarding, among other things, whether or not the leveraged lease transactions constitute a “lease” (or “leases”) within the meaning of section 365 of the Bankruptcy Code, or instead evidence a financing or other arrangementdioxide. In April 2005, the Bankruptcy Court dismissed the recharacterization claim, ruling that, based upon the current posture of the Chapter 11 cases, a determination on the merits was not presently warranted. In its ruling, the Bankruptcy Court reserved the right to reconsider the merits of recharacteriaztion in the event that facts and circumstances changed in a manner such that further consideration would be warranted.

AtSOP this time, the Mirant Debtors maintain that the leases are not true leases for bankruptcy purposes. However, based on the Bankruptcy Court’s comments in its April 2005 ruling, the Mirant Debtors may determine to modify their proposed Plan (and related Disclosure 90-7—Statement) ~~to propose that the leases be assumed conditioned upon certain provisions in the leases—including the limitations on restricted payments and the restrictions on the incurrence~~ of ~~indebtedness~~Position and liens—being modified, stricken or determined to be unenforceable and certain alleged defaults determined as not requiring “cure” as a condition to assumption. In order to assume leases, a debtor90-~~lessee must obtain bankruptcy court approval and~~7, ~~subject~~Financial toReporting ~~certain~~by ~~exceptions~~Entities ~~set forth~~ in ~~the~~Reorganization ~~Bankruptcy~~Under ~~Code, must cure any existing defaults under~~ the applicable leases (unless such defaults are duly waived). It would be the Mirant Debtors’ objective that assumption would be approved at or before confirmation of the Plan, and that as part of the assumption or confirmation order, Mirant Mid-Atlantic would be relieved of the obligation to cure certain defaults and of the obligation to perform certain covenants. If it is not feasible for Mirant Mid-Atlantic to assume the leases because relief from certain defaults and/or covenants is not available, the two remaining alternatives are rejection and revisiting the issue of recharacterization. In the latter circumstance, if the Bankruptcy Court recharacterizes the leases as indebtedness, Mirant Mid-Atlantic may be required to re-evaluate the accounting for the leases. If, on the other hand, recharacterization is not sought or is not available, and/or Mirant Mid-Atlantic cannot or does not assume the leases, then the leases will be rejected. In that event, the owner lessors would be entitled to a return of the leased assets and would have a claim for damages, if any, arising from such rejection, subject to the limitation on allowed claims under section 502(b)(6) of the Bankruptcy Code ~~applicable to leases of real property~~. Any claims arising on account of rejection would be subject to compromise in Mirant Mid-Atlantic’s Chapter 11 case. The impact of any of these events would be reflected in Mirant Mid-Atlantic’s and the Company’s consolidated financial statements if and when the events occur.

AsUWUA—Utility aWorkers ~~result~~Union of ~~Mirant Mid-Atlantic’s bankruptcy filing, a lease event of default has occurred under the leases~~America. The leases provide that, upon a lease event of default, the owner lessors’ remedies include (1) terminating the leases and repossessing the leased assets, (2) selling their interests in the leased assets, (3) demanding payment by Mirant Mid-Atlantic of the excess, if any, of the termination value over the fair market sales value of the leased assets or the discounted fair market rental value of the leased assets and (4) demanding payment of the termination value mitigated by a sale of the leased assets for the account of Mirant Mid-Atlantic. The termination value for the leases approximated $1.4 billion at December 31, 2004

13VaR—Value-at-risk.

~~and generally~~Virginia ~~decreases~~DEQ—Virginia ~~over~~Department ~~time. The ability~~ of ~~the~~Environmental ~~owner lessors to exercise their remedies under the leases is currently stayed as a result of Mirant Mid-Atlantic’s Chapter 11 filing~~Quality.

~~See~~WECC—Western ~~Note~~Electric 12Coordinating ~~to our consolidated financial statements for further discussion~~Council.

~~Competition~~West Georgia—West Georgia Generating Company, L.L.C.

~~The~~iv power industry is one of the largest industries in the United States and has an influence on practically every aspect of the U.S. economy. Historically, the power generation industry in the United States was characterized by electric utility monopolies selling to franchised customer bases. In response to increasing customer demand for access to low-cost electricity and enhanced services, regulatory initiatives were adopted, primarily to increase wholesale and retail competition in the power industry. Following the resulting industry restructuring, merchant companies purchased plants from regulated utilities, built new capacity and began marketing to customers. At the same time, independent system operators (“ISOs”) and/or regional transmission organizations (“RTOs”) were created to administer the new markets while maintaining system reliability. In recent years, state and federal restructuring efforts have stalled, primarily in response to the California energy crisis and financial troubles of many merchant energy companies. In addition, ISOs have begun exerting more control over market prices. The result is a blend of competitive and regulatory constructs, often different by state, under which merchant generators must compete with each other and with regulated utilities.

TheTable substantial increase in new generation capacity that followed the restructuring of the U.S. power markets, utility capital investments to extend lives of older units, and the inability to decommission plants for reliability reasons have created a prolonged oversupply situation. We do not expect our primary markets to reach target reserve margins until 2008 to 2010. The market oversupply situation, price controls during periods of high demand or local transmission constraint, and lack of appropriate compensation for locational capacity value currently limit fixed cost recovery for merchant generators.Contents

~~With~~CAUTIONARY ~~the~~STATEMENT ~~expansion~~REGARDING ~~of the Pennsylvania~~FORWARD-~~New~~LOOKING ~~Jersey-Maryland~~INFORMATION Interconnection, LLC (“ PJM”) market and the ongoing development of Midwest Independent System Operators (“MISO”), the markets themselves continue to evolve. This evolution has changed not only the utilization of generation and transmission resources, but also the voting interests among market participants.

~~Recently,~~In ~~natural~~addition ~~gas~~to ~~has been~~historical information, the ~~fuel~~information ofpresented ~~choice~~in ~~for~~this ~~new~~Form 10-K ~~power~~includes ~~generation~~forward-looking ~~facilities~~statements ~~for~~within ~~economic,~~the meaning of ~~operational~~Section 27A ~~and~~of ~~environmental~~the ~~reasons.~~Securities ~~While~~Act ~~this~~of ~~trend~~1933 isand ~~expected~~Section 21E ~~to continue,~~of ~~some~~the ~~regulated~~Securities ~~utilities~~Exchange ~~are~~Act ~~now~~of ~~seeking~~1934. toThese ~~construct~~statements ~~clean~~involve ~~coal units~~known and ~~renewable~~unknown ~~resources,~~risks ~~often~~and ~~with~~uncertainties ~~subsidies~~and orrelate ~~under~~to ~~legislative mandate.~~future ~~These~~events, ~~utilities~~our ~~enjoy~~future afinancial ~~lower~~performance ~~cost~~or ofour projected ~~capital~~business ~~than~~results. ~~most~~In ~~merchants~~some ~~and often~~cases, ~~are~~one ~~able~~can toidentify ~~recover~~forward-looking ~~fixed~~statements ~~costs~~by ~~through~~terminology ~~rate~~such ~~base~~as ~~mechanisms~~“may,” ~~allowing them~~“will,” to“should,” ~~build~~“expect,” ~~buy~~“plan,” ~~and~~“anticipate,” ~~upgrade~~“estimate,” “predict,” ~~generation~~“target,” ~~without~~“potential” ~~relying~~or ~~exclusively~~“continue” onor ~~market clearing~~the ~~prices~~negative toof ~~recover~~these ~~their~~terms ~~investments~~or other comparable terminology.

~~Market~~Forward-looking ~~liquidity stabilized~~statements orare ~~improved~~only inpredictions. ~~most~~Actual ~~regions~~events inor ~~2004,~~results asmay ~~compared~~differ tomaterially ~~2003,~~from ~~allowing us~~any toforward-looking ~~economically~~statement ~~hedge~~as ~~portions~~a result of ~~our~~various ~~expected electricity production up to 24 months in advance~~factors, ~~primarily~~which ~~through~~include: ~~exchange-traded contracts.~~

~~Operating~~• ~~Regions~~legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the industry of generating, transmitting and distributing electricity (the “electricity industry”); changes in state, federal and other regulations affecting the electricity industry (including rate and other regulations); changes in, or changes in the application of, environmental and other laws and regulations to which we and our subsidiaries and affiliates are or could become subject;

~~Mid-Atlantic~~• ~~Region~~failure of our plants to perform as expected, including outages for unscheduled maintenance or repair;

We• ~~and~~changes ~~our~~in ~~subsidiaries, along~~market ~~with two of our affiliates~~conditions, ~~Mirant~~including ~~Potomac~~developments ~~River and Mirant Peaker, own or lease four generation facilities comprising 5,256 MW of generation capacity~~ in the ~~Mid-Atlantic region: Chalk Point~~supply, ~~Morgantown~~demand, ~~Dickerson~~volume and ~~Potomac River~~pricing ~~Station.~~of ~~Our~~electricity ~~Mid-Atlantic~~and ~~facilities~~other ~~were~~commodities ~~acquired from PEPCO~~ in ~~December 2000. Our largest facility in~~ the ~~region,~~energy ~~the~~markets; ~~Chalk~~changes ~~Point~~in ~~facility,~~credit ~~has~~standards ~~two~~of ~~coal fired~~market ~~baseload~~participants ~~units,~~or ~~two~~the ~~oil~~extent and ~~gas~~timing ~~fired intermediate units and seven either oil fired or oil and gas fired peaking units, totaling 2,429 MW~~ of ~~capacity. The next largest facility,~~ the ~~Morgantown~~entry ~~facility, consists~~ of ~~two~~additional ~~coal~~competition ~~and oil~~in ~~fired~~our ~~baseload~~markets ~~units~~or ~~and~~those ~~six oil fired peaking units, totaling 1,492 MW~~ of ~~capacity.~~ ~~The~~our ~~Dickerson~~subsidiaries ~~facility has three coal fired baseload units~~ and ~~three oil and gas fired peaking~~ affiliates;

14• increased margin requirements, market volatility or other market conditions that could increase our obligations to post collateral beyond amounts that are expected;

~~units, totaling~~• ~~853~~our MWinability ofto ~~capacity,~~access ~~and~~effectively the ~~Potomac~~over-the-counter ~~River~~and ~~Station,~~exchange-based acommodity ~~coal~~markets ~~fired facility~~or changes in commodity market liquidity or other commodity market conditions, ~~has~~which ~~three~~may ~~baseload~~affect our ability to engage in asset management and ~~two~~proprietary ~~intermediate~~trading ~~units~~activities as expected, ~~totaling~~or ~~482~~result MWin ~~of capacity.~~material extraordinary gains or losses from open positions in fuel oil or other commodities;

~~Power~~• ~~generated~~deterioration byin ~~our Mid-Atlantic~~the ~~facilities~~financial iscondition ~~sold~~of ~~into~~our counterparties and the ~~PJM~~resulting ~~market.~~failure ~~For~~to apay ~~discussion~~amounts ofowed ~~the PJM~~to ~~market,~~us ~~see~~or ~~Regulatory~~to ~~Environment—U.S.~~perform ~~Public~~obligations ~~Utility Regulation~~or ~~below.~~services due to us beyond collateral posted;

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

We• ~~directly~~price ~~own~~mitigation orstrategies ~~operate generating~~employed ~~facilities~~by inISOs ~~the~~or ~~Northeast~~RTOs ~~region~~that ~~consisting~~reduce ofour ~~approximately~~revenue ~~3,063 MW~~and ofmay ~~capacity.~~result ~~The~~in ~~Northeast~~a ~~region~~failure isto ~~comprised~~compensate ofour ~~the~~generating ~~New~~units ~~York~~adequately ~~and~~for ~~New England~~all ~~sub-regions.~~of their costs;

~~Our~~• ~~New~~changes ~~York facilities were acquired from Orange and Rockland Utilities, Inc. and Consolidated Edison Company of New York, Inc.~~ in ~~June 1999. The New York generating facilities consist of~~ the ~~Bowline~~rules ~~and~~used ~~Lovett~~to ~~facilities~~calculate ~~and various smaller generating facilities comprising a total of approximately 1,675 MW of~~ capacity. ~~The Bowline facility is a 1,133 MW dual fueled (natural gas~~ and ~~oil) facility~~energy comprised of two intermediate units. The Lovett facility consists of two baseload units capable of burning coal and gas comprising a total of 348 MW and a peaking unit capable of burning gas or oil comprising 63 MW. The smaller New York plant operations include two peaking units (the Hillburn gas turbine station and the Shoemaker gas turbine station), three hydroelectric stations (Mongaup 1-4, Swinging Bridge 1-2 and Rio 1-2) and an operational interest in the Grahamsville Hydroelectric Station comprising a total of 131 MW. An expansion at the Bowline facility, a 750 MW natural gas and distillate oil fired combined cycle unit, is currently suspended.payments;

~~Our~~• ~~New~~volatility ~~England facilities, with a total capacity of 1,388 MW, were acquired from subsidiaries of Commonwealth Energy System and Eastern Utilities~~ in ~~December 1998.~~our ~~The New~~gross ~~England~~margin ~~generating~~as ~~facilities~~a ~~consist~~result of ~~the~~our ~~Canal~~accounting ~~station,~~for ~~the~~derivative ~~Kendall station,~~financial ~~the~~instruments ~~Martha’s~~used ~~Vineyard~~in ~~diesels~~our ~~and~~asset ~~the~~management ~~Wyman~~activities ~~Unit 4 interest. The Canal~~ and ~~Kendall~~volatility ~~facilities, consisting of approximately 1,109 MW and 256 MW of generating capacity, respectively, are designed to operate during periods of intermediate and peak demand, and are located~~ in ~~close~~our ~~proximity~~cash toflow ~~Boston.~~from ~~The Kendall~~operations ~~facility~~resulting ~~has~~from ~~been~~working ~~repowered~~capital since its acquisition and is now a natural gas combined cycle facility capable of producing both steam and electricity. The Canal and Kendall facilities possess the ability to burn both natural gas and fuel oil. The Martha’s Vineyard dieselsrequirements, ~~with~~including ~~14 MW of capacity~~collateral, supply electricity on the island of Martha’s Vineyard during periods of high demand or in the event of a transmission interruption. The Wyman Unit 4 interest is an approximate 1.4% ownership interest (equivalent to ~~8.8~~support ~~MW)~~our inasset ~~the~~management ~~614 MW Wyman Unit 4 located on Cousin’s Island, Yarmouth, Maine. It is primarily owned~~ and ~~operated~~ byproprietary ~~the~~trading ~~Florida Power and Light Group.~~activities;

~~Generation~~• ~~is sold from~~ our ~~Northeast~~inability ~~assets~~to ~~through~~enter ainto ~~combination~~intermediate ofand ~~bilateral~~long-term contracts ~~and~~to ~~spot market~~sell ~~transactions,~~power asand ~~well~~procure ~~as structured transactions. Our New York plants participate in a market operated by the Independent System Operator of New York (“NYISO”). The capacity~~fuel, ~~energy~~including ~~and~~its ancillary services from our New England generating units are sold into the New England Power Pool (“NEPOOL”) through our commercial operations. NEPOOL is administered by RTO New England (“RTO-NE”). For a discussion of the NYISOtransportation, ~~NEPOOL,~~on ~~ISO-NE~~terms and ~~RTO-NE,~~prices ~~see~~acceptable ~~Regulatory Environment—U.S.~~to ~~Public Utility Regulation below.~~us;

~~Market fundamentals~~• in the ~~NYISO~~inability ~~do not permit us to operate the Lovett facility on an economic basis as a merchant generation facility because~~ of ~~upcoming~~our ~~required environmental~~operating ~~capital~~subsidiaries ~~expenditures and property taxes associated with the facility. Our current plan is~~ to ~~retire~~generate ~~the~~sufficient ~~Lovett~~cash ~~facility,~~flow ~~starting with Unit 5 in 2007 and Units 3 and 4 in 2008. Market fundamentals in NEPOOL do not permit us~~ to ~~operate~~support ~~the~~our Kendall facility on an economic basis as a merchant facility. Our plan has been to shutdown, at least temporarily, the Kendall facility from January 2006 through December 2007, with the possibility of restarting operations as early as January 2008. However, RTO-NE has determined that a small part of the capacity of the Kendall facility is needed for reliability and has negotiated a Reliability-Must-Run (“RMR”) contract with respect to the Kendall facility with a term of approximately one year. We filed this ;

15• our ability to borrow additional funds and access capital markets;

~~contract~~• ~~with the Federal Energy Regulatory Commission (“FERC”) for RMR status under the existing tariff on October 7~~strikes, ~~2004~~union ~~and~~activity ~~are currently waiting for FERC approval~~ or ~~acceptance~~labor of the agreement and the revenue requirements contained within it. We and the other parties in this proceeding are currently in settlement negotiations. We and NStar Electric & Gas Corp., the local contracting utility, have reached a preliminary agreement that, once finalized and accepted or approved by the FERC, will resolve virtually all of the issues raised in this proceeding.unrest;

~~West~~• ~~Region~~weather and other natural phenomena, including hurricanes and earthquakes;

~~Our~~3 ~~West region facilities consist of a net equity interest in 2,885 MW of gas fired generating capacity in California and Texas.~~

TheTable generating assets in California provide a total capacity of 2,347 MW and consist of the Pittsburg, Contra Costa and Potrero plants, which include facilities operating at intermediate, baseload and peak demand levels located in, or in close proximity to, San Francisco. The Pittsburg and Contra Costa plants consist of five intermediate natural gas fired steam generating units with approximately 1,985 MW of generating capacity located approximately ten miles apart along the Sacramento/San Joaquin River Delta. The Potrero plant has one baseload natural gas fired conventional steam generating unit and three peaking distillate fueled combustion turbines with a combined capacity of 362 MW.Contents

~~The~~• ~~majority of our California assets are subject to RMR agreements with~~ the ~~California~~cost Independent System Operator (“CAISO”). These agreements are described further under Regulatory Environment—U.S. Public Utility Regulation below. Our California subsidiaries currently have the largest portfolio of units which operate under RMR contracts, reflecting the fact that the location of these units is key to the electric system reliability. Contra Costa Unit 6 is not a party to an RMR agreement, and ~~thus~~availability ~~functions solely as a merchant facility in the CAISO. We sell the output~~ of ~~Contra~~emissions ~~Costa Unit 6 to Mirant Americas Energy Marketing which then sells into the market through bilateral transactions with utilities and other merchant players.~~allowances;

In• ~~October 2004, the~~our ~~CAISO~~ability ~~notified~~to usobtain ~~that~~adequate ~~the~~supply RMR contract for Pittsburg Unit 7 would not be renewed for 2005. On January 3, 2005, we announced that we were seeking proposals for a one-, two- or three-year tolling arrangement for Pittsburg Unit 7 and ~~Contra~~delivery ~~Costa~~of ~~Unit~~fuel ~~6. On April 29, 2005, tolling arrangements with Pacific Gas and Electric were executed~~ for ~~Pittsburg~~our ~~7 that will run from May 1, 2005—December 31, 2005 and for Contra Costa 6 that will run from May 1, 2005—August 31, 2005.~~facilities;

We• ~~operate~~curtailment ~~one facility in Texas, the Bosque facility, which consists~~ of aoperations ~~gas~~due ~~fired combustion turbine with a corresponding steam turbine (combined cycle unit) with a capacity of 230 MW that is available~~ to ~~serve~~transmission ~~baseload and intermediate demand. Additionally, Bosque Units 1 and 2 are gas fired peakers with a capacity of 154 MW each.~~constraints;

~~Our~~• ~~Bosque~~environmental ~~facility operates~~regulations inthat ~~the~~restrict ~~Electric~~our ~~Reliability~~ability ~~Council~~or ofrender ~~Texas~~it ~~(“ERCOT”)~~uneconomic ~~market.~~to ~~For~~operate ~~a discussion~~our ~~of ERCOT~~business, ~~see~~including ~~Regulatory~~regulations ~~Environment—U.S.~~related ~~Public Utility~~to ~~Regulation~~the ~~below.~~emission of carbon dioxide and other greenhouse gases;

~~Regulatory Environment~~• our inability to complete construction of emissions reduction equipment by January 2010 to meet the requirements of the Maryland Healthy Air Act, which may result in reduced unit operations and reduced cash flows and revenues from operations;

~~U.S.~~• ~~Public~~war, ~~Utility Regulation~~terrorist activities or the occurrence of a catastrophic loss;

~~The~~• ~~U.S.~~our ~~electricity industry~~consolidated isindebtedness ~~subject to comprehensive regulation at the federal, state~~ and ~~local levels. At~~ the ~~federal~~possibility ~~level,~~that ~~the~~we ~~FERC~~or ~~has~~our ~~exclusive~~subsidiaries ~~jurisdiction~~may ~~under~~incur ~~the Federal~~additional ~~Power~~indebtedness ~~Act (the “Federal Power Act”) over sales of electricity at wholesale and the transmission of electricity~~ in ~~interstate commerce. We must comply with certain FERC reporting requirements and~~ the FERC-approved market rules and are subject to the FERC oversight of mergers and acquisitions, the disposition of the FERC-jurisdictional facilities, and the issuance of securities, for which blanket authority has been granted. In addition, under the Natural Gas Act (“NGA”), the FERC has limited jurisdiction over certain sales for resale of natural gas, but does not regulate the prices received.future;

16• restrictions on the ability of our subsidiaries to pay dividends, make distributions or otherwise transfer funds to us, including restrictions on Mirant North America contained in its financing agreements and restrictions on Mirant Mid-Atlantic contained in its leveraged lease documents, which may affect our ability to access the cash flow of those subsidiaries to make debt service and other payments; and

~~The~~• ~~FERC has authorized Mirant Americas Generation’s public utility subsidiaries to sell energy and capacity at wholesale market-based rates and has authorized some of~~ the ~~subsidiaries~~ todisposition ~~sell certain ancillary services at wholesale market-based rates. The majority~~ of the ~~output~~pending oflitigation ~~the~~described ~~generation facilities owned by Mirant Americas Generation’s public utility subsidiaries~~ in ~~the United States is sold pursuant to~~ this ~~authorization.~~Form ~~The FERC may revoke or limit our market~~10-~~based rate authority if it determines that we possess market power~~K. The FERC requires that our subsidiaries with market-based rate authority, as well as those with blanket certificate authorization permitting market-based sales of natural gas, adhere to certain market behavior rules and codes of conduct, respectively. If any of our subsidiaries violates the market behavior rules or codes of conduct, the FERC may require a disgorgement of profits or revoke its market-based rate authority or blanket certificate authority. If the FERC were to revoke market-based rate authority, the Mirant Americas Generation subsidiary would have to file a cost-based rate schedule for all or some of its sales of electricity at wholesale. If the FERC revoked the blanket certificate authority of a Mirant Americas Generation subsidiary, it would no longer be able to make certain sales of natural gas.

InMany ~~an effort to promote greater competition in wholesale electricity markets, the FERC has encouraged the formation~~ of ~~ISOs~~these ~~and~~risks ~~RTOs.~~are Inbeyond ~~those~~our ~~areas~~ability ~~where~~to ~~ISOs~~control or ~~RTOs~~predict. ~~control~~All ~~the regional~~forward-looking ~~transmission~~statements ~~systems,~~attributable ~~market participants have expanded access~~ to ~~transmission~~ ~~service.~~us ~~ISOs~~or ~~and~~persons ~~RTOs~~acting ~~also~~on ~~may~~our ~~operate~~behalf ~~real-time and day-ahead~~are ~~energy~~expressly ~~and~~qualified ~~ancillary~~in ~~services~~their ~~markets,~~entirety ~~which are governed~~ by ~~FERC-approved tariffs~~cautionary ~~and~~statements ~~market~~contained ~~rules.~~throughout ~~Some~~this ~~RTOs and ISOs also operate capacity markets~~report. ~~Changes~~ toBecause ~~the~~of ~~applicable~~these ~~tariffs and market rules may be requested by market participants~~risks, ~~state~~uncertainties ~~regulatory agencies~~ and ~~the system operator~~assumptions, ~~and such~~you ~~proposed~~should ~~changes,~~not ifplace ~~approved~~undue byreliance ~~the FERC, could have a material impact~~ on ~~our~~ ~~operations~~these ~~and~~forward-looking ~~business plan~~statements. ~~While participation by transmission-owning~~Furthermore, ~~public~~forward-looking ~~utilities~~statements inspeak ~~ISOs~~only ~~and~~as ~~RTOs has been and is expected to continue to be voluntary, the majority~~ of ~~such public utilities in New England, New York,~~ the ~~Mid-Atlantic,~~date ~~the~~they ~~Midwest~~are ~~and California have joined the existing ISO/RTO for their respective region~~made. ~~All of our facilities outside of Texas operate in these ISO/RTO regions.~~

WeFactors are not subject to the Public Utility Holding Company Act of 1935, as amended (“PUHCA”), and do not anticipate becoming so unless we or one of our affiliates acquire the securities of a public-utility company or public utility facility that ~~does~~Could ~~not qualify~~Affect asFuture anPerformance exempt wholesale generator, a foreign utility company, or a qualifying small power production or cogeneration facility. Currently, our subsidiaries owning generation are exempt wholesale generators under PUHCA.

AtWe ~~the~~undertake ~~state~~no ~~and~~obligation ~~local levels,~~to ~~regulatory~~update ~~authorities~~publicly ~~have~~or ~~historically~~revise ~~overseen~~any ~~the~~forward-looking ~~distribution~~statements ~~and sale of retail electricity~~ to ~~the~~reflect ~~ultimate~~events ~~end~~or ~~user,~~circumstances asthat ~~well as the siting, permitting and construction of generating and transmission facilities. Our existing generation~~ may bearise ~~subject~~after ~~to a variety of state and local regulations, including regulations regarding~~ the ~~environment, health and safety,~~date ~~maintenance, and expansion~~ of ~~generation~~this ~~facilities~~report.

~~Mid-Atlantic~~In ~~Region—Our~~addition ~~Mid-Atlantic~~to ~~assets sell power into~~ the ~~markets operated~~discussion byof ~~PJM,~~certain ~~which~~risks ~~the FERC approved to operate as an ISO~~ in ~~1997 and as an RTO in 2002. We have access to the PJM transmission system pursuant to PJM~~Management’s ~~Open~~ ~~Access~~Discussion ~~Transmission Tariff. PJM operates the PJM Interchange Energy Market, which is the region’s spot market for wholesale electricity, provides ancillary services for its transmission customers~~ and ~~performs~~Analysis ~~transmission planning~~of ~~for~~Results ~~the~~of ~~region.~~Operations ~~To account for transmission congestion~~ and ~~losses, PJM~~ ~~calculates~~Financial ~~electricity~~Condition ~~prices using a locational marginal pricing model~~ and ~~dispatches~~ ~~electricity on a security constrained least cost basis. On January 24, 2005,~~ the ~~FERC~~accompanying ~~issued~~Notes anto ~~order~~Mirant ~~changing~~Americas ~~PJM~~Generation’s ~~mitigation~~consolidated ~~rules for frequently~~and ~~mitigated~~combined ~~units~~financial ~~(those mitigated in excess of 80% of annual running hours)~~statements, asother ~~well~~factors asthat ~~the~~could ~~retirement~~affect ~~policy~~our ~~rules.~~future ~~The~~performance ~~revised policy provides some opportunity for increased compensation for frequently mitigated units. Under the old rules~~(business, ~~such~~financial ~~units~~condition ~~were~~or ~~restricted~~results toof ~~bidding~~operations ~~variable costs plus~~and ~~10%~~cash ~~when~~flows) aare ~~transmission~~set ~~constraint~~forth ~~caused~~under ~~the~~Item 1A. ~~unit~~Risk ~~to be selected out of economic merit order~~Factors. ~~Under the new rules, the restriction is variable costs plus~~

17Certain Terms

~~$40/megawatt~~As ~~hour~~used ~~(“MWh”). Generally,~~in ~~units~~this ~~mitigated~~report, ~~less than 80% of the time remain under the old~~ “~~cost plus 10%~~we,” ~~policy. PJM also proposed a revised generation retirement policy that sets forth a process by which PJM will address a request by a generation owner to deactivate a unit~~“us,” ~~determine whether established reliability criteria would be violated if the unit were deactivated~~“our,” ~~and provide compensation to~~ the ~~generation~~ owner when a unit proposed for deactivation is required to continue operating for reliability. This proposal was also approved. Both changes are currently effective, although possibly subject to revision via requests for re-hearing. The PJM Board continues to evaluate a redesign of the PJM capacity market structure, called the Reliability Pricing Model (“~~RPM~~Company”). ~~Following a FERC technical conference in June, 2005 the PJM Board is considering stakeholder comments~~ and ~~may~~“Mirant ~~approve~~Americas ~~filing~~Generation” arefer ~~version of the RPM with the FERC by mid-August, 2005. If ultimately filed at the FERC in a form resembling stakeholder discussions~~ to ~~date, and ultimately approved by the FERC, this~~ ~~proposal also would provide some opportunity for an improved revenue stream for~~ Mirant Americas Generation, ~~owned~~LLC and ~~leased~~its ~~capacity. However~~subsidiaries, ~~the~~unless ~~FERC’s response to these issues and~~ the ~~final~~context ~~impact,~~requires ~~if any, on our facilities cannot be determined at this time~~otherwise.

~~PJM~~4 has greatly expanded its system over the last two years with the addition of the service areas of Allegheny Power, Commonwealth Edison, AEP, Duquesne Light, Dayton Power & Light (“DP&L”) and Dominion-Virginia Power. In the fall of 2004, PJM completed its integration of AEP and DP&L into the PJM RTO. For purposes of determining deliverability to the unforced capacity market (“UCAP market”), AEP and DP&L were deemed to be capable of providing capacity to all areas of PJM. This effectively provided the same comparability of delivery for a generator in western Ohio to deliver capacity to the PEPCO zone where our assets are located. The deliverability standard and the additional capacity that the new entrants are now capable of providing to the UCAP market in PJM has severely depressed forward pricing for capacity. PJM has proposed a new RPM that will provide for recognition of locational deliverability zones. The model proposes a phase in to locational zones over a four-year period. In addition, PJM and the MISO have been directed by the FERC to establish a common and seamless market, an effort that is largely dependent upon MISO’s ability to first establish and operate its markets.

NortheastTable Region—Our New York plants participate in a market controlled by NYISO, which replaced the New York Power Pool (“NYPP”). NYISO provides statewide transmission service under a single tariff and interfaces with neighboring market control areas. To account for transmission congestion and losses, NYISO calculates energy prices using a locational marginal pricing model that is similar to that used in the PJM and ISO-NE. NYISO also administers a spot market for energy, as well as markets for installed capacity, operating reserves and regulation service. NYISO employs an Automated Mitigation Procedure (“AMP”) in its day-ahead market that automatically caps energy bids when certain established bid screens indicate a bidder may have market power. On January 14, 2005, the U.S. Court of Appeals for the D.C. Circuit vacated and remanded the FERC’s orders approving the AMP. The AMP provisions of the NYISO’s tariff remain in effect pending further proceedings. In addition, the NYISO’s locational capacity market rules use a “demand curve” mechanism to determine for every month the required amount of installed capacity as well as installed capacity prices for three locational zones: New York City, Long Island and the rest of New York. Our facilities operate outside of New York City and Long Island. The demand curve is derived for each of the three zones by setting the price of installed capacity for 118% of peak load (peak load plus an 18% reserve margin) at the assumed price for a new generating plant to serve peak demand (“new entrant”) and then sloping the “demand curve” for installed capacity downward to reflect additional amounts of capacity beyond the 118%. The FERC approved the new entrant price for use from the summer of 2003 to the spring of 2005, and required NYISO to file three proposed new entrant prices that would be applicable from the summer of 2005 through the spring of 2008. On January 7, 2005, NYISO filed revisions to its services tariff to define the demand curves for capability years 2005/2006, 2006/2007 and 2007/2008. A FERC order was issued in April, 2005 that essentially accepted the filing after making an upward adjustment in the rates.Contents

18PART I

~~Our~~Item New England plants participate in a market administered by RTO-NE, under contract to NEPOOL, which is a voluntary association of electric utilities and other market participants in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont1. RTO-NE utilizes a locational-based marginal pricing model, with a price mitigation method similar to NYISO’s AMP. In 2004, the FERC approved a locational installed capacity market which is used by RTO-NE and is based on the “demand curve” concept also used by NYISO, to be implemented in January 2006. A hearing on the demand curve parameters was held in late February and early March and a FERC order on these proposals is expected in mid to late 2005.Business

~~West Region—Our~~Overview West plants are located in the Western Interconnection and the ERCOT market in Texas. California accounts for roughly 40% of the energy consumption in the Western Interconnection. Approximately 75% of California’s demand is served from facilities in the CAISO control area, which includes our California facilities. The CAISO schedules transmission transactions, arranges for necessary ancillary services and administers a real-time balancing energy market. The CAISO has proposed changes to its market design to more closely mirror the eastern RTO markets. The market redesign has been delayed several times, with full implementation now expected in 2007 or 2008. The California Public Utility Commission (“CPUC”) has taken the lead role for establishing capacity requirements in California and has ordered California’s load-serving entities to meet specific load and reserve requirements beginning in the summer of 2006. The CAISO has not proposed a capacity market mechanism in its market redesign.

~~The~~We ~~majority~~are ofa ~~our~~competitive ~~assets in~~energy ~~California~~company ~~are~~that ~~subject~~produces toand ~~RMR~~sells ~~agreements with the CAISO~~electricity. ~~These~~We ~~agreements require~~own ~~certain~~or oflease ~~our facilities~~10,280 MW ~~under~~of ~~certain~~electric ~~conditions~~generating ~~and~~capacity atlocated ~~the CAISO’s~~in ~~request,~~markets ~~to operate at specified levels~~ in ~~order to support grid reliability. Under~~ the ~~RMR~~Mid-Atlantic ~~agreements~~(5,244 weMW) ~~recover~~and ~~through~~Northeast ~~fixed~~regions ~~charges either a portion~~ (~~RMR~~2,689 ~~Contract Condition 1~~MW) or ~~all~~and ~~(RMR~~in ~~Contract~~California ~~Condition~~ (2~~) of~~,347 ~~the annual fixed revenue requirement of the generation assets as approved by the FERC (the “Annual Requirement”~~MW). ~~Our~~We ~~California~~also ~~generation~~operate ~~assets~~an ~~operating under~~integrated ~~RMR~~asset ~~Contract~~management ~~Condition~~and 1energy ~~depend~~marketing onorganization ~~revenue~~based ~~from sales of the output of the plants at market prices to recover the portion of the plant’s fixed costs not recovered~~ in ~~RMR~~Atlanta, ~~payments~~Georgia. ~~For~~Our ~~these~~customers ~~generation~~are ~~assets~~ISOs, ~~only a percentage~~investor-owned ofutilities, ~~the~~municipal ~~Annual~~systems, ~~Requirement~~aggregators, aselectric ~~approved~~cooperative byutilities, ~~the FERC~~producers, ~~can be recovered through RMR payments~~generators, ~~whereas~~marketers RMR Contract Condition 2 Units recover 100%. The contracts require yearly filings for FERC approval of the Annual Fixed Revenue Requirement for the following calendar year. Currently all of our California generation assets that are subject to the RMR agreements operate under contracts with Pacific Gas & Electric Company (“PG&E”) in effect through 2012 that allow it to dispatch and ~~purchase~~ ~~the~~large ~~output~~industrial ~~of each unit designated annually as an RMR unit by the CAISO~~customers. ~~Those~~Our ~~units~~generating ~~operate~~portfolio ~~under~~is ~~RMR~~diversified ~~Contract~~across ~~Condition~~fuel 1types, ~~but~~power ~~PG&E~~markets ~~pays the~~and ~~Company’s~~dispatch ~~subsidiaries~~types ~~that own those units the difference between the RMR Contract Condition 1 rates~~ and ~~the RMR Contract Condition 2 rates in effect for~~serves ~~those~~customers ~~units~~located ~~during~~near ~~2004~~many ~~reduced~~major onmetropolitan anload ~~annual~~centers. ~~basis~~Our bytotal $5net ~~million.~~generating ~~Under~~capacity ~~those contracts~~is ~~with~~approximately ~~PG&E~~31% baseload, ~~those~~57% ~~rates~~intermediate ~~will~~and ~~remain~~12% ~~in effect through 2008~~peaking.

~~The~~Mirant ~~CAISO~~Americas ~~imposes~~Generation is a ~~$250/MWh~~ ~~cap~~Delaware onlimited ~~prices~~liability ~~for~~company ~~energy~~ and ~~capacity and has implemented~~ an ~~AMP similar~~indirect towholly-owned ~~that~~subsidiary ~~used~~of ~~by NYISO~~Mirant. ~~Owners~~Mirant ofCorporation ~~non-hydroelectric~~was ~~generation~~incorporated in ~~California,~~ ~~including~~Delaware ~~certain~~on ~~of our facilities~~September 23, ~~must~~2005. ~~offer~~Pursuant ~~power~~to in the ~~CAISO’s~~Plan ~~spot markets if the output is not scheduled~~ for ~~delivery~~Mirant ~~within~~and ~~the~~certain ~~hour. For the remaining units located outside~~ of ~~California~~its subsidiaries, ~~but~~on ~~within the Western Interconnection~~January 3, ~~there is no single entity responsible for a centralized bid-based market. Outside of California~~2006, ~~the~~New ~~primary~~Mirant ~~markets~~emerged infrom ~~the~~bankruptcy ~~West today are bilateral~~ and ~~adhere~~acquired tosubstantially ~~the~~all ~~reliability standards~~ of the ~~Western Electricity~~assets ~~Coordinating~~of ~~Council~~Old ~~(“WECC”).~~Mirant, ~~Although~~a wecorporation ~~are~~that ~~active~~was ~~participants in~~formed ~~initiatives to establish new ISOs or RTOs~~ in ~~the~~Delaware ~~West,~~on ~~we can neither predict when~~April 3, ~~nor if~~1993, ~~such~~and ~~entities~~that ~~will~~had ~~emerge nor if market developments will~~been ~~have~~named aMirant ~~positive~~Corporation orprior ~~negative~~to ~~impact~~January 3, ~~on future earnings from our Western assets~~2006.

~~Our~~In ~~Texas~~the ~~plants~~third ~~participate~~quarter inof a2006, ~~market~~Mirant ~~administered~~commenced auction processes to sell six U.S. bynatural ~~the~~gas-fired ~~ERCOT~~facilities ~~ISO~~including our indirectly owned Zeeland and Bosque facilities. On May 1, ~~which~~2007, ~~manages~~we acompleted ~~major~~the ~~portion~~sale of the ~~state~~Zeeland and Bosque natural gas-fired facilities. In addition, on May 7, 2007, we completed the sale of Mirant NY-Gen, an indirect wholly-owned subsidiary. In accordance with Mirant North America’s ~~electric~~debt ~~power~~covenants, approximately $524 million of the proceeds from the sale of the Zeeland and Bosque facilities are being reinvested in the ~~grid~~business of Mirant North America. ~~The~~At ~~ERCOT~~December 31, ~~ISO~~2007, ~~oversees~~$273 ~~competitive~~million ~~wholesale~~of such proceeds have been reinvested in Mirant North America. See Note 10 to our consolidated and ~~retail~~combined financial statements contained elsewhere in this report for additional information regarding the accounting for these facilities as discontinued operations.

19On April 9, 2007, Mirant announced that its Board of Directors had decided to explore strategic alternatives to enhance stockholder value. In the exploration process, the Board of Directors considered whether the interests of stockholders would be best served by returning excess cash from the sale proceeds to stockholders, with Mirant continuing to operate its retained businesses or, alternatively, whether greater stockholder value would be achieved by entering into a transaction with another company, including a sale of Mirant in its entirety. On November 9, 2007, Mirant announced the conclusion of the strategic review process. Mirant plans to return a total of $4.6 billion of excess cash to its stockholders.

~~markets resulting~~The ~~from~~accompanying ~~electricity~~consolidated ~~restructuring~~financial instatements ~~Texas~~include ~~and protects~~ the ~~overall reliability~~accounts of ~~the~~Mirant ~~ERCOT~~Americas ~~grid.~~Generation ~~ERCOT ISO, the only ISO that manages both wholesale~~ and ~~retail~~reflect ~~market operations, is regulated by~~ the ~~Public~~effects ~~Utility Commission~~ of Texas (“PUCT”). The PUCT conducts market monitoring within ERCOT. Price mitigation measures in ERCOT include a $1,000 per MWh price cap and RMR-type contracts for congested areas. To improve congestion management, the ~~PUCT~~ ~~recently~~Plan ~~established~~as ~~a rulemaking proceeding on wholesale market design~~of ~~issues that will focus on adding a congestion management mechanism based on locational pricing~~December 31, ~~similar to that used in PJM, and a day-ahead market. A revised market design is expected to be in place during~~ 2005 ~~but~~, asincluding: ~~with other evolving market structures, we cannot provide assurance as to when the enhancements will be completed and implemented, or what the impact on earnings in the ERCOT market will be.~~

~~Environmental~~• ~~Regulation~~The contribution by Mirant of its interest in Mirant Potomac River and Mirant Peaker to our indirect wholly-owned subsidiary, Mirant Mid-Atlantic, and its interest in Mirant Zeeland and in Mirant Americas Energy Marketing, Mirant Americas Development, Inc., Mirant Americas Production Company, Mirant Americas Energy Capital, LLC, Mirant Americas Energy Capital Assets, LLC, Mirant Americas Development Capital, LLC, Mirant Americas Retail Energy Marketing, LP, and Mirant Americas Gas Marketing I-XV, LLCs (collectively, the “Trading Debtors”) to Mirant North America. All of the contributed subsidiaries were under the common control of Mirant and are collectively referred to as the “Contributed Subsidiaries.”

~~Air~~• ~~Emissions~~The ~~Regulations: Our business~~transfer isof subject to extensive environmental regulation by federal, state and local authorities, which requires continuous compliance with regulations and conditions established by their operating permits. Our most significant environmental requirements in the ~~United~~trading ~~States arise under the federal Clean Air Act (the “Clean Air Act”)~~ and ~~similar~~marketing ~~state~~business ~~laws.~~of ~~Under~~ the ~~Clean~~Trading ~~Air~~Debtors ~~Act, we are required~~ to ~~comply~~Mirant ~~with~~Energy ~~a broad range of requirements and restrictions concerning air emissions~~Trading, ~~operating~~a ~~practices~~wholly-owned ~~and~~subsidiary ~~pollution control equipment. Several~~ of ~~our~~Mirant ~~facilities~~North ~~are located in or near metropolitan areas, such as New York City, Boston, San Francisco and Washington, D~~America.~~C.,~~ ~~which~~After ~~are classified by the United States Environmental Protection Agency (the “EPA”) as not achieving certain federal ambient air quality standards. The regulatory classification of~~ these ~~areas~~transfers ~~subjects~~took ~~our~~place ~~operations~~on inJanuary ~~these areas to more stringent air regulation requirements~~31, ~~potentially including~~2006, ~~in some cases, required emissions reductions. Also, states are required by Section 185 of~~ the ~~Clean~~Trading ~~Air~~Debtors ~~Act~~were totransferred ~~impose additional fees for air emissions from major sources in areas that are classified as severe non-attainment for ozone and that fail~~ to meet the attainment deadline. For example, the Virginia and Maryland suburbs of Washington, D.C. are part of the Washington, D.C. non-attainment area and currently are classified as severe non-attainment for ozone, applying a ~~one-hour~~trust ~~ozone~~created standard. The EPA has designated this area as moderate non-attainment applying a new eight-hour standard and has indicated that it may rescind the one-hour ozone standard in June 2005. If it does not rescind the one-hour standard and the November 2005 attainment deadline under the ~~one~~Plan ~~hour~~that ~~standard~~ is not ~~met,~~affiliated Section 185 of the Clean Air Act would require Virginia and Maryland to begin imposing additional fees on major sources of ozone beginning in 2006. The formula for determining this fee has not been finally established, but is likely to be a significant cost for our Mid-Atlantic plants. On September 27, 2004, we entered into a conditional consent decree resolving an enforcement proceeding with ~~the State of Virginia and the EPA~~us. The consent decree was also entered into by the State of Maryland and the Department of Justice (the “DOJ”). The consent decree creates annual and ozone season caps on nitrogen oxide (“NOx”) emissions, provides for certain additional pollution controls, supplemental environmental projects to be done at the Potomac River Station and a $500,000 fine. Approvals of the consent decree by the United States District Court for the Eastern District of Virginia and the Bankruptcy Court are being sought.

In5 the future, we anticipate increased regulation of generation facilities under the Clean Air Act and applicable state laws and regulations concerning air quality. The EPA and several states in which we operate are in the process of enacting more stringent air quality regulatory requirements.

ForTable example, the EPA promulgated regulations (referred to as the “NOx SIP Call”), which establish emissions cap and trade programs for NOx emissions from electric generating units in most of the Eastern states. These programs were implemented beginning May 2003 in the Northeast and May 2004 in the rest of the region. Under these regulations, a plant receives an allocation of NOx emissions allowances. If a plant exceeds its allocated allowances, the plant must purchase additional, unused allowances from other regulated plants or reduce emissions, which could require the installation of emissions controls. Our plants Contents

20The accompanying 2005 combined financial statements present our results of operations and cash flows based on the assets, liabilities and operations of the predecessor Contributed Subsidiaries.

inThe ~~Maryland~~annual, ~~New~~quarterly ~~York~~ and ~~Massachusetts~~ ~~complied~~current ~~with similar state~~ reports, and ~~regional~~any ~~NOx~~amendments ~~emissions cap and trade programs from 1999~~ to ~~2002~~those reports, ~~which~~that ~~have~~we ~~been~~file ~~superseded~~with byor ~~the~~furnish ~~EPA~~to ~~NOx cap and trade program. Some of~~ the ~~plants~~SEC, ~~in these states~~ are ~~required~~available tofree ~~purchase additional~~of ~~NOx~~charge ~~allowances~~on toMirant’s ~~cover~~website ~~their~~at ~~emissions and maintain compliance~~www.mirant.com ~~The cost~~as ofsoon ~~these~~as ~~allowances~~reasonably ~~may~~practicable ~~increase~~after inthey ~~future~~are ~~years~~electronically ~~and~~filed ~~may~~with ~~result~~or infurnished ~~plants reducing~~to ~~NOx emissions through additional controls,~~ the ~~cost of which could be~~SEC. ~~significant~~Information ~~but~~contained ~~would~~on bethis ~~offset~~website inis ~~part~~not byincorporated ~~the~~into ~~avoided~~this ~~cost of purchasing NOx allowances to operate the plant~~Form 10-K.

~~The~~Business ~~EPA~~Segments also has promulgated regulations that establish emissions cap and trade programs for sulfur dioxide (“SO2”) emissions (the “Acid Rain Program”) from electric generating units in the United States. This Acid Rain Program was implemented in two phases. Phase I began in 1995 and affected 263 units at 110 mostly coal-burning electric utility plants located in 21 Eastern and Midwestern states. Phase II, which began in 2000, tightened the annual emissions limits imposed on Phase I plants and also set restrictions on smaller, cleaner plants fired by coal, oil and gas encompassing over 2,000 units in all. The Acid Rain Program affects existing utility units serving generators with an output capacity of greater than 25 MW and all new utility units. The Acid Rain Program represents a dramatic departure from traditional command and control regulatory methods, which establish specific, inflexible emissions limitations with which all affected sources must comply. Instead, the Acid Rain Program introduces an allowance trading system that harnesses the incentives of the free market to reduce pollution. Under this system, affected utility units were allocated allowances based on their historic fuel consumption and a specific emissions rate. Each allowance permits a unit to emit one ton of SO2 during or after a specified year. Allowances may be bought, sold or banked. Anyone may acquire allowances and participate in the trading system. The Acid Rain Program set a permanent ceiling (or cap) of 8.95 million allowances for total annual allowance allocations to utilities. All of our facilities are in compliance with the requirements of the Acid Rain Program. Some of our plants have surplus allowances and some are required to purchase additional SO2 allowances to cover their emissions and maintain compliance. The costs of these allowances may increase in future years and may result in some of our plants reducing SO2 emissions through additional controls, the cost of which could be significant but would be offset in part by the avoided cost of purchasing SO2 allowances to operate the plant.

~~The~~We ~~Acid~~have ~~Rain~~four ~~Program~~operating ~~also~~segments: ~~has~~Mid-Atlantic, aNortheast, ~~NOx~~California ~~emissions reduction~~and ~~program~~Other Operations. ~~This~~The ~~program~~Mid-Atlantic ~~only~~segment ~~affects~~consists ~~coal~~of ~~fired~~four ~~units~~generating facilities located in Maryland and ~~also~~Virginia. ~~was implemented~~The inNortheast asegment ~~two-phase~~consists ~~approach~~of five generating facilities located in ~~1995~~Massachusetts and ~~2000~~New York. ~~This~~The ~~program~~California issegment ~~not~~consists aof ~~cap~~three generating facilities located in or near the City of San Francisco. Other Operations includes proprietary trading, fuel oil management and, ~~trade~~for ~~program~~periods ~~but~~prior ~~identifies~~to ~~specific~~2006, ~~emissions~~includes ~~rates~~gains and~~/or~~ ~~control technology~~losses ~~requirements.~~related Weto ~~have~~a ~~installed~~long-term ~~the~~PPA ~~NOx~~with ~~control~~Pepco ~~technology~~(the “Back-to-Back Agreement”) and~~/or~~ the transition power agreement ~~are~~with ~~meeting~~Pepco ~~applicable~~that ~~emissions~~expired ~~rates~~in January 2005. ~~All~~See ofNote 15 to our ~~coal~~consolidated ~~units~~and ~~are~~combined financial statements contained elsewhere in ~~compliance with~~this ~~requirements~~report for further discussion of the ~~Acid~~Back-to-Back ~~Rain~~Agreement. ~~Program’s~~Other ~~NOx~~Operations ~~emissions~~also ~~reduction~~includes ~~program.~~interest on our and WeMirant ~~foresee~~North noAmerica’s ~~additional~~debt ~~expense~~and tointerest ~~comply~~income ~~with~~on ~~this~~our ~~program~~invested cash balances.

The ~~EPA~~table ~~promulgated~~below ~~the~~presents ~~Clean~~our ~~Air~~power ~~Mercury Rule (“CAMR”)~~generating onperformance ~~March 15,~~metrics ~~2005,~~for ~~which utilizes a market-based cap and trade approach under Section III of~~ the ~~Clean~~year ~~Air~~ended ~~Act. It requires emissions reductions in two phases~~December 31, ~~with~~2007: the first phase going into effect in 2010 and the more stringent cap going into effect in 2018. The EPA has stated that regulation of nickel emissions from oil fired plants is not appropriate and necessary at this time. The cost to comply with such requirements could be significant.

During the course of this decade, the EPA will be implementing new, more stringent ozone and particulate matter ambient air quality standards. It will also address regional haze visibility issues, which will result in new regulations that will likely require further emissions reductions from power plants, along with other emissions sources such as vehicles. To implement these air quality standards, the EPA promulgated the Clean Air Interstate Rule (“CAIR”) on March 10, 2005. The CAIR establishes in the eastern United States a more stringent SO2 cap and allowance trading program and a year round NOx cap and allowance trading program applicable to power plants. These cap and trade programs will be implemented in two phases, with the first phase going into effect in 2010 and more stringent caps going into effect in 2015.


Region	Total (MW)	Net Capacity Factor
Mid-Atlantic	5,244	37	%
Northeast	2,689	22	%
California	2,347	4	%

21The table below summarizes selected financial information of our continuing operations by business segment for the year ended December 31, 2007 (dollars in millions):

The mercury regulations and the CAIR will increase compliance costs for our operations and would likely require emissions reductions from some of our power plants, which would necessitate significant expenditures on emissions controls or have other impacts on operations.


	Revenues			%		Gross Margin		%		Operating Income/ (Loss)			%
Business Segment:
Mid-Atlantic	$	1,133		56	%	$	605	60	%	$	164		140	%
Northeast		664		32	%		237	24	%		(93	)	(80	)%
California		177		9	%		135	13	%		50		43	%
Other Operations		2,657		130	%		7	1	%		(11	)	(9	)%
Eliminations		(2,590	)	(127	)%		18	2	%		7		6	%

Total	$	2,041		100	%	$	1,002	100	%	$	117		100	%

InEliminations ~~addition to implementation of statutes already in existence, there~~ are ~~additional~~primarily ~~environmental~~related ~~requirements under strong consideration by the federal and various state legislatures. The Bush Administration has submitted Clean Air Act multi-emissions reform legislation~~ to ~~Congress,~~intercompany ~~which~~sales ~~would~~of ~~promulgate a new~~ emissions ~~cap~~allowances and ~~trade~~interest on ~~program~~intercompany ~~for~~notes ~~NOx,~~receivable ~~SO2~~ and ~~mercury~~notes ~~emissions from power plants~~payable. ~~This~~For ~~legislation would~~selected ~~require~~financial ~~overall~~information ~~reductions~~about inour ~~these~~business ~~pollutants from national power plant emissions of approximately 50-75% phased in during the 2008 - 2018 timeframe~~segments, ~~which~~see isNote ~~similar~~13 to ~~the~~our ~~types~~consolidated ofand ~~overall~~combined ~~reductions~~financial ~~required~~statements ~~under the~~contained ~~EPA~~elsewhere ~~regulations~~in ~~discussed~~this ~~above~~report. ~~Other~~See ~~more stringent multi-emissions reform legislation also has been proposed in Congress by some lawmakers~~Item 2. ~~There are~~Properties ~~many~~for ~~political challenges to the passage of multi-emissions reform~~a ~~legislation~~complete ~~through~~list ~~Congress, and it is unclear whether any~~ of ~~this~~our ~~legislation ultimately~~operating ~~will be enacted into law~~plants.

~~Various~~Commercial ~~states~~Operations where we do business also have other air quality laws and regulations with increasingly stringent limitations and requirements that may become applicable in future years to our plants and operations. We may incur additional compliance costs as a result of additional state requirements, which could include significant expenditures on emissions controls or have other impacts on operations.

~~For~~Our ~~example,~~commercial ~~the~~operations ~~Commonwealth~~consist primarily of ~~Massachusetts~~procuring ~~has~~fuel, ~~finalized regulations~~dispatching toelectricity, ~~further~~hedging ~~reduce~~the ~~NOx~~production and ~~SO2~~sale ~~emissions~~of ~~from~~electricity ~~certain~~by ~~power~~our ~~plants and~~generating tofacilities, ~~regulate~~managing ~~carbon~~fuel ~~dioxide~~oil ~~(“CO2”)~~ and ~~mercury~~providing ~~(“Hg”)~~logistical ~~emissions~~ support for the ~~first~~ ~~time.~~operation ~~Mercury~~of ~~emissions~~our ~~reductions~~facilities ~~will~~(for beexample, ~~required~~by ~~exclusively~~procuring ~~from~~transportation ~~coal fired~~for ~~facilities~~coal). ~~These~~We ~~regulations,~~typically ~~which~~sell ~~become effective in~~ the ~~2004-2008 timeframe,~~electricity ~~will~~we ~~apply~~produce tointo ~~our~~the ~~oil~~wholesale ~~fired~~market ~~Canal~~at ~~plant~~prices in ~~the~~effect ~~state,~~at ~~will~~the ~~increase our~~time ~~operating~~we ~~costs~~produce ~~and~~it ~~will likely necessitate~~ (the ~~installation~~“spot ofprice”). ~~additional~~ ~~emissions control technology.~~

~~Another~~6 example is in the San Francisco Bay Area, where we own power plants. NOx emissions standards have become increasingly stringent on a specified schedule over a several year period, culminating in 2005. We will continue to apply our NOx implementation plan for these plants, which includes the installation of emissions controls as well as the gradual curtailment and phasing out of one or more of our higher NOx emitting units.

Additionally,Table in 2003, the State of New York finalized air regulations that significantly reduced allowances for NOx and SO2 emissions from power plants through a state emissions cap and allowance trading program, which will become effective during the 2004-2008 timeframe. This regulation will necessitate that we act on one, or a combination of the following options: install emissions controls at some of our units to reduce emissions, purchase additional state NOx and SO2 allowances under the regulatory program or reduce the number of hours that units operate. We expect to incur additional compliance costs as a result of these additional state requirements, which could include significant expenditures on emissions controls or have other impacts on operations.Contents

~~These~~ Spot ~~examples~~prices for electricity are ~~illustrative~~volatile, ~~but~~as ~~not~~are aprices ~~complete~~for fuel and emissions allowances, and in order to reduce the risk of that volatility and achieve ~~discussion~~more predictable financial results, it is our strategy to enter into hedges—forward sales of electricity into the ~~additional~~wholesale ~~federal~~market and ~~state~~forward ~~air~~purchases ~~quality~~of ~~laws~~fuel and ~~regulations~~emissions allowances to allow us to produce and sell the electricity—for ~~that~~various time periods. In addition, given the high correlation between natural gas prices and electricity prices, we ~~expect~~enter tointo ~~become~~forward ~~applicable~~sales of natural gas to hedge our ~~plants~~exposure ~~and~~to ~~operations~~changes in the ~~coming~~price of electricity. We procure our hedges in OTC ~~years~~transactions or on exchanges where electricity, fuel and emissions allowances are broadly traded, or through specific transactions with buyers and sellers, using futures, forwards, swaps and options. We ~~will~~also ~~continue~~sell capacity and ancillary services where there are markets for such products and when it is economic to ~~evaluate~~do ~~these~~so. ~~requirements~~In addition to selling the electricity we produce and ~~attempt~~buying the fuel and emissions allowances we need to ~~develop~~produce electricity (“asset management”), we buy and sell ~~compliance~~some ~~plans~~electricity, fuel and emissions allowances as part of our proprietary trading and fuel oil management activities. Proprietary trading is a small part of our commercial operations. We engage in proprietary trading to gain information about the markets to support our asset management and to take advantage of selected opportunities that ~~enable~~we usidentify from time to ~~appropriately~~time. ~~manage~~All of our commercial activities are governed by a comprehensive Risk Management Policy, which requires that our hedging activities with respect to our assets be risk-reducing and sets limits on the ~~costs~~size of positions and ~~impacts~~VaR in our proprietary trading and fuel oil management activities.

~~Other~~We ~~Environmental~~use ~~Regulations: There are~~dispatch ~~other~~models ~~environmental~~to ~~laws,~~assist us in ~~addition~~making todaily ~~air~~decisions ~~quality~~regarding ~~laws,~~the ~~that~~quantity ~~also~~and ~~affect our~~price ~~operations.~~of Wethe ~~are~~power ~~required~~our ~~under~~facilities ~~the~~will ~~Clean~~generate ~~Water~~and ~~Act~~sell tointo ~~comply~~the ~~with effluent~~markets. ~~and~~We ~~intake~~bid ~~requirements,~~the ~~technological~~energy ~~controls~~from ~~and~~our ~~operating~~generating facilities into ~~practices.~~the ~~Our~~day-ahead ~~wastewater~~energy ~~discharges~~market ~~are~~and ~~permitted~~sell ~~under~~ancillary services through the ~~Clean~~ISO ~~Water~~markets. ~~Act, and~~We ~~our~~sell ~~permits~~capacity ~~under~~either ~~the~~bilaterally ~~Clean~~or ~~Water~~through ~~Act~~auction ~~are~~processes ~~subject~~in toeach ~~review~~ISO ~~every~~in ~~five years.~~which Aswe ~~with~~participate. ~~air~~We ~~quality~~work ~~regulations,~~with ~~federal~~the ISOs and ~~state~~RTOs ~~water~~in ~~regulations~~real ~~are expected~~time to ~~increase~~ensure ~~and~~that ~~impose~~our generating ~~additional~~facilities ~~and~~are ~~more~~dispatched ~~stringent~~economically ~~requirements~~to ~~or limitations~~meet in the ~~future.~~reliability ~~For~~needs ~~example,~~of inthe ~~2004,~~market.

22We economically hedge a substantial portion of our Mid-Atlantic coal-fired baseload generation and certain of our Northeast coal, gas and oil-fired generation through OTC transactions. A significant portion of our hedges are financial swap transactions that are senior unsecured obligations of Mirant Mid-Atlantic and do not require the posting of cash collateral either for initial margin or for securing exposure as a result of changes in power or natural gas prices. However, we generally do not hedge our intermediate and peaking units for tenors greater than 12 months. At February 25, 2008, we were economically hedged as follows:

the EPA issued a new rule that imposes more stringent standards on the cooling water intakes for power plants. We expect to incur additional compliance costs to comply with this new rule. We do not expect these costs to be material.


	Aggregate Hedge Levels Based on Expected Generation
	2008		2009		2010		2011		2012
Power	98	%	53	%	38	%	21	%	20	%
Fuel	95	%	79	%	31	%	29	%	5	%
SO2/NOx	100	%	100	%	100	%	100	%	100	%

Our ~~facilities~~commercial ~~also~~operations ~~are~~manage ~~subject~~the toacquisition ~~several~~and ~~waste management~~utilization ~~laws~~of ~~and~~emissions ~~regulations~~allowances for our generating facilities. ~~The~~Primarily ~~Resource~~as ~~Conservation~~a ~~and~~result ~~Recycling~~of ~~Act sets~~the ~~forth~~pollution ~~comprehensive~~control ~~requirements~~equipment ~~for~~we are installing to comply with the ~~handling~~requirements of ~~solid~~the ~~and~~Maryland ~~hazardous~~Healthy Air Act, we anticipate that we will have significant excess emissions allowances in future ~~wastes~~periods. ~~The~~We ~~generation~~plan to continue to maintain some emissions allowances in excess of ~~electricity~~expected ~~produces~~generation ~~non-hazardous~~in case our actual generation exceeds our current forecasts for future periods and ~~hazardous~~for possible future additions of generating capacity. During the ~~materials,~~fourth ~~and~~quarter of 2007, we ~~incur~~began ~~substantial~~a ~~costs~~program to ~~store~~sell ~~and~~excess ~~dispose~~emissions ofallowances, ~~waste materials~~dependent ~~from~~upon ~~these~~market ~~facilities~~conditions. ~~The~~We ~~EPA~~sold ~~may~~approximately ~~develop~~$24 ~~new~~million ~~regulations~~of ~~that impose~~excess ~~additional~~emissions ~~requirements~~allowances onand ~~facilities~~recognized ~~that~~a ~~store~~gain orof ~~dispose~~$22 ofmillion, ~~fossil~~which is included in gain on ~~fuel~~sales ~~combustion~~of ~~materials,~~assets ~~including~~in ~~types~~the consolidated statement of ~~coal~~operations ~~ash~~for the year ended December 31, 2007. IfAt soDecember 31, we2007, ~~may~~the ~~be required~~estimated tofair ~~change~~value ~~the~~of ~~current~~our ~~waste~~excess ~~management~~emissions ~~practices~~allowances atexceeded ~~some~~the ~~facilities and~~carrying ~~incur~~value ~~additional~~recorded ~~costs~~on ~~for~~our ~~increased~~consolidated balance ~~waste~~sheet ~~management~~by ~~requirements~~approximately $200 million.

~~Additionally,~~While ~~the~~OTC ~~Federal~~transactions ~~Comprehensive~~make ~~Environmental Response,~~up ~~Compensation~~a ~~and~~substantial ~~Liability~~portion ~~Act,~~of ~~known~~our aseconomic ~~the~~hedge ~~Superfund~~portfolio, ~~establishes a~~at ~~framework~~times ~~for~~we ~~dealing~~sell ~~with~~non-standard, ~~the~~structured ~~cleanup~~products ofto ~~contaminated sites~~customers. ~~Many~~Additionally, ~~states~~our ~~have enacted~~California ~~state~~facilities ~~superfund~~operate ~~statutes.~~under Welong-term docontracted ~~not~~capacity ~~expect~~and ~~any~~RMR ~~corrective actions to require significant expenditures~~contracts.

~~Regional~~7 Greenhouse Gas Initiative: Nine Northeast and Mid-Atlantic states created a cooperative to discuss the design of a regional cap and trade program initially covering carbon dioxide emissions from power plants in the region, the Regional Greenhouse Gas Initiative (“RGGI”). In the future, RGGI may be extended to include other sources of greenhouse gas emissions, and greenhouse gases other than carbon dioxide.

CleanTable Water Act: The Clean Water Act and renewal of National and State Pollution Discharge Elimination System will require additional investment at many of our facilities. In the next year we expect draft permits to be issued for our Canal and Bowline facilities that require additional capital investment and operational changes. The Kendall facility is in advanced stages of the permitting process and the United States Environmental Protection Agency is reviewing the response received from the draft permit issues in 2004. The effects of new Clean Water Act regulations and permit renewal process at other facilities is currently under review.Contents

~~Maryland~~We 4enter ~~Pollutant~~into ~~Legislation: The Maryland~~contracts ~~State~~of ~~Legislature~~varying ~~introduced~~terms ato ~~“multi-pollutant”~~secure ~~bill~~appropriate ~~during~~quantities ~~the~~of ~~2005 session,~~fuel ~~which sought~~ to ~~reduce~~meet ~~emissions~~the varying specifications of ~~NOx,~~our ~~SO2,~~generating ~~mercury~~facilities. ~~(“Hg”)~~For ~~and~~our ~~CO2 from the seven~~ coal -fired generating ~~stations in Maryland. The Morgantown plant~~facilities, ~~Chalk~~we ~~Point~~purchase ~~plant,~~coal ~~and~~from ~~Dickerson~~a ~~plant~~variety ~~were included in the list~~ of ~~affected~~ ~~facilities.~~suppliers ~~The~~under ~~bill~~contracts ~~set~~with ~~forth~~terms ~~strict~~of ~~plant-specific~~varying ~~emissions~~lengths, ~~limits with~~some noof ~~opportunity~~which extend to ~~purchase~~2012. orOur ~~trade~~hedged ~~emissions~~percentages ~~allowances~~for tofuel ~~comply.~~include ~~Ultimately,~~transactions ~~the~~for ~~bill~~which ~~did~~commercial ~~not~~terms ~~reach~~have ~~the~~been ~~House~~negotiated ~~floor~~but for awhich ~~full~~contracts ~~vote,~~have ~~however legislation~~not ofyet ~~this~~been ~~kind~~executed. ~~gains~~Individual ~~increasing~~transactions ~~support~~may ~~each~~or ~~year~~may itnot isbe ~~introduced. If~~binding aprior ~~multi-pollutant~~to ~~bill~~execution ~~were~~of toa becontract. ~~passed~~For ~~into~~our ~~law~~gas-fired ~~in Maryland~~units, ~~actions~~we typically purchase fuel ~~required~~under toshort-term ~~comply~~contracts ~~could~~with ~~include~~a ~~material~~variety ~~modifications~~of tosuppliers ~~the~~on ~~plants~~a ~~located in~~day-ahead ~~the~~or ~~state~~monthly basis.

~~Current~~Our ~~Enforcement~~coal ~~Issues: In~~supply ~~1999,~~comes primarily from the ~~EPA~~Central Appalachian ~~commenced~~and ~~enforcement~~Northern ~~actions~~Appalachian incoal ~~federal courts~~regions. ~~against~~All ~~seven~~of ~~major~~our ~~electric~~coal ~~generating~~is ~~companies~~delivered by rail; however, ~~alleging~~we ~~violations of~~are in the ~~new~~process ~~source~~of ~~review~~constructing ~~regulations~~a ~~promulgated~~barge ~~under~~unloading ~~the~~facility ~~Clean~~at ~~Air~~our ~~Act~~Morgantown ~~(“NSR”). Since~~station ~~the~~that ~~initial~~is ~~action,~~expected to become operational in the ~~EPA~~third ~~has~~quarter of ~~reached~~2008. ~~settlements~~The ~~with~~barge aunloader ~~number~~will ~~of additional~~enable ~~electric~~us ~~generating~~to ~~companies~~receive coal from international locations as well. We monitor coal supply and ~~continues~~delivery logistics carefully and, despite occasional interruptions of scheduled deliveries, to ~~pursue~~date ~~enforcement~~we have managed to avoid ~~against~~any ~~others~~significant effects on our operations. InWe ~~addition,~~maintain ~~some~~an ~~state~~inventory ~~attorneys~~of ~~general~~coal ~~and~~at ~~environmental groups~~our ~~have~~coal-fired ~~launched~~facilities ~~private~~for ~~enforcement~~this ~~actions~~purpose. ~~against~~Interruptions ~~power~~of ~~companies alleging~~scheduled ~~the~~deliveries ~~same~~can ~~types~~result from a variety of ~~violations~~disruptions, including strikes, rail system disruptions or severe weather.

~~The NSR regulations require power plants (and other major sources of pollutants) to obtain permits and install state~~Mid-~~of-the-art pollution~~Atlantic ~~control~~Region technology when they undertake a “major modification” of the power plants. The NSR regulations are not triggered by the routine maintenance repair and replacement projects (“RMRR”) and projects that do not cause an emissions increase. Thus the central debate over whether a violation occurred centers on whether work the industry undertook should be considered

23We own or lease four generating facilities in the Mid-Atlantic region with total net generating capacity of 5,244 MW. Our Mid-Atlantic region had a combined 2007 net capacity factor of 37%.

~~RMRR~~Power ~~and~~generated ~~whether~~by ~~the~~our ~~work caused~~Mid-Atlantic ~~emissions~~facilities tois ~~increase~~sold sointo asthe toPJM ~~trigger~~market. For a discussion of the ~~NSR~~PJM ~~requirements.~~market, ~~Courts~~see in“Regulatory Environment” ~~different~~below. ~~jurisdictions~~We have ~~reached~~participated ~~very~~in ~~different~~standard ~~conclusions~~offer ~~about~~service ~~when~~auctions ~~the NSR~~in ~~requirements~~Maryland ~~are~~and ~~triggered. Most recently~~Washington, ~~the U~~D.SC. ~~Court~~Power ofsales, ~~Appeals~~either ~~for the~~directly ~~4th~~through ~~Circuit~~these ~~issued~~auctions aor ~~ruling~~indirectly ~~upholding~~through asubsequent ~~lower~~market ~~court determination~~transactions that ~~was~~are ~~very~~a ~~favorable~~result toof the ~~industry’s~~auction ~~view~~process, ~~of when NSR is~~serve ~~triggered.~~as ~~District~~economic ~~courts~~hedges infor ~~other circuits have reached~~ the ~~opposite conclusion~~Mid-Atlantic facilities.

ToThe ~~date,~~following notable ~~lawsuits~~presents ~~or administrative actions alleging NSR violations have been brought by~~ the ~~EPA~~details ~~against us or our power plants. However, in 2001 the EPA requested information concerning some~~ of our ~~plants~~ ~~covering~~Mid-Atlantic agenerating ~~time period that predates our ownership and leases.~~facilities:

In addition, there were two regulatory developments concerning NSR in 2003 that will affect the EPA’s application of NSR in the future and, potentially, the NSR enforcement actions. In a new NSR rule, the EPA promulgated an exemption from NSR for MRR work that does not exceed 20% of the replacement value of a unit, which is generally consistent with power plant MRR work practices. In the rulemaking, the EPA also announced a policy of interpreting NSR in a way that seems generally consistent with reasonable industry practices. The new rule is being challenged in federal court and has been stayed pending judicial review, and most recently, the EPA reconsidered the 20% replacement value portion of the rule but recently completed the reconsideration and retained the 20% replacement threshold in the rule. The U.S. Circuit Court for the District of Columbia Circuit must now rule on the reform rule.


Facility	Total Net Generating Capacity (MW)	Primary Fuel Type	Dispatch Type	Location	NERC Region
Chalk Point	2,417	Natural Gas/Coal/Oil	Intermediate/ Baseload/Peaking	Maryland	MAAC

Morgantown	1,492	Coal/Oil	Baseload/Peaking	Maryland	MAAC

Dickerson	853	Natural Gas/Coal/Oil	Baseload/Peaking	Maryland	MAAC

Potomac River	482	Coal	Intermediate/Baseload	Virginia	MAAC


Total Mid-Atlantic	5,244

WeThe ~~cannot~~Chalk ~~provide assurance~~Point ~~that~~facility ~~lawsuits~~is orour ~~other~~largest ~~administrative~~generating ~~actions~~facility. ~~against~~It ~~the~~consists ~~power~~of two coal-fired ~~plants~~baseload ~~under~~units, ~~NSR~~two ~~will~~dual-fueled ~~not~~(oil beand ~~filed~~gas) orintermediate ~~taken~~units inand ~~the~~two ~~future~~oil-fired and five dual-fueled (oil and gas) peaking units. IfOur annext ~~action~~largest facility is ~~filed~~ ~~against~~the usMorgantown orfacility. ~~our~~It ~~power~~consists ~~plants~~of two dual-fueled (coal and weoil) ~~are~~baseload ~~judged~~units and tosix ~~not~~oil-fired bepeaking inunits. ~~compliance, we~~The ~~could~~Dickerson befacility ~~required~~has tothree ~~make~~coal-fired ~~substantial~~baseload ~~expenditures~~units, toand ~~bring~~one ~~the~~oil-fired ~~power~~and ~~plants into~~two ~~compliance,~~dual-fueled ~~which~~(oil ~~could~~and ~~have~~gas) apeaking ~~material~~units. ~~adverse~~The ~~effect~~Potomac onRiver ~~our~~station ~~financial condition,~~has ~~results~~three ofcoal-fired ~~operations~~baseload orunits ~~cash~~and ~~flows~~two coal-fired intermediate units.

~~Employees~~8

AsTable of December 31, 2004, we employed through contracts with Mirant Services, LLC (“Mirant Services”), a direct subsidiary of Mirant, approximately 1,240 people, of whom approximately 1,140 were employed at our power plants. Approximately 73% of the employees at our power plants were represented by the following unions:Contents

~~· Utility~~On ~~Worker~~May 23, 2007, the Virginia State Air Pollution Control Board directed the Virginia DEQ to issue a state operating permit (the “Permit”) for the Potomac River facility that significantly restricted the facility’s ~~Union~~operations ofby imposing stringent limits on its SO2 emissions and constraining unit operations so that no more than three ~~America,~~of Athe facility’s five units can operate at one time.F We think these limits and constraints are unreasonable and arbitrary.L The Virginia DEQ issued the Permit as directed on June 1, 2007.~~-C.I.O.~~ In June 2007, ~~Local~~Mirant ~~#369~~Potomac River filed a petition for appeal in ~~Cambridge~~the Circuit Court of the City of Richmond, ~~Massachusetts.~~Virginia, seeking to set aside the Virginia State Air Pollution Control Board’s directive of May 23, 2007, and the Permit issued by the Virginia DEQ on June 1, 2007. The ~~current~~Virginia State Air Pollution Control Board stated that the Permit is intended to be supplanted by a more comprehensive permit that it expects to issue. On October 19, 2007, the Virginia DEQ published a draft of this more comprehensive ~~collective~~permit ~~bargaining~~to ~~agreement~~solicit ~~expires~~comments from the public. If adopted as proposed, this comprehensive permit would also impose stringent limits on ~~February~~SO2 emissions that would continue to limit Mirant Potomac River to operating no more than three of the five units of the Potomac River generating facility at any one time. On November 2830, ~~2009~~2007, the Virginia State Air Pollution Control Board directed the Virginia DEQ to develop an alternative state operating permit that would require completion of a proposed project to merge the stacks of certain of the units at the Potomac River facility, set a single SO2 emissions limit for the facility and allow for greater operating flexibility. On December 21, 2007, the Virginia DEQ published a draft of this alternative state operating permit for public comment. If approved as currently drafted with some minor modifications, this alternative state operating permit would enable Mirant Potomac River to operate all five units of the facility at one time. We anticipate that the Virginia State Air Pollution Control Board will consider the proposed permit in March 2008.

~~· Utility~~Northeast ~~Worker’s Union of~~Region ~~America, A.F.L.-C.I.O., Local #480 in Sandwich, Massachusetts. The current collective bargaining agreement expires on February 28, 2006.~~

~~· Local~~We ~~Union~~own ~~503~~generating facilities in the Northeast region with total net generating capacity of 2,689 MW. Our Northeast region had a ~~International~~combined ~~Brotherhood~~2007 ofnet ~~Electrical~~capacity ~~Workers~~factor ~~(“I~~of 22%.~~B.E.W.”)~~ The Northeast region is comprised of our facilities located in New York and New England. ~~The current~~Generation ~~collective~~is ~~bargaining~~sold ~~agreement~~from ~~expires~~our onNortheast ~~June 1~~facilities through a combination of bilateral contracts, ~~2008~~spot market transactions and structured transactions.

~~· Local~~The ~~Union~~following ~~1900,~~table ~~I.B.E.W. in~~presents ~~Maryland~~the ~~and~~details ~~Virginia.~~of ~~The~~our ~~current~~facilities ~~collective~~in ~~bargaining~~the ~~agreement~~Northeast ~~expires on~~Region: ~~June 10, 2010.~~

· Local Union 1245, I.B.E.W. in California. The current collective bargaining agreement expires on October 31, 2005.


Facility	Total Net Generating Capacity (MW)	Primary Fuel Type	Dispatch Type	Location	NERC Region
Bowline	1,124	Natural Gas/Oil	Intermediate/ Peaking	New York	NPCC

Lovett	183	Natural Gas/ Coal	Baseload	New York	NPCC

Canal	1,112	Natural Gas/Oil	Intermediate	Massachusetts	NPCC

Kendall	256	Natural Gas/Oil/Jet Fuel	Baseload/ Peaking	Massachusetts	NPCC

Martha’s Vineyard	14	Diesel	Peaking	Massachusetts	NPCC


Total Northeast Region	2,689

~~When~~New weYork. The ~~enter~~capacity, ~~into~~energy and ~~conduct~~ancillary ~~labor~~services ~~negotiations,~~from weour New ~~engage~~York ingenerating ~~contingency~~facilities ~~planning~~are tosold ~~mitigate~~into ~~and reduce~~ the ~~risk~~bilateral ofmarkets ~~disruption,~~ and ~~ensure~~into ~~continuation~~the ofmarkets ~~our~~administered ~~generation~~by ~~activities to~~ the ~~maximum~~NYISO. ~~extent possible~~For ina ~~the~~discussion ~~event~~ of anNYISO, ~~adverse~~see ~~collective~~“Regulatory ~~action~~Environment” ~~by the union with whom we are negotiating~~below.

249

ItemTable 2. Propertiesof Contents

The New York generating facilities consist of the Bowline and Lovett facilities. The Bowline facility is ~~following~~a ~~properties~~dual-fueled ~~were~~(natural ~~owned~~gas orand ~~leased~~oil) asfacility comprised of ~~December 31,~~two ~~2004:~~intermediate/peaking units. The Lovett facility consists of one baseload unit capable of burning coal and gas.

Power Generation Business	Location	Plant Type	Primary Fuel	Mirant’s % Leasehold/ Ownership Interest		Total MW(1)	Net Equity Interest/ Lease in Total MW(1)
West Region:
Mirant California	California	Peaking/ Intermediate/ Baseload	Natural Gas		100	2,347		2,347
Mirant Texas	Texas	Peaking/ Baseload	Natural Gas		100	538		538
Subtotal						2,885		2,885
Northeast Region:
Mirant New England(2)	Massachusetts	Intermediate/ Peaking	Natural Gas/ Oil		100	1,993		1,388
Mirant New York	New York	Intermediate/ Peaking/ Baseload	Natural Gas/ Hydro/ Coal/Oil		100	1,675		1,675
Subtotal						3,668		3,063
Mid-Atlantic Region:
Mirant Mid-Atlantic	Maryland	Intermediate/ Peaking/ Baseload	Natural Gas/ Coal/Oil		100	4,252		4,252
Mirant Peaker and Mirant Potomac River(3)	Maryland/ Virginia	Intermediate/ Peaking/ Baseload	Natural Gas/ Coal/Oil		100	1,004		1,004
Subtotal						5,256		5,256
Total						11,809		11,204

Significant developments related to these generating facilities in 2007 were as follows:

• On January 26, 2007, Mirant New York, Mirant Bowline (1which owns the Bowline facility) ~~MW amounts~~ ~~reflect~~and ~~net~~Hudson ~~dependable~~Valley ~~capacity~~Gas (collectively the “Emerging New York Entities”) filed their Supplemental Joint Chapter 11 Plan of Reorganization with the Bankruptcy Court and subsequently filed amendments to that plan (as subsequently amended, the “Supplemental Plan”). The Supplemental Plan was confirmed by the Bankruptcy Court on March 23, 2007, and became effective on April 16, 2007.

~~(2) Total MW~~• ~~reflects~~In athe ~~1.4%~~second ~~ownership~~quarter ~~interest~~of 2007, orwe 8shut down units 3 and 4 at the Lovett facility.8 MWOn October 20, in2007, Mirant Lovett submitted notices of its intent to discontinue operation of unit 5 at the ~~614~~Lovett MWgenerating ~~Wyman~~facility ~~plant~~as of midnight on April 19, 2008, to the New York Public Service Commission, the NYISO, Orange and Rockland and several other potentially affected transmission and distribution companies in New York.

• On July 13, 2007, Mirant Lovett (3which owns the Lovett facility) ~~Assets owned~~ orfiled ~~leased~~a byplan ~~affiliates~~of reorganization (the “Mirant Lovett Plan”) with the Bankruptcy Court. The Mirant Lovett Plan was confirmed by the Bankruptcy Court on September 19, 2007, and became effective on October 2, 2007. As a ~~total~~result of 1Mirant Lovett’s emergence from bankruptcy,~~004~~ ~~MW)~~we ~~that~~do ~~are~~not ~~subject~~have any subsidiaries remaining in bankruptcy. See Note 11 to ~~capital contribution~~our ~~agreements~~consolidated ~~between~~and combined financial statements contained elsewhere in this report for additional information regarding the emergence from bankruptcy of Mirant Lovett and usthe Emerging New York Entities.

WeNew ~~also~~England. The ~~own~~Canal anfacility consists of one oil-fired intermediate unit and one ~~pipeline,~~dual-fueled ~~which~~(oil isand ~~approximately~~gas) 51intermediate unit.5 ~~miles~~The ~~long~~Kendall facility consists of one combined cycle dual-fueled (oil and ~~serves~~gas) ~~the~~baseload ~~Chalk~~unit, ~~Point~~two 1,300 pound steam boilers and one simple cycle jet engine peaking unit. The Martha’s Vineyard facility ~~Morgantown~~consists ~~generating~~of ~~facilities~~five diesel peaking units.

~~Item~~The 3capacity, energy and ancillary services from our New England generating units are sold into the NEPOOL bilateral markets and into the markets administered by the ISO-NE. ~~Legal~~ ~~Proceedings~~For a discussion of the NEPOOL and the ISO-NE, see “Regulatory Environment” below.

As debtors-in-possession, the Mirant Debtors are authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. As of the Petition Date, most pending litigation (including some of the actions described below) is stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, may take any action, again subject to certain exceptions, to recover on pre-California

25We own three generating facilities in California with total net generating capacity of 2,347 MW. Our California facilities had a combined 2007 net capacity factor of 4%. The following table presents the details of our California facilities:

petition claims against the Mirant Debtors. One exception to this stay of litigation is for an action or proceeding by a governmental agency to enforce its police or regulatory power. The claims asserted in litigation and proceedings to which the stay applies may be fully and finally resolved in connection with the administration of the bankruptcy proceedings and, to the extent not resolved, will need to be addressed in the Plan. On November 19, 2003, the Bankruptcy Court entered an order staying most litigation pending against current or former officers, directors and managers of the Mirant Debtors arising out of the performance of their duties and against certain potential indemnitees of the Mirant Debtors. The Bankruptcy Court took that action to avoid the risk that the continuation of such litigation would impede the Mirant Debtors’ ability to reorganize or would have a negative impact upon the assets of the Mirant Debtors. At this time, it is not possible to predict the outcome of the Chapter 11 proceedings or their effect on the business of the Mirant Debtors or outstanding legal proceedings. The Mirant Debtors intend to resolve as many of these claims as possible through the claims resolution process in the bankruptcy proceeding or the Plan.


Facility	Total Net Generating Capacity (MW)	Primary Fuel Type	Dispatch Type	Location	NERC Region

Pittsburg	1,311	Natural Gas	Intermediate	California	WECC

Contra Costa	674	Natural Gas	Intermediate	California	WECC

Potrero	362	Natural Gas/Oil	Intermediate/ Peaking	California	WECC


Total California	2,347

~~California~~10 ~~Litigation by Governmental Units and Certain Other Parties~~

General. TheTable high prices for wholesale electricity and natural gas experienced in the western markets during 2000 and 2001 prompted several governmental entities to investigate the western power markets, including activities by Mirant, Mirant Americas Energy Marketing and several of the Company’s wholly owned subsidiaries. These governmental entities include the FERC, the DOJ, CPUC, the California Senate, the California State Auditor, California’s Electricity Oversight Board (the “EOB”), the General Accounting Office of the United States Congress, the San Joaquin District Attorney and the Attorney General’s offices of the States of Washington, Oregon and California. These investigations, some of which are civil and some criminal, resulted in the issuance of civil investigative demands, subpoenas, document requests, requests for admission and interrogatories directed to several Mirant entities.Contents

~~General~~The ~~FERC~~Pittsburg ~~Investigation. On February 13,~~and ~~2002,~~Contra ~~the~~Costa ~~FERC~~facilities ~~directed~~are ~~its~~located ~~staff to undertake a fact-finding investigation into whether any entity manipulated short-term prices~~ in ~~electric energy~~Contra orCosta ~~natural~~County ~~gas~~and ~~markets in~~ the ~~West~~Potrero orfacility ~~otherwise exercised undue~~is ~~influence~~located ~~over wholesale prices~~ in the ~~West,~~City ~~for~~of ~~the~~San ~~period~~Francisco. ~~January 1, 2000~~Through ~~and~~the ~~forward.~~end Onof ~~March 26~~2006, ~~2003,~~ the ~~FERC~~majority ~~staff~~of ~~issued~~our ~~its~~California ~~final report~~units ~~regarding~~were ~~its~~subject ~~investigation.~~to ~~Although~~RMR ~~the~~arrangements ~~staff~~with ~~reaffirmed~~ the ~~FERC’s conclusion~~CAISO. ~~set~~These ~~forth~~agreements inare andescribed ~~order~~further ~~issued~~under ~~December 15,~~“Regulatory ~~2000~~Environment” ~~that~~below. ~~significant~~Pittsburg ~~supply~~unit ~~shortfalls~~7 and aContra ~~fatally~~Costa ~~flawed~~unit ~~market~~6 ~~design~~ were ~~the~~not ~~root~~subject ~~causes~~to ~~of the~~an ~~problems~~RMR ~~that occurred in the California wholesale electricity market in 2000 and 2001~~arrangement, ~~the staff also found that significant market manipulation had occurred in both the gas~~ and ~~electricity~~thus ~~markets.~~functioned ~~The~~solely ~~staff concluded that trading strategies of the type engaged in by Enron Corporation and its affiliates (“Enron”)~~ as ~~described~~merchant infacilities ~~certain Enron memos released by the FERC~~ in ~~May 2002 violated provisions of~~ the CAISO ~~and the California Power Exchange Corporation (“Cal PX”) tariffs that prohibited gaming~~. ItIn ~~identified Mirant~~2006, ~~without~~we ~~being~~either ~~specific~~sold ~~as to~~ the ~~particular~~output ~~Mirant entities involved, as being one~~ of aPittsburg ~~number~~unit of7 ~~entities~~and ~~that~~Contra ~~had~~Costa ~~engaged~~unit in6 ~~one~~into ~~or more of those practices. The FERC staff also found that bidding generation resources to~~ the ~~Cal~~ PXmarket ~~and~~through ~~CAISO at prices unrelated to costs constituted economic withholding~~bilateral ~~and~~transactions ~~violated~~with ~~the~~utilities ~~antigaming provisions of the CAISO~~ and ~~Cal~~other PXmerchant ~~tariffs.~~generators, ~~Mirant was~~or ~~one~~dispatched of the ~~entities~~units ~~identified as engaging~~ in ~~that bidding practice, with~~ the ~~FERC~~CAISO ~~staff~~clearing ~~again not being specific as to the Mirant entities involved~~markets.

On ~~March~~July 2628, ~~2003~~2006, we ~~the~~signed ~~FERC~~two ~~staff~~tolling ~~issued~~agreements ~~a separate~~with ~~report~~PG&E ~~addressing~~to ~~allegations~~provide ofelectricity ~~physical~~from ~~withholding~~all byour ~~Mirant~~natural gas-fired units in service at Pittsburg and ~~four~~ ~~other~~Contra ~~out~~Costa, ofincluding ~~state~~Pittsburg ~~owners~~unit of7 ~~generation~~and ~~assets~~Contra inCosta ~~California~~unit ~~made~~6. byThe ~~the CPUC~~agreements inare ~~reports~~for ~~issued~~100% inof ~~September 2002~~the ~~and~~capacity ~~January 2003~~from these units. The ~~CPUC asserted~~contracts ~~that~~have onvarying ~~days~~tenors infor ~~the~~each ~~fall~~unit ofcovering ~~2000~~from ~~through~~one ~~the~~to ~~spring~~five years, and include capacity of ~~2001~~1,985 ~~during which~~MW ~~the~~for ~~CAISO~~2008 ~~had~~and to2009, ~~declare~~1,303 aMW ~~system~~for ~~emergency~~2010 ~~requiring~~and ~~interruption~~674 ofMW for 2011. The contracted capacity for 2007 was 1,985 MW. We receive ~~interruptible~~monthly ~~load~~capacity payments with bonuses and/or ~~imposition~~penalties ofbased ~~rolling~~on ~~blackouts,~~guaranteed ~~Mirant~~heat rate and ~~four~~availability ~~other out~~tolerances. ofAs ~~state~~a ~~owners~~result of ~~generation~~these ~~assets~~contracts, inthe ~~California~~Pittsburg ~~had~~and ~~generating~~Contra ~~capacity that~~Costa ~~either~~units ~~was~~are ~~not~~no ~~operated~~longer orsubject ~~was~~to ~~out~~the RMR agreements. All of ~~service~~our ~~due~~Potrero units continue to anbe ~~outage~~subject ~~and~~to ~~that could~~RMR ~~have~~arrangements ~~avoided~~that ~~the~~continue ~~problem~~through if2008 ~~operated.~~and ~~The~~are ~~CPUC~~then ~~reports~~renewable annually.

26Competitive Environment

~~identified~~The ~~the~~power ~~Mirant entity~~generating ~~discussed~~industry inis ~~the~~capital ~~reports~~intensive asand ~~Mirant~~highly ~~Americas~~competitive. ~~Energy~~Our ~~Marketing~~competitors include regulated utilities, ~~although~~merchant energy companies, ~~Mirant’s~~financial ~~generating~~institutions ~~facilities~~and inother ~~California~~companies, ~~are~~including companies owned by ~~subsidiaries~~hedge offunds ~~the Company~~and private equity funds. ~~The~~For ~~FERC~~a ~~staff~~discussion ~~concluded~~of ~~that~~competitive ~~the~~factors ~~CPUC’s~~and ~~contention~~the ~~that~~effects ~~thirty-eight service~~of ~~interruptions~~seasonality ~~could~~on ~~have~~our ~~been~~business ~~avoided~~see ~~had~~Item 1A. ~~those~~Risk ~~five~~Factors. ~~generators~~Coal-fired ~~produced~~generation, ~~all~~natural ofgas-fired ~~their~~generation ~~available~~and ~~power~~nuclear ~~was~~generation ~~not~~currently ~~supported~~account byfor ~~the~~approximately ~~evidence.~~48%, ~~The staff~~22% ~~also~~and ~~indicated~~19%, ~~however~~respectively, ~~that~~of the ~~FERC~~electricity ~~was~~produced ~~continuing~~in tothe ~~investigate whether~~United ~~withholding~~States. byHydroelectric ~~generators~~and ~~had~~other ~~occurred~~energy ~~during~~sources ~~2000~~account ~~and~~for ~~2001~~the remaining 11% of electricity produced.

AsWhile ~~discussed~~the ~~below~~demand ~~under~~for ~~California Settlement,~~electricity onis ~~January 14~~increasing, ~~2005,~~supply ~~Mirant and~~has ~~certain~~not ofappreciably ~~its~~increased. ~~subsidiaries,~~Given ~~including~~ the ~~Company, entered into a~~substantial ~~Settlement~~time ~~and~~necessary ~~Release~~to ofpermit ~~Claims Agreement (the “California Settlement”) with Pacific Gas~~ and ~~Electric~~construct ~~Company~~new ~~(“PG&E”),~~power ~~Southern California Edison Company (“SCE”)~~plants, ~~San~~we ~~Diego~~think ~~Gas~~that ~~and Electric Company,~~ the ~~CPUC,~~markets ~~the~~in ~~California Department~~which ofwe ~~Water~~operate ~~Resources~~need ~~(“DWR”),~~to ~~the~~begin ~~EOB and~~ the ~~Attorney~~process ~~General~~now of ~~the State~~adding ofgenerating ~~California~~capacity ~~(collectively,~~to ~~the~~meet ~~“California~~growing ~~Parties”)~~demand. ~~and~~A ~~with~~number ~~the Office~~ of ~~Market~~ISOs, ~~Oversight~~including ~~and~~those ~~Investigations~~in ofmarkets ~~the~~in ~~FERC.~~which ~~The California~~we ~~Settlement~~operate, ~~was~~have ~~approved~~implemented bycapacity ~~the~~markets ~~FERC~~as ona ~~April~~way ~~13,~~to ~~2005~~encourage ~~and~~such ~~became~~construction ~~effective~~of ~~on April~~additional 15generation, ~~2005,~~but ~~resulting~~it inis ~~the~~not ~~termination~~clear ofwhether ~~the~~and ~~FERC’s~~when ~~investigation~~independent ~~of potential~~power ~~withholding~~producers bywill ~~generators~~be ~~(the~~sufficiently ~~“FERC~~incented ~~Withholding Investigation”) as~~ to ~~Mirant~~build ~~and~~this ~~its~~required ~~subsidiaries,~~new ~~including the Company~~generation.

~~FERC~~Falling ~~Bidding~~reserve ~~Investigation. On June 25~~margins, ~~2003,~~as ~~the~~well ~~FERC~~as ~~issued~~high anelectricity ~~order~~prices ~~(the~~as ~~“Bidding~~a ~~Order”)~~result ~~initiating an~~of ~~investigation~~high bynatural ~~its~~gas ~~staff into bidding practices in the Cal PX and CAISO markets between May 1~~prices, ~~2000~~have ~~and~~led ~~October 1, 2000 of more than 50 parties, including Mirant Americas Energy Marketing. The entities subject~~ to ~~investigation~~ ~~under~~renewed ~~the~~interest ~~Bidding Order were previously identified~~ in ~~the report~~new ~~issued~~coal-fired byor ~~the~~nuclear ~~FERC~~plants. ~~Staff on March 26~~However, ~~2003 as having bid generation resources to~~ the ~~Cal PX and CAISO at prices unrelated to~~ costs. ~~Under the contractual arrangements pursuant~~ to ~~which~~construct ~~Mirant~~new ~~Americas~~generation ~~Energy~~facilities ~~Marketing bought~~are rising and ~~resold~~there ~~electricity~~is ~~produced~~substantial byenvironmental ~~the~~opposition ~~Company’s California generation assets, the Company’s subsidiaries could have had~~ to ~~reimburse~~building ~~Mirant~~either ~~Americas Energy~~coal-fired ~~Marketing for the amount of any disgorgement of profits required~~ or ~~other~~ ~~remedy~~nuclear ~~imposed by the FERC upon Mirant Americas Energy Marketing~~plants. As discussed below under California Settlement, on April 15, 2005 the California Settlement became effective, and it has resulted in the termination of the FERC Staff’s investigation of Mirant Americas Energy Marketing’s bidding practices that was initiated under the Bidding Order.

~~FERC~~Regulatory ~~Show~~Environment Cause Proceeding Relating to Trading Practices. On June 25, 2003, the FERC issued a show cause order (the “Trading Practices Order”) to more than 50 parties, including Mirant Americas Energy Marketing and subsidiaries of the Company, that a FERC staff report issued on March 26, 2003 identified as having potentially engaged in one or more trading strategies of the type employed by Enron, as described in the Enron memos released by the FERC in May 2002. The Trading Practices Order identified certain specific trading practices that the FERC indicated could constitute gaming or anomalous market behavior in violation of the CAISO and Cal PX tariffs. The Trading Practices Order requires the CAISO to identify transactions between January 1, 2000 and June 20, 2001 that may involve the identified trading strategies, and then requires the applicable sellers involved in those transactions to demonstrate why such transactions were not violations of the CAISO and Cal PX tariffs. On September 30, 2003, the Mirant entities filed with the FERC for approval of a settlement agreement (the “Trading Settlement Agreement”) entered into between certain Mirant entities and the FERC Trial Staff, under which Mirant Americas Energy Marketing would pay $332,411 to settle the show cause proceeding, except for an issue related to selling of ancillary services, which is discussed below. In a November 14, 2003 order in a different proceeding, the FERC ruled that certain allegations of improper trading conduct with respect to the selling of ancillary services during 2000 should be resolved in the show cause proceeding. On December 19, 2003, the Mirant entities filed with the FERC for approval of an amendment to the Trading Settlement Agreement reached with the FERC Trial Staff with respect to the sale of ancillary services. Under the proposed amendment the FERC would have an allowed unsecured claim in Mirant Americas Energy Marketing’s bankruptcy proceeding for $3.67 million in settlement of the allegations with respect

27The electricity industry is subject to comprehensive regulation at the federal, state and local levels. At the federal level, the FERC has exclusive jurisdiction under the Federal Power Act over sales of electricity at wholesale and the transmission of electricity in interstate commerce. Each of our subsidiaries that owns a generating facility selling at wholesale or that markets electricity at wholesale is a “public utility” subject to the FERC’s jurisdiction under the Federal Power Act. These subsidiaries must comply with certain FERC reporting requirements and FERC-approved market rules and are subject to FERC oversight of mergers and acquisitions, the disposition of FERC-jurisdictional facilities and the issuance of securities. In addition, under the Natural Gas Act, the FERC has limited jurisdiction over certain resales of natural gas, but does not regulate the prices received by our subsidiary, Mirant Energy Trading, that markets natural gas.

toThe FERC has authorized our subsidiaries that constitute public utilities under the ~~sale~~Federal ofPower Act to sell energy, capacity and certain ancillary services ~~(the~~at ~~“Ancillary~~wholesale ~~Amount”)~~at market based rates. The ~~Trading~~majority ~~Settlement~~of ~~Agreement,~~the ~~as amended,~~output ~~must~~of bethe ~~approved~~generating byfacilities ~~the~~owned ~~FERC~~by ~~and~~our ~~the~~subsidiaries ~~Bankruptcy~~is ~~Court~~sold pursuant to ~~become effective.~~this authorization, although certain of our

As11 discussed below under California Settlement, on April 15, 2005 the California Settlement became effective, and, as a result, the California Parties withdrew their opposition to the Trading Settlement Agreement as amended and supported approval of the Trading Settlement Agreement as proposed by the Mirant entities that are parties to the Trading Settlement Agreement and the FERC Trial Staff without change or modification. The FERC approved the Trading Settlement Agreement, as amended, on June 27, 2005, and the Mirant entities will now seek approval from the Bankruptcy Court.

CaliforniaTable Receivables. In 2001, SCE and PG&E suspended payments to the Cal PX and the CAISO for certain power purchases, including purchases from Mirant Americas Energy Marketing. Both the Cal PX and PG&E filed for bankruptcy protection in 2001. On April 15, 2005, the California Settlement became effective, and it resulted in Mirant Americas Energy Marketing assigning to the California Parties its outstanding receivables for sales made in the Cal PX and CAISO markets from January 1, 2000 through June 20, 2001. Under intercompany agreements between the Company’s subsidiaries and Mirant Americas Energy Marketing, this assignment of receivables by Mirant Americas Energy Marketing may result in the termination of Mirant Americas Energy Marketing’s liability on receivables held by those subsidiaries against Mirant Americas Energy Marketing related to the sales made by Mirant Americas Energy Marketing in the Cal PX and CAISO markets.Contents

~~FERC Refund Proceedings. As~~ afacilities ~~result~~sell oftheir ~~the~~output ~~increase~~under incost ~~electricity~~based ~~prices~~RMR inagreements, ~~2000~~as ~~and~~explained ~~2001,~~below. ~~the~~The ~~California Parties~~FERC ~~have~~may ~~pursued~~revoke ~~litigation~~or atlimit ~~the~~our ~~FERC,~~market ~~claiming~~based ~~that~~rate ~~the~~authority ~~prices~~if ~~charged~~it bydetermines ~~Mirant~~that ~~Americas~~we ~~Energy~~possess ~~Marketing~~undue ~~and other~~ market ~~participants~~power in ~~the California~~a ~~energy~~regional ~~markets~~electricity ~~during~~market. ~~certain~~Under ~~periods~~the inNatural ~~2000~~Gas ~~and~~Act, ~~2001~~our ~~were excessive.~~subsidiary Onthat ~~July 25,~~sells ~~2001~~natural ~~the~~gas ~~FERC~~for ~~issued~~resale anis ~~order~~deemed ~~requiring~~by ~~proceedings (~~the “FERC ~~Refund Proceedings”)~~ to ~~determine~~have ~~the~~blanket ~~amount~~certificate ofauthority ~~any~~to ~~refunds~~undertake ~~and amounts~~these ~~owed for~~ sales ~~made to the CAISO or the Cal PX from October 2,~~at ~~2000~~market ~~through~~based ~~June 20,~~rates. ~~2001~~The ~~(the~~FERC ~~“Refund~~requires ~~Period”).~~that ~~Various~~our ~~parties~~public ~~have appealed~~utility ~~these~~subsidiaries ~~FERC~~with ~~orders~~market tobased ~~the~~rate ~~United~~authority, ~~States~~as ~~Court~~well ofas ~~Appeals for~~ the ~~Ninth Circuit~~subsidiary ~~(the~~deemed ~~“Ninth~~to ~~Circuit”)~~have ~~seeking~~blanket ~~review~~certificate ofauthority ato ~~number~~sell ofnatural ~~issues~~gas, ~~including changing~~adhere ~~the Refund Period~~ to ~~include~~certain ~~periods~~market ~~prior~~behavior ~~to October~~rules ~~2, 2000~~ and ~~expanding~~codes ~~the sales~~ of ~~electricity~~conduct, ~~subject to potential refund to include bilateral sales made to the DWR~~respectively. ~~Any~~If ~~such~~any ~~expansion~~ of ~~the~~our ~~Refund~~subsidiaries ~~Period~~violates or the ~~types~~ ofmarket ~~sales~~behavior ofrules or ~~electricity~~codes ~~potentially subject to refund could significantly increase the refund exposure~~ of ~~Mirant Americas Energy Marketing in this proceeding. Although Mirant Americas Energy Marketing is the Mirant entity that engaged in transactions with the CAISO and the Cal PX~~conduct, the ~~orders issued by the~~ FERC inmay ~~the~~require ~~refund~~a ~~proceedings,~~disgorgement ~~and~~of ~~the~~profits ~~filings~~or ~~made~~revoke byits ~~other~~market ~~parties~~based inrate ~~those proceedings,~~authority ~~generally~~or ~~refer~~blanket tocertificate ~~the Mirant entity involved as Mirant without being more specific~~authority. ~~Mirant~~If ~~believes that~~ the ~~Mirant entity that would actually~~ beFERC ~~liable~~were to ~~third~~revoke ~~parties~~market ~~for~~based ~~any~~rate ~~refunds~~authority, ~~determined~~our byaffected ~~the~~public ~~FERC~~utility tosubsidiary ~~be owed, or that~~ would behave ~~due any receivables found~~ to befile ~~owed~~a tocost ~~Mirant,~~based israte ~~Mirant Americas~~schedule ~~Energy~~for ~~Marketing.~~all ~~Agreements~~or ~~that~~some ~~were~~of inits ~~effect~~sales ~~at the time~~ of ~~the transactions~~electricity at ~~issue~~wholesale. ~~between~~If ~~Mirant~~the ~~Americas~~FERC ~~Energy~~revoked ~~Marketing and~~ the ~~Company’s~~ ~~subsidiaries~~blanket ~~that~~certificate ~~own~~authority ~~generating facilities in California would shift~~of ~~some~~any of ~~the~~our ~~economic~~subsidiaries, ~~burden~~certain ofsales ~~such refunds or the benefit~~ of ~~such~~natural ~~receivables from~~gas ~~Mirant~~would ~~Americas~~be ~~Energy Marketing to those subsidiaries~~prohibited.

InOur ~~the~~facilities ~~July 25,~~operate ~~2001~~in ~~order,~~ISO/RTO ~~the~~markets. ~~FERC~~In ~~also~~areas ~~ordered~~where ISOs ~~that~~or aRTOs ~~preliminary~~control ~~evidentiary~~the ~~proceeding~~regional betransmission ~~held~~systems, tomarket ~~develop~~participants ahave ~~factual~~access ~~record on~~to ~~whether~~broader ~~there~~geographic ~~had~~markets ~~been~~compared ~~unjust~~to ~~and~~regions ~~unreasonable~~without ~~charges~~ISOs ~~for~~and ~~spot~~RTOs. ~~market bilateral~~ISOs ~~sales~~operate inreal-time ~~the~~and ~~Pacific~~day-ahead ~~Northwest~~energy ~~from~~and ~~December 25,~~ancillary ~~2000~~services ~~through June 20~~markets, ~~2001.~~typically governed Inby ~~that~~FERC-approved ~~proceeding,~~tariffs ~~the~~and ~~California~~market ~~Attorney~~rules. ~~General,~~Some ~~the CPUC~~ISOs and ~~the~~RTOs ~~EOB~~also ~~filed~~operate capacity markets. Changes to ~~recover~~the ~~certain~~applicable ~~refunds~~tariffs ~~from~~and ~~parties,~~market ~~including Mirant~~rules may ~~Americas~~be ~~Energy~~requested ~~Marketing,~~by ~~for~~market ~~bilateral~~participants, ~~sales~~state ofregulatory ~~electricity~~agencies toand the ~~DWR~~system operator, atand ~~the~~such ~~California/Oregon~~proposed ~~border~~changes, ~~claiming~~if ~~that~~approved ~~such~~by ~~sales~~the ~~took~~FERC, ~~place~~could inhave ~~the Pacific~~a ~~Northwest.~~significant Ineffect anon ~~order~~our ~~issued~~operations ~~June 25,~~and ~~2003,~~business ~~the~~plan. ~~FERC~~While ~~ruled~~participation ~~that no~~by ~~refunds~~transmission-owning ~~were~~public ~~owed~~utilities in ISOs and ~~terminated~~RTOs ~~the~~has ~~proceeding.~~been Onand ~~November 10,~~is ~~2003,~~expected to continue to be voluntary, the ~~FERC~~majority ~~denied~~of ~~requests~~such ~~for~~public ~~rehearing~~utilities ~~filed~~in byNew ~~various~~England, ~~parties.~~New ~~Various~~York, ~~parties have~~the ~~appealed~~Mid-Atlantic ~~the~~and ~~FERC’s~~California ~~decision~~have tojoined the ~~Ninth~~applicable ~~Circuit~~ISO/RTO.

28Our subsidiaries owning generating facilities were exempt wholesale generators under the PUHCA, as amended. With the repeal of the PUHCA and the adoption of the Public Utility Holding Company Act of 2005, the FERC adopted new regulations effective February 8, 2006, that allow our subsidiaries owning generating facilities to retain their exempt wholesale generator status.

OnState ~~September 9,~~and ~~2004,~~local ~~the~~regulatory ~~Ninth~~authorities ~~Circuit~~have ~~reversed the~~historically ~~FERC’s~~overseen ~~dismissal of a complaint filed in 2002 by~~ the ~~California~~ ~~Attorney~~distribution ~~General~~and ~~that~~sale ~~sought~~of ~~refunds~~electricity ~~for~~at ~~transactions~~retail ~~conducted~~to ~~in markets administered by~~ the ~~CAISO~~ultimate ~~and~~end ~~the~~user, ~~Cal PX~~as ~~outside~~well ~~the~~as ~~Refund Period set by~~ the ~~FERC~~siting, ~~and~~permitting ~~for transactions between the DWR~~ and ~~various~~construction ~~owners~~ of ~~generation~~ ~~and~~generating ~~power marketers, including Mirant Americas Energy Marketing~~ and ~~subsidiaries~~ oftransmission ~~the Company~~facilities. ~~The~~Our existing ~~Ninth~~generating ~~Circuit~~facilities ~~remanded~~are ~~the~~subject ~~proceeding~~ to ~~the FERC~~a ~~for~~variety itof tostate ~~determine~~and ~~what~~local ~~remedies~~regulations, including ~~potential~~regulations ~~refunds,~~regarding ~~are appropriate~~the ~~where entities~~environment, ~~including~~health ~~Mirant Americas Energy Marketing~~ and ~~subsidiaries~~ ~~of the Company~~safety, ~~purportedly~~maintenance ~~did not comply with certain filing requirements for transactions conducted under market-based rate tariffs. Mirant Americas Energy Marketing~~ and ~~other~~expansion ~~parties~~of ~~have filed a petition for rehearing with~~ the ~~Ninth Circuit~~facilities.

AsMid-Atlantic ~~discussed~~Region. Our ~~below~~Mid-Atlantic ~~under~~facilities ~~California Settlement,~~sell ~~the~~electricity ~~California~~into ~~Settlement~~the ~~became~~markets ~~effective~~operated ~~April~~by 15PJM, ~~2005.~~ ~~The~~which ~~California Settlement results in~~ the ~~release~~FERC ~~of most of Mirant~~approved ~~Americas~~to ~~Energy~~operate ~~Marketing’s~~as ~~and~~an ~~therefore~~ISO ~~the Company’s potential liability~~ in ~~(1)~~ ~~the~~1997 ~~FERC~~and ~~Refund~~as ~~Proceedings~~an ~~for~~RTO ~~sales made~~ in ~~the~~2002. ~~CAISO~~We orhave ~~the~~access ~~Cal~~to ~~PX markets, (2)~~ the ~~proceeding~~PJM ~~also~~transmission ~~initiated~~system bypursuant ~~the FERC in July 2001~~ to ~~determine~~ ~~whether~~PJM’s ~~there~~Open ~~had~~Access ~~been~~Transmission ~~unjust~~Tariff. ~~and~~PJM ~~unreasonable~~operates ~~charges for spot market bilateral sales in~~ the ~~Pacific~~PJM ~~Northwest~~Interchange ~~from~~Energy ~~December 25~~Market, ~~2000~~which ~~through June~~is ~~20, 2001, and (3) any proceedings at~~ the ~~FERC resulting from the Ninth Circuit~~region’s ~~reversal~~spot ofmarket ~~the FERC’s dismissal of the complaint filed in 2002 by~~for ~~the~~wholesale ~~California Attorney General. Under the California Settlement~~electricity, ~~the California~~provides ~~Parties~~ancillary ~~and~~services ~~those~~for ~~other~~its ~~market~~transmission ~~participants~~customers, ~~who~~performs ~~have~~transmission ~~opted~~planning ~~into~~for the ~~settlement~~ ~~have~~region ~~released Mirant~~ and ~~its~~economically ~~subsidiaries~~dispatches ~~from~~generating ~~any~~facilities. ~~liability~~PJM ~~for refunds~~administers ~~related~~day-ahead ~~to sales of electricity~~ and ~~natural~~real-time ~~gas~~single inclearing ~~the~~price ~~western~~ markets ~~from~~and ~~January 1,~~calculates ~~1998~~electricity ~~through~~prices ~~July 14,~~based ~~2003.~~on ~~Also,~~a ~~the~~locational ~~California~~marginal ~~Parties will~~pricing ~~assume~~model. ~~the~~A ~~obligation~~locational ofmarginal ~~Mirant~~pricing ~~Americas~~model ~~Energy~~determines ~~Marketing~~a toprice ~~pay~~for ~~any refunds~~energy ~~determined~~at byeach ~~the~~node ~~FERC~~in toa beparticular ~~owed~~zone bytaking ~~Mirant Americas Energy Marketing to other parties that do not opt~~ into ~~the~~account ~~settlement for transactions in~~ the ~~CAISO~~ ~~and~~limitations ~~Cal~~on PXtransmission ~~markets during the Refund Period, with the liability~~ of ~~the~~electricity ~~California~~and ~~Parties~~losses ~~for~~involved ~~such~~in ~~refund~~transmitting ~~obligation~~energy ~~limited~~into to the ~~amount~~zone, ofresulting ~~the receivables~~in ~~assigned~~a byhigher ~~Mirant~~zonal ~~Americas~~price ~~Energy~~when ~~Marketing~~less toexpensive ~~the~~energy ~~California Parties~~cannot ~~under the California Settlement. Subject to applicable bankruptcy law, however, Mirant Americas Energy Marketing will continue to~~ be ~~liable~~imported ~~for~~from ~~any~~another ~~refunds~~zone. ~~that~~Generation ~~FERC~~owners ~~determines it to owe (1) to participants~~ in ~~the~~PJM ~~Cal PX and CAISO markets that~~ are ~~not California~~subject ~~Parties (or that do not elect~~ to ~~opt~~mitigation, ~~into~~which ~~the~~limits ~~settlement) for periods outside of~~ the ~~Refund~~prices ~~Period and (2) to participants in bilateral transactions with Mirant Americas Energy Marketing~~ that ~~are~~they ~~not~~may ~~California~~receive Parties (or that do not elect to opt into the settlement). This liability of Mirant Americas Energy Marketing could result in additional liability of the Company’s subsidiaries to Mirant Americas Energy Marketing under ~~the~~certain ~~intercompany~~specified ~~agreements referred to above~~conditions.

~~DWR~~Load-serving ~~Power~~entities ~~Purchases~~within ~~Proceedings. On May 22,~~PJM ~~2001,~~are ~~Mirant~~required ~~Americas~~to ~~Energy~~have ~~Marketing~~adequate ~~entered~~sources ~~into~~of agenerating ~~19-month~~capacity. ~~agreement~~Our ~~with~~facilities ~~the~~located ~~DWR~~in ~~to provide~~ the ~~State~~Mid-Atlantic ofregion ~~California~~that ~~with~~sell ~~approximately 500~~electricity MWinto ofthe ~~electricity~~PJM ~~during~~market ~~peak~~participate ~~hours~~in ~~through~~the ~~December 31,~~reliability ~~2002~~pricing model (the ~~“DWR~~ ~~Contract~~“RPM”). Onforward ~~February 25,~~capacity ~~2002,~~market. ~~the~~The ~~CPUC~~RPM ~~and~~capacity ~~the~~auctions ~~EOB~~are ~~filed~~designed ~~separate complaints~~to atprovide ~~the~~forward ~~FERC against Mirant Americas Energy Marketing and other~~prices ~~sellers~~for ofcapacity ~~electricity under long-term agreements with the DWR, alleging~~ that ~~the~~ ~~terms~~are ofintended ~~these~~to ~~contracts~~ensure ~~were unjust and unreasonable and~~ that ~~the contracts~~adequate ~~should~~resources beare ~~abrogated~~in orplace ~~the~~to ~~prices~~meet ~~under~~ the ~~contracts~~region’s ~~should~~demand ~~be reduced~~requirements. OnPJM ~~June 26,~~has ~~2003,~~conducted ~~the~~four ~~FERC~~RPM ~~issued~~capacity anauctions ~~order dismissing the complaints filed by the CPUC~~ and ~~the~~we ~~EOB~~began ~~against~~receiving ~~Mirant~~payments ~~Americas~~in ~~Energy Marketing.~~June On2007 ~~November 10,~~as ~~2003,~~a ~~the~~result ~~FERC~~of ~~denied motions for rehearing filed by~~ the ~~CPUC~~first ~~and the EOB~~auction. The ~~CPUC and EOB appealed the~~ FERC’s ~~decision~~orders ~~to the~~approving ~~Ninth~~and ~~Circuit.~~implementing ~~As discussed below under California Settlement,~~ the ~~California~~PJM ~~Settlement~~RPM ~~became~~capacity ~~effective~~auctions onare ~~April~~pending ~~15,~~review ~~2005.~~with ~~Under that settlement~~ the ~~DWR~~United ~~and~~States ~~the~~Court ~~other~~of ~~California~~Appeals. ~~Parties~~We ~~have~~cannot ~~released~~predict ~~Mirant Americas~~what, ~~Energy~~if ~~Marketing from~~ any, ~~liability~~effect ~~with respect to~~ the ~~DWR~~appeal ~~Contract and~~process ~~the~~will ~~CPUC~~have ~~and~~on the ~~EOB~~RPM ~~are~~forward tocapacity ~~dismiss~~market ~~their~~and the ~~appeal~~capacity ofpayments ~~the~~that ~~FERC’s~~we ~~decision dismissing~~receive ~~their~~from ~~complaints~~that market.

2912

ReliabilityTable Must Run Agreements Proceeding. Certain of the generating facilities acquired by subsidiaries of the Company from PG&E are operated subject to reliability-must-run agreements (“RMR Agreements”), which those subsidiaries assumed from PG&E. These agreements allow the CAISO to require the Company’s subsidiaries, under certain conditions, to operate these facilities to support the California electric transmission system. The rates that the Company’s subsidiaries could charge the CAISO under those agreements, where they were also making sales into the market and were retaining the revenues from those sales, were the subject of an ongoing disputed rate proceeding before the FERC at the time of the acquisition of the plants from PG&E and were being collected subject to refund. Prior to 2005, for the plants that are subject to the RMR Agreements and from which the Company’s subsidiaries have exercised their rights to also make market sales, the Company’s subsidiaries collected from the CAISO an amount equal to 50% of the annual fixed revenue requirement (the “Annual Requirement”) of those plants. The amounts the Company’s subsidiaries collected from the CAISO were subject to refund pending final review and approval by the FERC. While the CAISO is the party to the RMR Agreements with the Company’s subsidiaries, the CAISO’s obligations under those agreements are funded by PG&E, and PG&E is the real party in interest with respect to any refunds owed by the Company’s subsidiaries for sales made previously under those agreements. In June 2000, the ALJ issued a decision finding that the amount the Company’s subsidiaries should be allowed to charge the CAISO for such plants was approximately 31¤2% on average of the Annual Requirement. In July 2000, the Company’s subsidiaries sought review by the FERC of the ALJ decision.Contents

As discussed below under California Settlement, the California Settlement became effective on April 15, 2005. Under that settlement, PG&E has released the Company’s subsidiaries that own generating facilities subject to the RMR Agreements from any potential refund liability under the RMR Agreements for the period through September 30, 2004 in return for the consideration provided to PG&E under the California Settlement. In addition, the CAISO separately agreed with Mirant to release its claims for refunds with respect to the RMR Agreements for the period through September 30, 2004 upon the California Settlement becoming effective. In its order issued April 13, 2005 approving the California Settlement, the FERC also dismissed as moot the pending proceeding regarding the rates that the Company’s subsidiaries could charge for plants subject to the RMR Agreements from which those subsidiaries were also making market sales. The ~~Company’s~~results ~~subsidiaries on May 13, 2005 filed with the FERC a request for rehearing~~ of the ~~FERC’s~~PJM ~~dismissal~~RPM ofcapacity ~~that~~auctions ~~proceeding~~ for the ~~purpose~~delivery ofarea ~~having the FERC determine the rate that would apply for periods subsequent to September 30, 2004~~ where ~~those~~our ~~subsidiaries~~facilities are ~~making~~located ~~sales into the market~~were ~~from units designated by the CAISO under the RMR Agreements~~ as ~~RMR~~follows: units. On June 3, 2005, the FERC denied that request for rehearing, concluding that the terms of the California Settlement and power purchase agreements entered into between the Company’s subsidiaries and PG&E under the terms of that settlement caused no issues to remain as to what payments would effectively be made to the Company’s subsidiaries under the RMR Agreements during the period those power purchase agreements are in effect, which is potentially through 2012.

California Attorney General Litigation. On March 11, 2002, the California Attorney General filed a civil suit against Mirant, Mirant Americas, Inc., Mirant Americas Energy Marketing and several Company subsidiaries (the “Mirant Defendants”). The lawsuit alleged that, between 1998 and 2001, the Mirant Defendants effectively double-sold capacity by selling both ancillary services and energy from the same generating units in violation of the CAISO tariff and the California Unfair Competition Act. The suit seeks both restitution and penalties in unspecified amounts. The Mirant Defendants removed this suit from the state court in which it was originally filed to the United States District Court for the Northern District of California. The district court, on March 25, 2003, granted the Mirant Defendants’ motion seeking dismissal of this suit. The California Attorney General appealed that dismissal to the Ninth Circuit. On July 6, 2004, the Ninth Circuit affirmed the dismissal of the suit by the district court. On July 27, 2004, the California Attorney General filed a petition with the Ninth Circuit seeking rehearing of the July 6, 2004 decision, and the Ninth Circuit denied that request on October 29, 2004. On January 27, 2005, the California Attorney


Auction Date	Capacity Period	Resource Clearing Price per MW-day
April 2007	June 1, 2007 to May 31, 2008	$	188.54
July 2007	June 1, 2008 to May 31, 2009	$	210.11
October 2007	June 1, 2009 to May 31, 2010	$	237.33
January 2008	June 1, 2010 to May 31, 2011	$	174.29

30Hereafter, annual auctions will be conducted to procure capacity three years prior to each delivery period. The first such auction will take place in May 2008, for the provision of capacity from June 1, 2011 to May 31, 2012.

~~General~~In ~~filed~~addition, PJM and the MISO have been directed by the FERC to establish a ~~petition for~~common ~~writ~~and seamless market. The development of ~~certiorari~~a ~~with~~joint market is contingent on the ~~United~~approval ~~States~~of ~~Supreme~~the ~~Court~~internal ~~seeking~~costs to ~~appeal~~ both entities to develop and operate the infrastructure ~~Ninth~~necessary ~~Circuit’s~~for ~~decision~~joint operations. ~~The~~It ~~Supreme~~is ~~Court~~unclear ~~denied~~at ~~that~~this ~~petition~~time onif ~~April 18,~~either ~~2005~~the respective entities or the FERC will approve such costs to achieve a common and seamless market.

OnNortheast ~~March 20,~~Region. Our ~~2002,~~New ~~the~~York ~~California~~facilities ~~Attorney General~~participate ~~filed~~in a ~~complaint~~market ~~with~~controlled by the ~~FERC~~NYISO, ~~against~~which ~~certain~~replaced ~~power~~the ~~marketers~~New ~~and~~York ~~their~~Power ~~affiliates,~~Pool. ~~including~~The ~~Mirant~~NYISO ~~Americas~~provides ~~Energy~~statewide ~~Marketing~~transmission ~~and~~service ~~subsidiaries of~~under ~~the~~a ~~Company,~~single ~~alleging~~tariff ~~that~~and ~~market~~interfaces ~~based~~with ~~sales~~neighboring ofmarket ~~energy~~control ~~made~~areas. byTo ~~such~~account ~~generators to~~for ~~the~~transmission ~~CAISO~~congestion and ~~the~~losses, ~~Cal PX and in bilateral transactions with~~ the ~~DWR were~~NYISO incalculates ~~violation~~energy ofprices ~~the~~using ~~Federal~~a ~~Power Act, in part because such transactions~~locational ~~were~~marginal ~~not~~pricing ~~filed~~model. ~~appropriately~~The ~~with~~NYISO ~~the~~also ~~FERC.~~administers ~~The~~a ~~complaint~~spot ~~requests,~~market ~~among~~for ~~other things~~energy, ~~refunds~~as ~~for~~well ~~any~~as ~~prior~~markets ~~short-term~~for ~~sales~~installed ofcapacity ~~energy~~and services that are ~~found~~ancillary ~~not~~ to be ~~just~~transmission ~~and~~service, ~~reasonable~~such ~~along~~as ~~with~~operating ~~interest~~reserves onand ~~any~~regulation ~~such~~service ~~refunded~~(which ~~amounts. The~~balances ~~FERC~~resources ~~dismissed~~with ~~the~~load). ~~California~~The ~~Attorney General~~NYISO’s ~~complaint~~locational ~~and~~capacity ~~denied~~market ~~the California~~rules use ~~Attorney~~a ~~General’s~~demand ~~request~~curve ~~for~~mechanism ~~rehearing.~~to Ondetermine ~~September 9,~~for ~~2004, the~~every ~~Ninth~~month ~~Circuit reversed~~ the ~~FERC’s~~required ~~dismissal~~amount of ~~the~~installed ~~California~~capacity ~~Attorney General’s~~as ~~complaint~~well ~~and~~as ~~remanded~~installed ~~the~~capacity ~~case~~prices ~~back~~ to ~~the~~be ~~FERC~~paid for ~~further~~three locational ~~proceedings.~~zones: ~~The~~New ~~Ninth~~York ~~Circuit~~City, ~~found~~Long ~~that~~Island ~~while~~and ~~the~~Rest ~~FERC~~of ~~has~~State. ~~the~~Our ~~authority~~facilities ~~to allow~~operate ~~market~~in ~~based rates,~~ the ~~alleged~~Rest ~~failure~~ of ~~certain~~State ~~entities~~locational ~~selling electric~~zone. ~~energy~~On ~~at market-based rates~~April 21, ~~including the Mirant parties~~2005, ~~to comply with reporting regulations established by~~ the FERC ~~for~~issued ~~entities~~an ~~with~~order ~~authority to~~accepting ~~sell~~the atNYISO’s ~~market-based~~demand ~~rates~~curves ~~was~~for ~~more~~2005/2006, ~~than~~2006/2007 aand ~~technical~~2007/2008 ~~compliance~~with minor ~~issue~~modifications asto the ~~FERC~~ ~~had~~NYISO’s ~~found~~proposal. ~~Mirant~~On ~~Americas~~November 20, ~~Energy~~2007, ~~Marketing~~the ~~and~~NYISO ~~other parties have~~ filed ~~a petition~~demand ~~with~~curves ~~the~~for ~~Ninth~~2008/2009, ~~Circuit~~2009/2010 ~~seeking~~and ~~rehearing~~2010/2011. ofOn ~~the September~~January 929, ~~2004 ruling.~~2008, ~~This~~the ~~ruling~~FERC ~~could~~issued ~~result~~an inorder ~~the~~accepting ~~expansion of~~ the ~~Refund~~NYISO’s ~~Period~~proposal towithout ~~include~~modification. ~~dates~~The ~~from~~demand ~~January 1,~~curves ~~2000~~approved ~~through~~by ~~June 20,~~the ~~2001,~~FERC ~~and~~may ~~could~~ result in ~~refunds~~increased ~~being~~prices ~~ordered~~within ~~for~~the ~~transactions~~NYISO ~~outside~~for ~~the~~capacity ~~CAISO~~in ~~and~~those ~~Cal PX markets~~years.

OnOur ~~April 9,~~New England ~~2002,~~facilities ~~the~~participate ~~California~~in ~~Attorney~~a ~~General filed~~market aadministered ~~second~~by ~~civil~~ISO-NE. ~~suit~~Mirant ~~against~~Energy ~~the~~Trading ~~Mirant~~is ~~Defendants.~~a ~~That~~member ~~lawsuit~~of ~~alleges that~~NEPOOL, ~~the~~which ~~Mirant~~is ~~Defendants~~a ~~violated~~voluntary ~~the~~association ~~California~~of ~~Unfair~~electric ~~Competition~~utilities ~~Act~~and ~~by failing~~other tomarket ~~properly~~participants ~~file~~in ~~their~~Connecticut, ~~rates~~Maine, ~~prices~~Massachusetts, ~~and~~New ~~charges with the FERC as~~Hampshire, ~~required~~Rhode byIsland ~~the~~and ~~Federal Power Act~~Vermont, and bywhich ~~charging~~functions ~~unjust~~as ~~and~~an ~~unreasonable prices~~advisory inorganization ~~violation~~to ~~of the Federal Power Act~~ISO-NE. The ~~complaint~~FERC ~~seeks~~approved ~~unspecified penalties,~~ISO-NE ~~costs~~as ~~and~~the ~~attorney~~RTO ~~fees.~~for ~~The~~the ~~Mirant~~New ~~Defendants~~England ~~removed~~region ~~this~~effective ~~suit from~~on ~~the~~February 1, ~~state~~2005, ~~court~~making inISO-NE ~~which~~responsible itfor ~~was~~market ~~originally~~rule filings ~~filed~~at to the FERC, ~~United~~in ~~States District~~addition ~~Court~~to its responsibilities for the ~~Northern~~operation ~~District~~ of ~~California.~~transmission ~~The~~systems ~~district~~and ~~court,~~administration ~~on March 25,~~and ~~2003,~~settlement ~~granted~~of the ~~Mirant~~wholesale ~~Defendant’s~~electric ~~motion~~energy, ~~seeking~~capacity ~~dismissal~~and ~~of this~~ancillary ~~suit~~services markets. OnISO-NE ~~October 12,~~utilizes ~~2004,~~a ~~the~~locational ~~Ninth~~marginal ~~Circuit~~pricing ~~affirmed~~model similar ~~the~~to ~~district court’s~~that ~~dismissal~~used ofin ~~the~~PJM ~~suit~~and NYISO.

On ~~April~~March 156, ~~2002~~2006, ~~the~~a ~~California~~settlement ~~Attorney General~~proposal was filed awith ~~third~~the ~~civil~~FERC ~~lawsuit~~among ~~against~~ISO-NE ~~the~~and ~~Mirant~~multiple market ~~Defendants~~participants infor ~~the~~a ~~United States~~forward ~~District~~capacity ~~Court~~market ~~for~~ (the ~~Northern~~“FCM”) ~~District~~under ofwhich ~~California.~~annual ~~The~~capacity ~~lawsuit alleges~~auctions ~~that~~would ~~the~~be ~~acquisition~~conducted ~~and~~for ~~possession~~supply ofthree ~~the~~years ~~Potrero~~in ~~and~~advance ~~Delta~~of ~~power plants~~provision. byThe ~~subsidiaries~~settlement ofprovided ~~the~~for ~~Company~~a ~~has~~four-year ~~substantially~~transition ~~lessened,~~period ~~and~~during ~~will~~which ~~continue~~capacity tosuppliers ~~substantially~~receive ~~lessen,~~a ~~competition~~set inprice ~~violation~~for oftheir ~~the~~capacity ~~Clayton~~commencing ~~Act~~on December 1, as ~~amended~~2006, ~~(the~~and ~~“Clayton~~continuing ~~Act”)~~with ~~and~~price ~~the~~escalators ~~California~~through ~~Unfair~~May 31, ~~Competition Act~~2010. The ~~lawsuit~~ ~~seeks~~first ~~equitable~~auction ~~remedies~~took place in ~~the~~February 2008 ~~form~~for ~~of divestiture of~~ the ~~plants~~period ~~and injunctive relief~~June 1, as2010 ~~well as monetary damages in unspecified amounts~~ to ~~include disgorgement of profits~~May 31, ~~restitution,~~2011. ~~treble~~The ~~damages,~~clearing ~~statutory~~price ~~civil penalties~~was ~~and attorney fees~~$4.50 Onper ~~March 25~~kW-month, ~~2003,~~which ~~the~~was ~~court dismissed~~ the ~~California~~ ~~Attorney~~price ~~General’s~~floor ~~state~~established ~~law~~as ~~claims~~part ~~and~~of ~~his claim for damages under~~ the ~~Clayton~~FCM ~~Act,~~settlement. ~~but~~Our ~~did~~generating ~~not~~facilities ~~dismiss~~will ~~the~~receive ~~California~~$4.50 ~~Attorney~~per ~~General’s~~kW-month ~~claims for~~based ~~divestiture.~~on Onour ~~December 3,~~pro-rata ~~2003,~~amount of the ~~district~~generation ~~court~~that ~~stayed~~was ~~the suit~~sold ~~during~~in the ~~pendency of the Company’s bankruptcy proceedings~~auction. The ~~California Attorney~~next ~~General~~auction ~~appealed~~for ~~that ruling to~~ the ~~Ninth~~period ~~Circuit~~June 1, ~~and~~2011 ~~on February~~to May 1031, ~~2005~~2012, ~~the~~will ~~Ninth~~be ~~Circuit~~held ~~vacated~~in ~~the~~December ~~stay~~2008. ~~and~~Beginning ~~remanded~~December 1, ~~the proceeding~~2006, toour ~~the~~generating ~~district~~facilities ~~court.~~began

On13 August 18, 2004, the California Attorney General filed a fourth civil suit in the Superior Court of California, San Francisco County, against the Mirant Defendants. The suit asserts claims under the California Unfair Competition Act and the California Commodity Law of 1990. The California Attorney General alleges that beginning in 1999 and continuing through 2001, the Mirant Defendants engaged in manipulative and fraudulent schemes in the California wholesale electricity markets, including allegedly obtaining congestion relief payments for actions that did not relieve any congestion, receiving payment for excessive generation through the submission of false schedules, circumventing price caps by falsely

31Table of Contents

~~representing the source of~~ ~~energy,~~ receiving ~~payment~~capacity ~~for~~revenues ~~ancillary~~under ~~services~~the ~~they~~FCM ~~did~~transition ~~not and could not provide, and falsely reporting generating units as unavailable to produce electricity when they were available~~period. The ~~suit~~FERC’s ~~seeks~~orders ~~damages,~~approving ~~restitution, disgorgement of profits, civil penalties~~ and ~~injunctive~~implementing ~~relief.~~the ~~The~~FCM ~~Mirant Defendants~~are ~~removed~~pending ~~the~~review ~~suit~~with to the United States ~~District~~ Court ~~for~~of ~~the~~Appeals. ~~Northern District~~We ofcannot ~~California~~predict ~~and~~what, ~~filed~~if aany, ~~motion~~effect ~~seeking~~the ~~dismissal~~appeal ofprocess ~~the~~will ~~claims asserted~~have on the ~~grounds~~FCM ~~that~~and ~~they~~the ~~are~~capacity ~~barred~~payments bywe ~~the~~receive ~~doctrine~~under ~~of preemption and~~ the ~~filed rate doctrine~~FCM.

~~The~~California. Our California ~~Settlement~~facilities ~~became~~are ~~effective~~located oninside ~~April 15,~~the ~~2005~~CAISO’s control area. InThe ~~accordance~~CAISO ~~with~~schedules ~~that~~transmission ~~settlement~~transactions, ~~the~~arranges ~~California~~for ~~Attorney~~necessary ~~General~~ancillary services and ~~has~~administers ~~dismissed~~a ~~with~~real-time ~~prejudice~~balancing ~~the~~energy ~~civil~~market. ~~suits~~Most ~~filed~~sales ~~against~~in ~~the~~California ~~Mirant Defendants~~are ~~that~~pursuant ~~had~~to ~~not~~bilateral ~~been~~contracts, ~~previously~~but ~~dismissed~~a bysignificant ~~final~~percentage ~~orders~~of electrical energy is sold in the real-time market. The ~~California~~ ~~Attorney~~CAISO ~~General~~does ~~has~~not ~~also~~operate ~~released~~a ~~all~~forward ~~claims~~market ~~against~~like ~~Mirant~~those ~~entities~~described ~~asserted~~for inPJM ~~the~~and ~~complaint~~other ~~filed~~eastern ~~with~~ISO ~~the~~markets, ~~FERC~~nor ondoes ~~March 20,~~it ~~2002~~currently operate a capacity market.

~~California-Related~~Mirant ~~Claims~~Potrero inis ~~the~~party ~~Bankruptcy Proceedings. Various~~to ~~entities~~a ~~have~~PPA ~~filed proofs of~~with ~~claim~~PG&E inthat ~~bankruptcy~~from ~~proceedings~~2006 inthrough ~~undetermined~~2012 ~~amounts~~allows ~~against~~PG&E ~~Mirant,~~to ~~Mirant Americas~~dispatch ~~Energy~~and ~~Marketing,~~purchase the ~~Company~~power ~~and~~output ~~other~~of ~~Mirant~~our ~~subsidiaries,~~Potrero ~~including subsidiaries~~units ofthat ~~the~~have ~~Company,~~been ondesignated ~~account~~RMR ofunits, ~~the~~which ~~various~~for ~~proceedings~~2008 ~~described above.~~includes ~~Those~~all ~~entities~~of ~~include~~ the ~~California~~Potrero ~~Attorney~~units. ~~General,~~Under the ~~DWR~~PPA, ~~the CPUC~~through 2008, PG&E, ~~SCE,~~is paying ~~San~~us ~~Diego~~charges ~~Gas &~~equivalent ~~Electric~~to ~~Company,~~ the ~~Cal~~rates PXwe ~~and the~~charged ~~CAISO.~~during In2004 ~~addition,~~when the ~~FERC~~units ~~has~~were ~~filed~~designated ~~proofs~~RMR ofContract ~~claim~~Condition ~~concerning the FERC Refund Proceedings~~2, ~~the~~reduced ~~proceedings~~by ~~related~~$1.4 tomillion ~~the~~for ~~RMR~~each ~~Agreements~~year ~~and~~since ~~the proceedings~~2004. ~~and~~For ~~investigations described~~2009 ~~above~~through ~~in General FERC Investigation~~2012, ~~FERC~~ ~~Bidding~~the ~~Investigation~~charges ~~and~~for ~~FERC~~the ~~Show~~units ~~Cause~~that ~~Proceeding~~are ~~Related~~then tosubject ~~Trading Practices. Some of these claims also assert a right~~ to ~~set off~~ the PPA ~~amount~~will ofbe ~~any~~determined ~~refunds owed~~annually by ~~Mirant~~the ~~Americas~~FERC ~~Energy~~pursuant ~~Marketing~~ to the ~~claimant~~cost ~~against~~based ~~any~~formula ~~amounts owed~~rates byset ~~such~~forth ~~claimant~~in tothe ~~Mirant~~RMR ~~Americas Energy Marketing~~agreement.

The ~~California~~CAISO ~~Settlement became effective on April~~has ~~15,~~proposed ~~2005,~~changes ~~resulting~~to inits ~~the~~market ~~withdrawal~~design ~~with~~to ~~prejudice~~mirror ofmore ~~the~~closely ~~claims filed in~~ the ~~Mirant~~ ~~Debtors’~~eastern ~~bankruptcy~~ISO ~~proceedings by the California Attorney General (excluding certain claims filed on behalf of state agencies unrelated to the wholesale electricity or natural gas~~ markets), ~~the~~but ~~DWR,~~not ~~the~~including ~~CPUC,~~a ~~PG&E,~~capacity ~~SCE and San Diego Gas & Electric Company in return for the specific allowed claims and other consideration provided for in the California Settlement~~market. ~~Also,~~Although ~~although~~ the CAISO ~~and~~has ~~the~~delayed ~~Cal PX were not parties to~~ the ~~California~~ ~~Settlement,~~market ~~under~~redesign ~~its~~several ~~terms the FERC’s order of April 13~~times, ~~2005 approving~~it ~~the~~now ~~settlement~~expects ~~constitutes~~to ~~its~~fully ~~direction~~implement toit ~~the~~in ~~CAISO~~2008. ~~and~~The ~~Cal~~CPUC ~~PX to~~has ~~conform~~begun ~~their~~a ~~books~~proceeding ~~and records~~ to ~~the~~develop, ~~terms~~together ~~of the California Settlement and to withdraw~~ with ~~prejudice all claims filed by them in~~ the ~~bankruptcy proceedings~~CAISO, ~~that~~a ~~seek~~wholesale tocapacity ~~recover~~market. ~~amounts~~FERC orapproval ~~otherwise~~would ~~obtain~~be ~~relief~~required ~~on behalf of or~~ for ~~the benefit of~~ any ofsuch ~~the~~capacity ~~California Parties or any other~~ market ~~participants~~ ~~that opt into the settlement. In addition, the CAISO separately agreed with Mirant~~ to ~~release~~become ~~its claims upon the California Settlement becoming~~ effective. ~~The~~We ~~order~~cannot ~~entered~~at bythis ~~the~~time ~~Bankruptcy~~predict ~~Court on April 15, 2005 approving~~ the ~~California~~outcome ~~Settlement~~of ~~provides for~~ the ~~Mirant~~CPUC ~~Debtors~~proceeding ~~and the~~or ~~Cal PX to cooperate to establish a procedure by which~~ the ~~claims~~timing ~~filed by~~or ~~the~~structure ~~Cal~~of ~~PX that are not to be withdrawn as~~ a ~~result~~wholesale ofcapacity ~~the California Settlement will be assigned to the non-settling~~ market ~~participants who are the real parties~~ in ~~interest with respect to such claims~~California.

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

32Our business is subject to extensive environmental regulation by federal, state and local authorities. We must comply with applicable laws and regulations, and obtain and comply with the terms of government issued permits. Our costs of complying with environmental laws, regulations and permits are substantial, including significant environmental capital expenditures.

~~Settlement signified its approval.~~ The ~~PG&E~~following ~~bankruptcy~~table ~~court~~details ~~approved~~our ~~the~~estimated ~~California~~environmental ~~Settlement~~capital ~~on March 24~~expenditures, ~~2005,~~excluding ~~the~~capitalized ~~FERC~~interest ~~approved~~(in itmillions): ~~on April 13, 2005, and the Bankruptcy Court approved it by order entered April 15, 2005, causing the settlement to become effective April 15, 2005.~~

Under the California Settlement, (1) Mirant Americas Energy Marketing and the other Mirant Settling Parties have assigned to the California Parties all receivables owed to Mirant Americas Energy Marketing for transactions in the markets administered by the Cal PX or the CAISO for the period January 1, 2000 through June 20, 2001, which are currently estimated by the parties to the California Settlement to be approximately $283 million, and (2) the California Parties received an allowed, unsecured claim against Mirant Americas Energy Marketing in its Chapter 11 case for $175 million and the DWR received an additional allowed, unsecured claim against Mirant Americas Energy Marketing of $2.25 million. In return, the California Parties released all claims they may have against the Mirant Settling Parties related to sales of electricity or natural gas at wholesale in western markets in the period from January 1, 1998 through July 14, 2003, including all such claims filed by the California Parties in the Mirant Debtors’ Chapter 11 cases, in proceedings before the FERC, or in the four suits filed against Mirant, the Company and certain of its subsidiaries by the California Attorney General in March and April 2002 and August 2004. The Company estimates that, excluding duplicative claims, this settlement has compromised the bulk of the California energy market claims against Mirant Americas Energy Marketing at issue in the FERC Refund Proceedings. Also, the California Parties have assumed Mirant Americas Energy Marketing’s obligation to pay any refunds determined by the FERC to be owed by Mirant Americas Energy Marketing to other parties for transactions in the CAISO and Cal PX markets during the Refund Period, with the liability of the California Parties for such refund obligation limited to the amount of the receivables assigned by Mirant Americas Energy Marketing to the California Parties under the California Settlement. Subject to applicable bankruptcy law, Mirant Americas Energy Marketing continues to be liable for any refunds that the FERC determines it to owe to (1) participants in the Cal PX or CAISO markets other than the California Parties (or other parties that have opted into the California Settlement) for periods outside the Refund Period or (2) parties with which Mirant Americas Energy Marketing engaged in bilateral electricity or natural gas transactions other than the California Parties (or other parties that have opted into the California Settlement). This liability of Mirant Americas Energy Marketing could result in additional liability of the Company’s subsidiaries to Mirant Americas Energy Marketing under intercompany agreements between those subsidiaries and Mirant Americas Energy Marketing.


	2008		2009		2010
Maryland Healthy Air Act	$	689	$	286	$	125
Other environmental		63		35		28

Total environmental capital expenditures	$	752	$	321	$	153

~~Some~~We ofexpect ~~the consideration to be received by the California Parties under the California Settlement is available to other market participants~~ that ~~choose~~cash to opt into the California Settlement, and several have done so. Those market participants that have elected to opt into the California Settlement have, as a result, given releases of liability to the Mirant Settling Parties that are the same as those given by the California Parties. In addition to the claims filed by the California Parties seeking to recover refunds from Mirant Americas Energy Marketing and other Mirant entities for sales of electricity made by Mirant Americas Energy Marketing into the CAISO and Cal PX markets in 2000 and 2001, the CAISO and the Cal PX have filed claims against Mirant Americas Energy Marketing and other Mirant Settling Parties seeking to recover refunds on ~~behalf~~hand ~~of participants in the markets for which they were responsible. While the CAISO~~ and ~~the~~cash ~~Cal~~flows PX are not parties to the California Settlement, the FERC’s approval of the California Settlement constitutes its direction to the CAISO and the Cal PX to conform their books and records to the terms of the settlement and to withdraw with prejudice all claims filed by them in the Chapter 11 cases that seek to recover amounts or otherwise obtain relief on behalf of, or for the benefit of, any of the California Parties or any other market participants that opt into the California Settlement. In addition, the CAISO separately agreed with Mirant to release its claims upon the California Settlement becoming effective. The California Parties also released the Mirant Settling Parties from ~~any~~operations ~~liability or~~will ~~refund~~be ~~claims~~sufficient ~~related~~ to ~~the~~fund ~~DWR Contract, including claims asserted in the~~these ~~complaints~~capital ~~filed by CPUC and EOB with the FERC in February 2002~~expenditures. ~~The FERC’s approval of the California Settlement, under its terms, also~~

33Air Emissions Regulations

~~had~~Our most significant environmental requirements generally fall under the ~~effect~~Clean Air Act and similar state laws. Under the Clean Air Act, we are required to comply with a broad range of mandates concerning air ~~terminating~~emissions, ~~any~~operating ~~pending~~practices ~~investigations~~and pollution control equipment. Most of our facilities are located in or near metropolitan areas, including New York City, Boston, San Francisco and Washington D.C., which are classified by the ~~FERC~~EPA as not achieving certain NAAQS. As a result of the ~~conduct~~NAAQS classification of ~~the~~these ~~Mirant Settling~~areas, ~~Parties~~our inoperations ~~the~~are ~~western~~subject ~~energy~~to ~~markets~~more instringent ~~2000~~air ~~and~~pollution ~~2001~~requirements than applicable to plants located elsewhere.

~~The~~14 California Settlement also resolved all claims asserted by PG&E against the Company’s subsidiaries, Mirant Delta and Mirant Potrero, and the other Mirant Settling Parties in the Chapter 11 cases or in proceedings before the FERC that related to refunds potentially owed under the RMR Agreements between Mirant Delta and the CAISO and Mirant Potrero and the CAISO. Under the California Settlement, PG&E released Mirant Delta and Mirant Potrero from any potential refund liability under the RMR Agreements for the period prior to September 30, 2004, and the claims filed by PG&E in the Chapter 11 cases seeking to recover refunds from Mirant Delta and Mirant Potrero for sales made under the RMR Agreements have been withdrawn with prejudice. Although the CAISO was not a party to the California Settlement, under the terms of the California Settlement the FERC’s approval of the settlement constitutes its direction to the CAISO to conform its books and records to the terms of the California Settlement and to withdraw with prejudice all claims filed by it in the Chapter 11 cases that seek to recover amounts related to sales made under the RMR Agreements in the period prior to September 30, 2004. In addition, the CAISO separately agreed with Mirant to release its claims upon the California Settlement becoming effective.

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

~~To fund the CC8 Alternative Consideration, PG&E~~ ~~received~~Various anstates ~~allowed,~~where ~~unsecured~~we ~~claim~~have ~~against~~facilities ~~Mirant~~also ~~Delta~~have ~~that~~other ~~will~~air ~~receive~~quality ~~a distribution~~laws ofand ~~$70~~regulations ~~million.~~with ~~PG&E~~increasingly ~~will~~stringent ~~liquidate~~limitations ~~any securities received as part of such distribution~~ and ~~place~~requirements ~~the net resulting amount plus any cash received into an escrow account. To the extent~~ that ~~the net amount resulting~~will ~~from~~become ~~the~~effective ~~liquidation~~in offuture ~~the~~years ~~securities~~for ~~received~~our byfacilities ~~PG&E plus any cash received by it is less than the CC8 Alternative Consideration, the difference will be made up by PG&E withholding~~ and ~~paying into the escrow account amounts it owes to Mirant Delta over a three month period under the power purchase agreements described below or by payments from Mirant Delta or the Company~~operations. IfIn the ~~transfer of the CC8 Assets to PG&E does not occur on or before June 30~~future, ~~2008,~~we orexpect ifincreased ~~certain~~regulation ~~specified events occur prior to that date, such as the failure~~ of ~~the~~our ~~CPUC~~air toemissions. ~~approve~~Significant ~~PG&E’s~~air ~~acquisition~~regulatory ofprograms ~~the CC8 Assets, then the CC8 Alternative Consideration is~~ to bewhich ~~paid~~we toare ~~PG&E and~~subject ~~the~~are ~~Mirant~~described ~~Settling Parties will retain the CC8 Assets~~below. ~~If PG&E closes on its acquisition of the CC8 Assets, the funds in the escrow account will be paid to Mirant Delta.~~

~~PG&E~~Clean ~~also~~Air ~~has~~Interstate ~~entered~~Rule ~~into~~(CAIR). In ~~two~~2005, ~~power~~the ~~purchase agreements~~EPA ~~with~~promulgated ~~Mirant~~the ~~Delta~~CAIR, which established in the eastern United States an SO2 and ~~Mirant~~NOx ~~Potrero~~cap-and-allowance ~~that~~trading ~~will~~program ~~allow~~applicable ~~PG&E~~directly to ~~dispatch~~ states and ~~purchase~~indirectly ~~the~~to ~~power~~generating ~~output~~facilities. ofThese ~~all~~cap-and-trade ~~units~~programs ofwill be implemented in two phases, with the ~~generating~~first ~~plants~~phase going into effect in 2009 for NOx and 2010 for ~~owned~~SO2 byand ~~those~~more ~~entities~~stringent ~~that~~caps ~~have~~going ~~been~~into ~~designated~~effect byin 2015. We are installing pollution control equipment at certain of our coal-fired facilities in Maryland to address the ~~CAISO~~requirements asunder ~~RMR~~the ~~units~~Maryland Healthy Air Act, which will also enable us to ~~under~~satisfy the ~~RMR~~requirements ~~Agreements.~~of ~~The~~the first ~~agreement~~phase isof ~~for~~the ~~2005~~CAIR without purchasing additional allowances. The ~~second~~costs ~~agreement will~~of bethat ~~for~~equipment ~~2006~~are included in our estimate of anticipated environmental capital expenditures from 2008 through ~~2012~~2010.

~~Under~~Maryland ~~the~~Healthy ~~California~~Air ~~Settlement,~~Act. The ~~PG&E~~Maryland ~~and~~Healthy ~~Mirant Delta~~Air ~~also~~Act ~~are~~was toenacted ~~negotiate~~in byApril ~~September~~2006 ~~30,~~and ~~2005~~requires ~~(extended~~reductions byin ~~the~~NOx, ~~parties~~SO2 ~~from~~and ~~the~~mercury ~~original~~emissions ~~date~~from oflarge ~~April~~coal-fired ~~30,~~power ~~2005)~~facilities. The anstate ~~agreement~~law also requires Maryland to join the Regional Greenhouse Gas Initiative (the “~~Option Agreement~~RGGI”) ~~under~~, which ~~PG&E~~is ~~would~~discussed ~~have~~below. ~~separate~~On ~~options~~August 3, to2006, ~~purchase~~we ~~each~~announced ofa ~~Mirant~~plan to ~~Delta’s~~comply ~~existing~~with ~~Contra~~the ~~Costa~~requirements ~~generating~~of ~~plant~~the ~~and~~Maryland ~~its~~Healthy ~~existing~~Air ~~Pittsburg generating~~Act ~~plant,~~by inreducing ~~both~~SO2 ~~cases~~emissions ~~once~~by noas ~~unit~~much atas ~~the~~95% ~~plant~~at ~~has~~our ~~operated~~Maryland ~~for~~power ~~a certain period of years~~facilities. The ~~price~~Maryland atHealthy ~~which~~Air ~~each~~Act ~~plant~~prohibits ~~could~~power befacilities ~~purchased pursuant~~from topurchasing ~~the~~emissions ~~option~~allowances ~~would~~instead beof installing ~~equal~~pollution tocontrol ~~the~~equipment. ~~amount~~We ofare ~~certain~~installing ~~capital~~flue ~~costs not~~gas ~~recovered~~desulphurization by(“FGD”) ~~Mirant~~emissions ~~Delta~~controls ~~under~~at ~~the~~our ~~terms~~Chalk ofPoint, ~~the~~Dickerson ~~RMR~~and ~~Agreement~~Morgantown ~~applicable to~~coal-fired ~~that~~units. ~~plant~~In ataddition, ~~the~~we ~~time~~are ofinstalling ~~the~~selective ~~exercise~~catalytic ofreduction (“SCR”) ~~the~~systems ~~option.~~at Ifthe ~~Mirant~~Morgantown ~~Delta~~ and ~~PG&E~~ doChalk ~~not~~Point ~~reach~~coal-fired ~~agreement~~units, onwhich ~~the~~will ~~Option~~reduce ~~Agreement~~NOx emissions by ~~September~~approximately ~~30,~~80%. ~~2005~~Together, or ifthe ~~PG&E~~FGDs ~~cannot~~and ~~obtain~~the ~~CPUC~~SCRs ~~approval~~will ofreduce the ~~Option~~emissions ~~Agreement~~of orionic ~~its~~mercury ~~exercise~~from ofthe ~~its~~three ~~rights thereunder,~~Maryland power facilities.

34The Maryland Healthy Air Act imposes tonnage limits for (i) emissions of NOx in 2009 with further reductions in 2012 (including sublimits during the Ozone Season) and (ii) emissions of SO2 in 2010 with further reductions in 2013. The Maryland Healthy Air Act also imposes restrictions on emissions of mercury beginning in 2010 with further reductions in 2013. The control equipment we plan to install to meet Maryland state standards will allow our Maryland facilities to comply with the first phase of the CAIR without having to purchase allowances.

~~Mirant Delta~~We expect to incur total capital expenditures of $1.6 billion through the first quarter of 2010 to comply with the requirements for SO2 and NOx emissions under the ~~other~~Maryland Healthy Air Act. On July 30, 2007, our indirect subsidiaries Mirant ~~Settling~~Mid-Atlantic ~~Parties~~and ~~will~~Mirant ~~have~~Chalk noPoint ~~further~~entered ~~obligations~~into ~~to PG&E~~an agreement with ~~respect~~Stone & Webster, Inc. for engineering, procurement and construction services relating to the ~~Option~~installation ~~Agreement~~of orair quality control systems at the ~~rights~~Morgantown, itDickerson ~~was~~and Chalk Point coal-fired units. The expected cost under the agreement is approximately $1.1 billion and is a part of the capital expenditures that we expect to ~~provide~~incur to comply with the Maryland Healthy Air Act. We will have extended planned outages during equipment installation. During those outages, we also will perform routine maintenance activities. As of December 31, 2007, we have paid approximately $500 million for capital expenditures related to ~~PG&E~~the Maryland Healthy Air Act.

~~The~~Clean ~~California~~Air ~~Settlement~~Mercury Rule ~~resulted~~(CAMR). In in2005, the EPA issued the CAMR, which would have limited total annual mercury emissions from coal-fired power plants across the United States through a ~~non~~two-~~cash~~phased ~~gain~~cap-and-trade program. The first phase was to have begun in 2010 and the ~~Company~~second phase was to have begun in 2018. On February 8, 2008, The United States Court of ~~approximately~~Appeals ~~$161~~for ~~million~~the District of Columbia Circuit (the “DC Circuit”) issued its opinion vacating and remanding two rules regarding mercury emissions from Electric Generating Units (“EGUs”). First, tothe beDC Circuit’s opinion vacated the rule by which the EPA removed EGUs from the list of sources with emissions of hazardous air pollutants subject to ~~recorded~~regulation inunder section 112 of the ~~second~~Clean ~~quarter~~Air Act which requires maximum achievable control standards. Second, the DC Circuit’s opinion vacated the EPA’s CAMR. At this time, we cannot predict the EPA’s action on remand. We expect many of ~~2005~~our coal-fired facilities to emit less mercury as a result of the NOx and SO2 controls that are, or will soon be, installed.

~~Rate~~15 ~~Payer Litigation~~

CaliforniaTable Rate Payer Litigation.Various lawsuits were filed in 2000 through 2003 that assert claims under California law based on allegations that certain owners of electric generation facilities in California and energy marketers, including Mirant, Mirant Americas Energy Marketing and several Mirant Americas Generation subsidiaries, engaged in various unlawful and anti-competitive acts that served to manipulate wholesale power markets and inflate wholesale electricity prices in California.Contents

~~Six~~NSR Enforcement Initiative. In 2001, the EPA requested information ~~such~~concerning ~~suits~~some ~~were~~of ~~filed~~our ~~between~~facilities ~~November 27,~~in ~~2000~~Maryland and ~~May~~Virginia covering a time period that pre-dates our acquisition or lease of those facilities in December 22000. We responded fully to this request. Under the APSA, ~~2001~~Pepco inis responsible for fines ~~various~~and ~~California~~penalties ~~Superior~~arising ~~Courts~~from any violation associated with operations prior to our subsidiaries’ acquisition or lease of the facilities. ~~Three~~If a violation is determined to have occurred at any of ~~these~~the ~~suits~~facilities, ~~seek~~our ~~class~~subsidiary ~~action~~owning or leasing the ~~status~~facilities may be responsible for the cost of purchasing and installing emissions control equipment, ~~while~~the ~~two~~cost of which may be material. Our subsidiaries owning or leasing the ~~suits~~Chalk Point, Dickerson and Morgantown facilities in Maryland are installing ~~brought~~a variety of emissions control equipment on ~~behalf~~those offacilities ~~all~~to ~~citizens~~comply with the Maryland Healthy Air Act, but that equipment may not include all of ~~California.~~ ~~One~~the ~~lawsuit~~pollution ~~alleges~~control equipment that, ascould be required if a ~~result~~violation of the ~~defendants~~EPA’ ~~conduct,~~s ~~customers~~NSR ~~paid~~regulations ~~approximately~~is ~~$4 billion~~determined to have occurred at one or more ~~for~~of ~~electricity~~those ~~than~~facilities. ~~they otherwise~~If ~~would~~such a violation is determined to have ~~and~~occurred ~~seeks~~after anour ~~award~~subsidiaries ofacquired ~~treble~~or ~~damages~~leased asthe ~~well~~facilities asor, ~~other~~if occurring prior to the acquisition or lease, is ~~injunctive~~determined ~~and~~to ~~equitable~~constitute ~~relief.~~a ~~One~~continuing ~~lawsuit~~violation, ~~also~~our ~~names~~subsidiary ~~certain~~owning ofor ~~Mirant’s officers~~leasing ~~individually~~the asfacility ~~defendants~~at issue could also be subject to fines and ~~alleges~~penalties ~~that~~by the state ~~had~~or tofederal ~~spend more~~government ~~than~~for ~~$6 billion~~the ~~purchasing~~period ~~electricity.~~after ~~The~~its ~~other~~acquisition ~~suits~~or ~~likewise~~lease ~~seek~~of the facility, ~~treble~~the ~~damages~~cost ~~and~~of ~~equitable~~which ~~relief.~~may ~~One~~be material, although applicable bankruptcy law may bar such ~~suit~~liability ~~names~~for ~~Mirant~~periods ~~itself~~prior asto ~~a defendant.~~January 3, A2006, ~~listing~~when ofthe ~~these~~Plan ~~six~~became ~~cases~~effective isfor asus ~~follows:~~and our subsidiaries that own or lease these facilities.

Caption	Date Filed	Court of Original Filing
People of the State of California v. Dynegy, et al.	January 18, 2001	Superior Court of California— San Francisco County
Gordon v. Reliant Energy, Inc., et al.	November 27, 2000	Superior Court of California— San Diego County
Hendricks v. Dynegy Power Marketing, Inc., et al.	November 29, 2000	Superior Court of California— San Diego County
Sweetwater Authority, et al. v. Dynegy, Inc., et al.	January 16, 2001	Superior Court of California— San Diego County
Pier 23 Restaurant v. PG&E Energy Trading, et al.	January 24, 2001	Superior Court of California—San Francisco County
Bustamante, et al. v. Dynegy, Inc., et al.	May 2, 2001	Superior Court of California—Los Angeles County

Massachusetts CAIR Implementation. The Commonwealth of Massachusetts Department of Environmental Protection promulgated regulations to take effect in 2009 to implement the requirements under the federal CAIR to reduce NOx emissions from certain generating facilities. The Massachusetts regulations will require our Canal and Kendall generating facilities, during the Ozone Season, to reduce their emissions of NOx or utilize emissions allowances greater than what are currently utilized.

35New York CAIR Implementation. The New York State Department of Environmental Conservation promulgated regulations implementing the NOx and SO2 emissions reductions required by the federal CAIR. Beginning in 2009, the regulations limit NOx emissions through both an annual cap-and-trade program and through a seasonal cap-and-trade program during the Ozone Season, which will require our Bowline generating facility to reduce its emissions of NOx by running less or to increase its utilization of emissions allowances. The regulations also implement an SO2 emissions program beginning in 2010 that mandates increased utilization of federal SO2 allowances for every ton of SO2 emitted.

~~These~~Virginia ~~six~~CAIR ~~suits~~Implementation. In ~~(the~~April 2006, ~~“Six~~Virginia ~~Coordinated~~enacted ~~Suits”)~~legislation, ~~were coordinated~~which ~~for~~among ~~purposes~~other ofthings ~~pretrial~~granted ~~proceedings before~~ the Virginia ~~Superior~~State ~~Court~~Air ~~for San~~Pollution ~~Diego~~Control ~~County.~~Board In the ~~spring~~discretion ofto ~~2002,~~prohibit ~~two~~electric ofgenerating ~~the~~facilities ~~defendants~~located ~~filed crossclaims~~in ~~against~~an ~~other~~area ~~market~~that ~~participants~~is ~~who~~not ~~were~~in ~~not~~compliance ~~parties~~with toa ~~the actions.~~particular ~~Some~~NAAQS of(“non-attainment ~~those~~area”), ~~crossclaim~~from ~~defendants~~purchasing ~~then~~SO2 ~~removed~~and ~~the~~NOx ~~Six~~allowances ~~Coordinated~~to ~~Suits~~achieve tocompliance under the ~~United~~CAIR. ~~States~~In ~~District Court for~~ the ~~Southern~~fourth ~~District~~quarter of ~~California.~~ ~~The~~2007, ~~plaintiffs~~the ~~filed~~Virginia aState ~~motion~~Air ~~seeking~~Pollution toControl ~~have~~Board ~~the~~approved ~~actions~~regulations ~~remanded to~~that ~~the~~it ~~California~~interprets ~~state~~as ~~court,~~prohibiting ~~and~~ the ~~defendants~~trading ~~filed~~of ~~motions~~SO2 ~~seeking~~and toNOx ~~have the~~allowances ~~claims~~by ~~dismissed.~~facilities Onin ~~December 13,~~non-attainment ~~2002,~~areas to satisfy the ~~United~~requirements ~~States~~of ~~District Court~~the ~~for~~CAIR ~~the~~as ~~Southern~~implemented ~~District~~by ofVirginia. ~~California~~The ~~granted~~only ~~the~~generating ~~plaintiffs’~~facility ~~motion seeking~~in toVirginia ~~have~~currently ~~the~~affected ~~six~~is ~~cases~~our ~~remanded~~Potomac toRiver ~~the~~facility ~~California~~which ~~state~~is ~~court.~~located ~~The defendants~~in ~~that~~a ~~filed~~non-attainment ~~the~~area ~~crossclaims~~for ~~appealed~~ozone ~~that~~and ~~decision~~PM2.5. ~~remanding~~Mirant ~~the~~Potomac ~~Six~~River has ~~Coordinated~~appealed ~~Suits~~these toregulations ~~the~~in ~~California~~Virginia state court. toWe ~~the~~have ~~Ninth~~also ~~Circuit.~~petitioned ~~On December~~(a) ~~8, 2004,~~ the ~~Ninth~~EPA ~~Circuit~~to ~~affirmed~~reconsider and (b) the ~~district~~United ~~court’s~~States ~~remand~~Court ~~decision.~~of ~~These actions~~Appeals ~~are~~for ~~stayed~~the ~~with~~Fourth ~~respect~~Circuit to review the ~~Mirant~~EPA’s ~~entities~~final ~~that~~rule ~~are~~approving ~~defendants~~Virginia’s byCAIR ~~the~~program. ~~filing~~Application of ~~the~~these ~~Chapter~~regulations, 11if ~~proceedings~~not ofmodified ~~those~~or ~~entities~~waived, ~~but~~will ~~are~~reduce ~~proceeding with~~our ~~respect~~flexibility toin complying with the ~~other~~CAIR ~~defendants.~~in OnVirginia ~~June 29,~~beginning ~~2005~~in ~~the~~2009 ~~plaintiffs filed~~and tocould ~~dismiss~~result ~~Mirant~~in asoperating arestrictions ~~defendant~~for our Potomac River generating facility.

~~Two~~Massachusetts ~~plaintiffs~~Emissions inStandards ~~the~~for ~~Six~~Power ~~Coordinated Suits, Oscar’s Photo Lab and Mary L~~Plants. The ~~Davis~~Commonwealth ~~(the “Claimants”), filed proofs~~ of ~~claim~~Massachusetts ~~(the~~Department ~~“Oscar~~of ~~Claims”)~~Environmental inProtection ~~the~~promulgated ~~bankruptcy~~regulations ~~proceedings~~affecting ~~against~~certain ~~Mirant,~~generating ~~Mirant Americas Energy Marketing~~facilities, ~~the~~including ~~Company~~our ~~and~~Canal ~~subsidiaries~~facility, ofthat ~~the~~established ~~Company~~emissions onoutput ~~behalf~~limits ofbeginning ~~themselves and a purported class of all persons or entities~~ in ~~California~~2006 ~~who purchased electricity or natural gas~~ for ~~purposes~~NOx ~~other~~and ~~than~~SO2 ~~resale or distribution at any time since January 1, 1999. Claimants alleged that various misconduct by Mirant~~ and ~~several~~beginning ~~of its subsidiaries caused inflated prices~~ in ~~the California~~2008 ~~wholesale~~for ~~power~~CO2 ~~markets.~~and ~~Claimants listed the damage amount of their claims as “unliquidated.” On October 18, 2004, the Mirant Debtors filed~~ an ~~objection~~annual tocap ~~the Oscar Claims. On November 5, 2004, the Mirant Debtors filed a motion requesting that the Bankruptcy Court strike the portions of the Oscar Claims that purported to have been filed~~ on ~~behalf of unnamed absent~~CO2 ~~members~~emissions ofbeginning ain ~~purported class~~2008. OnWe ~~January 26,~~are ~~2005,~~achieving ~~the~~compliance ~~Bankruptcy Court issued an order embodying a ruling made orally on December 1, 2004 granting this motion and disallowing the Oscar Claims~~ with ~~prejudice to~~ the ~~extent~~ ~~they~~NOx ~~sought to recover on account of any claims other than the claims of Oscar Photo Labs~~ and ~~Mary~~SO2 L.emissions ~~Davis~~limits ~~in their individual capacities. The Claimants have filed a motion to amend their claims to add allegations of improper conduct~~ by ~~Mirant~~utilizing ~~entities~~lower ~~with~~sulfur ~~respect~~fuels toand ~~the reporting of information about~~ natural gas ~~transactions to trade publications that publish price indices,~~ and ~~the~~by ~~Mirant~~optimizing ~~Debtors have also filed a motion to disallow~~ the ~~Oscar~~ ~~Claims.~~operation ~~The~~of ~~Bankruptcy~~our ~~Court~~unit ~~has~~with ~~not~~selective ~~acted~~catalytic ~~upon~~reduction ~~either motion~~capability. ~~The~~Under ~~Mirant~~our ~~Debtors~~current ~~have~~operating ~~entered~~profile, ~~into~~we aare ~~stipulation~~in compliance with the ~~Claimants~~output ~~entitling~~limit ~~each plaintiff~~on ~~to receive an allowed~~CO2, ~~general,~~and ~~pre-petition~~we ~~unsecured~~plan ~~claim~~to ~~against Mirant~~comply ~~Americas~~with ~~Energy Marketing in~~ the ~~amount~~annual ofCO2 ~~$1,000~~cap ~~without~~by ~~the~~purchasing ~~Mirant Debtors’~~offsets ~~admission of the validity of the Oscar Claims~~ or ~~any~~by ofmaking ~~the~~payments ~~factual~~into ~~or legal assertions of these Claimants and with~~ a ~~full~~newly-established ~~reservation~~Greenhouse ofGas ~~any~~Expendable ~~rights~~Trust, ~~claims~~ ~~and~~which ~~defenses~~is ~~any~~expected ofto ~~the Mirant Debtors may have against any person~~be ~~asserting~~finalized ~~the~~during ~~same or similar factual or legal assertions as those contained in~~ the ~~Oscar~~first ~~Claims.~~quarter Onof ~~March 9, 2005, the Bankruptcy Court approved the stipulation~~2008.

3616

Eight additionalTable rate payer lawsuits were filed between April 23, 2002 and October 18, 2002 alleging that certain owners of electric generation facilities in California, as well as certain energy marketers, including Mirant, Mirant Americas Energy Marketing and several subsidiaries of the Company, engaged in various unlawful and fraudulent business acts that served to manipulate wholesale markets and inflate wholesale electricity prices in California during 1999 through 2002. Each of the complaints alleges violation of California’s Unfair Competition Act. One complaint also alleges violation of California’s antitrust statute. Each of the plaintiffs seeks class action status for their respective case. Some of these suits also allege that contracts between the DWR and certain marketers of electricity, including a nineteen month power sales agreement entered into by Mirant Americas Energy Marketing with the DWR in May 2001 that terminated in December 2002, contain terms that were unjust and unreasonable. The actions seek, among other things, restitution, compensatory and general damages, and to enjoin the defendants from engaging in illegal conduct. The captions of each of these eight cases follow:Contents

Caption	Date Filed	Court of Original Filing
T&E Pastorino Nursery, et al. V. Duke Energy Trading and Marketing, LLC, et al	April 23, 2002	Superior Court of California— San Mateo County
RDJ Farms, Inc., et al. v. Allegheny Energy Supply Company, LLC, et al	May 10, 2002	Superior Court of California— San Joaquin County
Century Theatres, Inc., et al. v. Allegheny Energy Supply Company, LLC, et al	May 14, 2002	Superior Court of California— San Francisco County
El Super Burrito, Inc., et al. v. Allegheny Energy Supply Company, LLC, et al	May 15, 2002	Superior Court of California— San Mateo County
Leo’s Day and Night Pharmacy, et al. v. Duke Energy Trading and Marketing, LLC, et al	May 21, 2002	Superior Court of California—Alameda County
J&M Karsant Family Limited Partnership, et al. v. Duke Energy Trading and Marketing, LLC, et al	May 21, 2002	Superior Court of California—Alameda County
Bronco Don Holdings, LLP, et al. v. Duke Energy Trading and Marketing, LLC, et al	May 24, 2002	Superior Court of California— San Francisco County
Kurtz v. Duke Energy Trading et al	October 18, 2002	Superior Court of California— Los Angeles County

New York Consent Decree. In 2000, the State of New York issued an NOV to the previous owner of our Lovett facility alleging NSR violations associated with the operation of that facility prior to its acquisition by us. On June 11, 2003, Mirant New York, Mirant Lovett and the State of New York entered into a consent decree (the “2003 Consent Decree”). The 2003 Consent Decree was approved by the Bankruptcy Court on October 15, 2003. Under the 2003 Consent Decree, Mirant Lovett has three options: (1) install emissions controls on Lovett’s two coal-fired units; (2) shut down unit 5 and convert unit 4 to natural gas; or (3) shut down both coal-fired units in 2007 and 2008. We have concluded that the installation of the required emissions controls is uneconomic.

These suits were initially filed in California state courts by the plaintiffs and removed to United States district courts. These eight cases were consolidated for purposes of pretrial proceedings with the Six Coordinated Suits described above. On ~~August~~October 2819, ~~2003~~2006, ~~the~~Mirant ~~district~~Lovett ~~court granted~~notified the ~~motions~~New toYork ~~dismiss~~Public ~~filed~~Service byCommission, the ~~defendants in the Pastorino~~NYISO, ~~RDJ Farms,~~Orange ~~Century~~and ~~Theatres,~~Rockland Eland ~~Super~~certain ~~Burrito,~~other affected ~~Leo’s~~transmission ~~Day~~ and ~~Night~~distribution ~~Pharmacy, J&M~~companies ~~Karsant~~in ~~and~~New ~~Bronco~~York ~~Don~~of ~~Holdings~~its ~~suits,~~intent ~~finding~~to ~~that~~discontinue ~~the~~operation ~~plaintiffs’ claims~~of ~~were~~units ~~barred~~3 byand ~~the~~5 ~~filed~~of ~~rate~~the ~~doctrine~~Lovett ~~and~~facility ~~federal~~in ~~preemption~~April 2007. The ~~Ninth Circuit~~2003 ~~affirmed~~Consent ~~that~~Decree ~~dismissal~~imposed onsimilar ~~February 25,~~requirements ~~2005.~~with ~~The~~respect ~~plaintiff~~to inunit ~~the Kurtz~~4 ~~suit~~that ~~voluntarily~~had ~~dismissed~~to be ~~his~~met ~~case~~by ~~without prejudice on February~~April 1830, ~~2004~~ 2008.

37On May 10, 2007, Mirant Lovett entered into an amendment to the 2003 Consent Decree with the State of New York that switched the deadlines for shutting down units 4 and 5 so that the deadline for compliance by unit 5 was extended until April 30, 2008, and the deadline for unit 4 was shortened. Unit 4 discontinued operation as of May 7, 2007. In addition, unit 3 discontinued operation because it was uneconomic for the unit to continue to run.

On ~~July 15, 2002, an additional rate payer~~ ~~lawsuit, Public Utility District No.~~October ~~1 of Snohomish Co. v. Dynegy Power Marketing~~20, ~~et al.~~2007, ~~was filed in the United States District Court for the Central District of California against various owners of electric generation facilities in California, including~~ Mirant, byLovett ~~Public~~submitted ~~Utility~~notices ~~District No. 1~~ of ~~Snohomish~~its ~~County,~~intent which is a municipal corporation in the State of Washington that provides electric and water utility service. The plaintiff public utility district alleges that defendants violated California’s antitrust statute by conspiring to ~~raise~~discontinue ~~wholesale~~operations ~~power prices, injuring plaintiff through higher power purchase costs. The plaintiff also alleges that defendants acted both unfairly and unlawfully in violation~~ of ~~California’s~~unit 5 ~~Unfair Competition Act through various unlawful and anticompetitive acts, including the purportedly wrongful acquisition~~ of ~~plants, engagement in “Enron-style” trading and withholding power from~~ the ~~market.~~Lovett ~~The~~generating ~~plaintiff~~facility ~~seeks~~as ~~restitution, disgorgement~~ of ~~profits,~~midnight ~~injunctive~~on relief, treble damages and attorney’s fees. The Snohomish suit was consolidated for purposes of pretrial proceedings with the other rate payer suits pending before the United States District Court for the Southern District of California. On JanuaryApril 619, ~~2003~~2008, ~~the district court granted a motion~~ to ~~dismiss~~the ~~filed~~New byYork ~~the~~Public ~~defendants.~~Service ~~On September 10~~Commission, ~~2004,~~ the ~~United~~NYISO, ~~States~~Orange ~~Court of Appeals for the Ninth Circuit upheld the~~and ~~dismissal~~Rockland ~~of the suit by the district court. The court of appeals ruled that the plaintiff’s claims under California’s antitrust statute~~ and ~~Unfair Competition~~several ~~Act~~other ~~are~~potentially ~~barred~~affected bytransmission ~~the doctrine of preemption~~ and ~~the~~distribution ~~filed~~companies ~~rate doctrine, concluding that if prices~~ in ~~the~~New ~~California~~York. ~~wholesale~~Barring ~~electricity markets~~a ~~were~~new ~~not~~agreement ~~just~~with ~~and reasonable or if~~ the ~~defendants~~State ~~sold electricity in violation~~ of ~~the~~New ~~applicable tariffs~~York, ~~the~~unit ~~plaintiff’s~~5 ~~only~~will ~~option~~shut ~~was~~down toas ~~seek~~required ~~a remedy before the FERC~~ under the ~~Federal~~amendment ~~Power Act. On June 27, 2005 the United States Supreme Court denied a petition for writ of certiorari filed by the plaintiff seeking~~ to ~~appeal~~ the ~~Ninth~~2003 ~~Circuit’s~~Consent ~~decision~~Decree.

OnState ~~November 20,~~Regulation ~~2002,~~of aGreenhouse ~~class action suit~~Gases, ~~Bustamante~~ v.including ~~The McGraw-Hill Companies, Inc., et al., was filed in~~ the ~~Superior~~ ~~Court~~Regional ~~for~~Green ~~the~~House ~~County~~Gas ofInitiative ~~Los~~(RGGI). Concern ~~Angeles~~over ~~against certain publishers of~~climate ~~index~~change ~~prices~~has ~~for~~led ~~natural~~to ~~gas,~~significant ~~gas~~legislative ~~distribution or marketing companies, owners of electric generation facilities in California~~ and ~~energy~~regulatory ~~marketers,~~efforts ~~including Mirant,~~at ~~Mirant~~the ~~Americas~~state ~~Energy~~level ~~Marketing~~to ~~and~~limit ~~subsidiaries~~greenhouse ofgas ~~Mirant Americas Generation~~emissions. ~~The~~One ~~plaintiff~~such ineffort ~~the~~is ~~Bustamante suit alleged that~~ the ~~defendants violated~~RGGI, ~~California~~a ~~Penal~~multi-state ~~Code~~Northeast ~~sections~~regional ~~182~~initiative ~~and~~outlining ~~395~~a cap-and-trade ~~California’s~~program ~~Unfair Competition~~to ~~Act~~reduce byCO2 ~~reporting~~emissions from ~~false~~units ~~information~~of ~~about~~25 ~~natural~~MW ~~gas~~or ~~transactions to~~greater. ~~the~~The ~~defendants~~RGGI ~~that~~program ~~published~~calls ~~index prices~~ for ~~natural~~signatory ~~gas~~states ~~causing~~to ~~the prices~~stabilize ~~paid~~CO2 byemissions ~~Californians~~to ~~for~~current ~~natural~~levels ~~gas~~from ~~and~~2009 ~~for electricity~~ to ~~be artificially inflated. The suit sought~~2015, ~~among~~followed ~~other~~by ~~things,~~a ~~disgorgement~~2.5% ~~of profits,~~reduction ~~restitution,~~each ~~and~~year ~~compensatory~~from ~~and~~2015 ~~punitive~~to ~~damages~~2018. OnIn ~~July~~August 82006, ~~2003,~~ ~~the~~seven ~~Superior~~states ~~Court~~including ~~for~~New York signed the ~~County~~RGGI Memorandum of ~~Los~~Understanding ~~Angeles dismissed the suit~~(“MOU”), ~~finding that~~which ~~the~~puts ~~plaintiffs~~forth ~~had~~a ~~failed~~model toset ~~allege~~of ~~facts~~regulations ~~sufficient~~ to ~~warrant~~guide ~~relief. The court granted~~ the ~~plaintiffs~~states ~~leave~~in tostructuring ~~file~~their anindividual ~~amended~~programs. ~~complaint,~~Both Massachusetts and onMaryland ~~August 13, 2003,~~joined the ~~plaintiff~~RGGI ~~filed~~in an2007. ~~amended~~Our ~~complaint asserting claims under~~generating ~~California’s~~facilities ~~Unfair~~in ~~Competition~~Maryland, ~~Act~~Massachusetts and ~~state~~New ~~antitrust~~York ~~statute~~will ~~against~~be ~~gas distribution~~affected orby ~~marketing~~the ~~companies,~~implementation ~~owners~~ of ~~electric~~the ~~generation~~RGGI. ~~facilities in~~In ~~California and energy marketers~~August 2007, ~~including~~ the ~~Company~~Massachusetts ~~and~~Department ~~various~~ of ~~its subsidiaries.~~Environmental ~~The~~Protection ~~amended~~and ~~complaint~~the ~~alleged~~Massachusetts ~~that~~Department ~~the~~of ~~defendants~~Energy ~~engaged~~Resources ~~in a~~proposed ~~scheme~~regulations to ~~report~~implement ~~false~~the ~~gas~~RGGI. ~~prices~~In ~~and~~October ~~volumes~~2007, tothe ~~companies~~NYSDEC ~~that~~and ~~published~~the ~~index prices~~New ~~for~~York ~~natural~~State ~~gas~~Energy inResearch ~~order~~and toDevelopment ~~manipulate~~Authority ~~the~~issued ~~price~~proposed ~~indices~~regulations to ~~benefit themselves.~~implement ~~This~~the ~~conduct,~~RGGI. ~~the~~In ~~plaintiff~~January ~~asserted~~2008, ~~violated California Penal Code section 395 and caused~~ the ~~prices~~MDE ~~paid~~issued ~~by Californians~~ for ~~natural~~public ~~gas~~comment toproposed beregulations ~~artificially~~to ~~inflated~~implement the RGGI. The ~~suit~~proposed ~~was~~Maryland ~~brought~~regulations asinclude a ~~representative~~mechanism ~~action~~such ~~on behalf~~that ofin ~~all similarly situated persons,~~ the ~~general~~event ~~public~~of ~~and~~carbon ~~all~~credit ~~taxpayers. The~~prices ~~suit~~exceeding ~~sought,~~$7 ~~among~~per ~~other things~~ton, ~~disgorgement~~we ofand ~~profits,~~other ~~restitution, treble~~Maryland ~~damages~~generators ~~and~~will ~~injunctive~~have ~~relief.~~the Inoption ~~November 2003,~~to ~~the~~purchase ~~plaintiff dismissed~~up ~~the~~to ~~Mirant~~50% ~~entities~~of ~~identified~~our asneeds ~~defendants~~at $7 inper ~~the~~ton ~~amended~~regardless ~~complaint filed~~of inauction ~~August 2003~~clearing prices.

OnWe ~~December~~ expect to produce a total of approximately 15,.8 million ~~2003,~~tons ~~the~~of ~~plaintiff~~CO2 inat ~~the~~our ~~Bustamante~~Maryland, ~~suit~~Massachusetts ~~filed~~and ~~proofs~~New ofYork ~~claim~~generating facilities in 2009. If adopted in their current form, the ~~bankruptcy~~proposed ~~proceedings~~and ondraft ~~behalf of~~RGGI aregulations ~~putative~~would ~~class~~require ~~(the~~those ~~“Bustamante~~facilities ~~Claims”)~~to ~~listing~~obtain ~~the~~allowances ~~total~~to ~~amount~~emit ~~claimed as~~CO2. ~~$500~~No ~~million~~allowances ~~and~~would ~~attaching~~be ~~the~~granted ~~original~~to ~~and~~existing sources ~~first~~of ~~amended~~such ~~complaints~~emissions. ~~On October 18~~Instead, ~~2004,~~ ~~the~~allowances ~~Debtors~~would ~~filed~~be made available for such facilities only by purchase through an ~~objection~~auction toprocess conducted regionally or through subsequent purchase from a party that held the ~~Bustamante~~allowances ~~Claims.~~that Onhad ~~November 19,~~been sold ~~2004,~~through the ~~Debtors~~auction. ~~filed~~We and a ~~motion~~number ~~requesting~~of ~~that~~other parties have submitted comments on the ~~Bankruptcy~~proposed ~~Court~~regulations ~~strike~~ in Massachusetts and New York, and we expect to comment on the ~~portions~~proposed rules to be issued in Maryland. The final form and timing of the regulations ~~Bustamante~~in ~~Claims~~each ~~that~~state ~~purported~~are uncertain. We are continuing to ~~have~~evaluate ~~been~~our ~~filed~~options ~~on behalf~~to ofcomply ~~unnamed~~with ~~absent~~the ~~members~~RGGI, ofbut its implementation in Maryland, Massachusetts and New York could have a ~~purported~~material ~~class.~~effect Onupon ~~January 26~~our operations and our operating costs, ~~2005,~~depending upon the

3817

BankruptcyTable Court entered an order embodying a ruling made orally on December 1, 2004 granting the motion and striking the Bustamante Claims to the extent they sought to recover on account of any claims other than the claim of Bustamante, in his individual capacity. The Mirant Debtors have also filed a motion to disallow the remaining Bustamante Claims. The Mirant Debtors have entered into a stipulation with Bustamante entitling him to receive an allowed, general, pre-petition unsecured claim against Mirant Americas Energy Marketing in the amount of $1,000 without the Mirant Debtors’ admission of the validity of the Bustamante Claims or any of the factual or legal assertions made in the Bustamante Claims and with a full reservation of any rights, claims and defenses any of the Mirant Debtors may have against any person asserting the same or similar factual or legal assertions as those contained in the Bustamante Claims. That stipulation was approved by the Bankruptcy Court on July 11, 2005.Contents

~~On April 28, 2003, a purported class action suit,~~ ~~Egger~~availability ~~et al. v. Dynegy, Inc. et al., was filed in the Superior Court for the County of San Diego, California, against various owners of electric generation facilities in California~~ and ~~marketers~~cost of ~~electricity~~emissions ~~and~~allowances ~~natural gas, including Mirant~~ and various subsidiaries of Mirant Americas Generation, on behalf of all persons who purchased electricity in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Arizona and Montana from January 1, 1999. The plaintiffs allege that the ~~defendants~~extent ~~engaged in unlawful, unfair, and deceptive practices in the California and western wholesale electricity markets, including withholding energy from the market~~ to ~~create~~which ~~artificial shortages,~~such ~~creating~~costs ~~artificial~~may ~~congestion~~be ~~over~~offset ~~transmission~~by ~~lines, selling electricity bought in California to out of state affiliates to create artificial shortages and then selling the electricity back into the state at~~ higher prices. The plaintiffs contend that the defendants conspired among themselves and with subsidiaries of Enron Corporation to withhold electricity from the Cal PX and CAISO markets and to manipulate the price of electricity sold at wholesale in the California and western markets. The defendants’ unlawful manipulation of the wholesale energy market, ~~the plaintiffs allege, resulted in supply shortages and skyrocketing energy~~ prices into ~~the~~recover ~~western United~~increases ~~States, which~~ in ~~turn caused drastic rate increases for retail~~operating ~~consumers.~~costs ~~The plaintiffs assert claims under California’s antitrust statute and its Unfair Competition Act. The plaintiffs contend that the defendants’ alleged wrongful conduct has~~ caused ~~damages in excess of $1 billion and seek treble damages, injunctive relief, restitution, and an accounting of the wholesale energy transactions entered into~~ by the ~~defendants from 1998~~RGGI. The defendants removed the suit to the United States District Court for the Southern District of California. The plaintiffs filed an amended complaint in October 2003 that did not include any Mirant entities as defendants due to the stay of litigation resulting from the filing of the Mirant Chapter 11 proceedings, but identified them as “relevant actors.”

~~Five~~In plaintiffs in the Egger suit (the “Proposed Representatives”) filed proofs of claim (the “Egger Claims”) in the bankruptcy proceedings purportedly on behalf of a class of “all persons and businesses residing in OregonCalifornia, ~~Washington,~~emissions ~~Utah, Nevada, Idaho, New Mexico, Arizona and Montana who were purchasers~~ of ~~electrical~~greenhouse ~~energy~~gases ~~during~~are ~~the period~~governed ~~beginning January 1, 1999 to the present.” Claimants alleged that various misconduct~~ by ~~Mirant and several of its subsidiaries, including subsidiaries of~~ the ~~Company,~~Global ~~caused~~Warming ~~inflated~~Solutions ~~prices~~Act ~~in wholesale power markets. Claimants listed the damage amount of their claims as~~ (“~~TBD/in excess of $100~~AB ~~million.~~32” ~~Claimants attached the first amended complaint to their proofs of claims. On October 18~~), ~~2004, the Mirant Debtors filed an objection to the Egger Claims. On November 10, 2004, the parties jointly presented to the Bankruptcy Court a scheduling order in~~ which ~~they~~requires ~~agreed~~ that ~~the~~greenhouse ~~Egger Claims~~gas ~~were~~emissions ~~sufficiently~~be ~~similar~~reduced to ~~the~~1990 ~~Oscar~~levels ~~Claims~~by so2020. ~~that~~AB ~~the~~32 ~~Bankruptcy Court’s ruling on the Mirant Debtor’s motion to strike the Oscar Claims would~~ also berequires ~~dispositive as to~~ the ~~Egger~~California ~~Claims. Thus,~~Air ~~the~~Resources ~~Egger~~Board ~~Claims were disallowed with prejudice~~ to ~~the~~develop ~~extent~~by ~~they sought to recover on account of any claims other than those of the Proposed Representatives in their individual capacities. On~~ January ~~19,~~ ~~2005~~2009, ~~the Bankruptcy Court approved~~ a ~~settlement~~ ~~agreement~~greenhouse ~~with~~gas ~~the~~reduction ~~Proposed~~plan ~~Representatives~~for ~~pursuant~~all toindustrial ~~which~~sectors. ~~each of~~That ~~the~~plan ~~Proposed Representatives will be entitled to receive an allowed, general~~could ~~unsecured~~have ~~claim~~a ~~against~~material ~~Mirant~~effect ~~Americas~~on ~~Energy~~how ~~Marketing~~we inoperate ~~the~~our ~~amount~~California ~~of $1,000~~facilities ~~in full~~ and ~~final~~the ~~satisfaction~~costs of operating the ~~Egger Claims~~facilities.

39Federal Regulation of Greenhouse Gases. At the federal level, various bills have been proposed to govern CO2 emissions from generating facilities. We do not know how any law, if ultimately enacted, would affect the state laws and regulations described. We expect that any federal law governing CO2 emissions would significantly affect our generating facilities.

~~Mirant~~Water ~~Americas~~Regulations ~~Generation Bondholder Suit~~

OnWe ~~June 10,~~are ~~2003, certain~~required ~~holders~~under ~~of senior notes of~~ the ~~Company~~Clean ~~maturing~~Water ~~after~~Act ~~2006~~to ~~filed~~comply ~~a complaint~~with inintake ~~the~~and ~~Court~~discharge ~~of Chancery of the State of Delaware~~requirements, ~~California Public~~requirements ~~Employees’~~for ~~Retirement~~technological ~~System, et al. v. Mirant Corporation, et al.,~~controls ~~that named as defendants Mirant, Mirant Americas, the Company, certain past~~ and ~~present~~ ~~Mirant~~operating ~~directors, and certain past and present Company managers~~practices. ~~Among other~~To ~~claims~~discharge water, ~~the~~we ~~plaintiffs~~must ~~assert~~have ~~that~~permits ~~a restructuring plan pursued by the Company prior to its filing a petition for reorganization~~ under ~~Chapter 11 of~~ the ~~Bankruptcy~~Clean ~~Code~~Water ~~was~~Act. inSuch ~~breach~~permits oftypically ~~fiduciary~~are ~~duties~~subject ~~allegedly owed~~ to ~~them~~review ~~by Mirant,~~every ~~Mirant~~five ~~Americas~~years. ~~and~~As ~~the~~with ~~Company’s~~air ~~managers.~~quality ~~In addition~~regulations, ~~plaintiffs challenge~~federal ~~certain dividends~~ and ~~distributions~~state ~~made~~water byregulations ~~the~~are ~~Company~~expected ~~prior~~ to ~~the~~impose ~~Petition~~additional ~~Date.~~and ~~Plaintiffs~~more ~~seek~~stringent ~~damages~~requirements inor ~~excess~~limitations ofin ~~$1 billion. Mirant has removed this suit to~~ the ~~United States District Court for the District of Delaware~~future. This ~~action~~ is ~~stayed~~particularly ~~with respect to~~ the ~~Mirant~~case ~~entities~~for ~~that~~regulatory ~~are defendants~~requirements bygoverning ~~the~~cooling ~~filing~~water ofintake ~~the~~structures, ~~Chapter~~which 11are ~~proceedings~~subject ofto ~~these~~regulation ~~entities.~~under Onsection ~~November~~316(b) ~~19, 2003,~~of the ~~Bankruptcy Court entered an order staying this action also with~~Clean ~~respect~~Water toAct. ~~the~~A ~~individual~~2007 ~~defendants~~decision toby ~~avoid~~ the ~~suit~~United ~~impeding~~States ~~the~~Court ~~ability~~ of ~~the~~ ~~Mirant~~Appeals ~~Debtors~~for ~~to reorganize or having a negative effect upon~~ the ~~assets~~Second ~~of the~~Circuit ~~Mirant Debtors. The Mirant Americas Generation Creditor Committee~~ in ~~2003 filed~~Riverkeeper aInc. ~~motion~~et inal ~~Mirant’s~~v. ~~bankruptcy proceedings seeking to pursue claims against Mirant~~EPA, ~~Mirant~~in ~~Americas,~~which ~~certain past and present Mirant directors, and certain past and present managers of~~ the ~~Company~~court ~~similar~~remanded to ~~those asserted in this suit. The Bankruptcy Court ruled that while~~ the ~~committee~~EPA ~~has~~for ~~standing~~reconsideration ~~to assert~~numerous ~~claims~~provisions ~~on behalf~~ of the ~~estate of the Company, no such claims could be filed without the Bankruptcy Court~~EPA’s ~~approval and no motions seeking such~~section ~~approval could be filed at least through April~~316(b) ~~2004.~~regulations Onfor ~~June 15, 2005,~~existing ~~the~~power ~~Mirant Americas Generation Creditor Committee again filed a motion in Mirant’s bankruptcy proceedings seeking to pursue claims against Mirant~~plants, ~~Mirant Americas,~~has ~~certain~~created ~~past~~substantial ~~and~~uncertainty ~~present~~about ~~Mirant~~exactly ~~directors,~~what ~~and~~technologies ~~certain~~or ~~past~~other ~~and present~~measures ~~managers~~will ofbe ~~the~~needed ~~Company similar~~ to ~~those~~satisfy ~~asserted~~section ~~in this suit. On June~~316(b) ~~30, 2005,~~requirements ~~the Bankruptcy Court issued an oral ruling that if the Mirant Debtors had not by July 8, 2005 entered into agreements with the individual defendants~~ in ~~this action tolling~~ the ~~running~~future ofand when any ~~statute~~new ofrequirements ~~limitations,~~will ~~then the Mirant Americas Generation Creditor Committee would~~ be ~~authorized to file~~ ~~claims against those defendants on behalf of the estate of Mirant Americas Generation~~imposed. ~~The Mirant Debtors did obtain tolling agreements from each of the individual defendants.~~

OnEndangered ~~December 15,~~Species ~~2003, Lehman~~Acts. Mirant ~~Commercial~~Delta’s ~~Paper~~use ~~Inc.~~of ~~(“Lehman”),~~water asfrom ~~agent~~the ~~for~~Sacramento-San ~~various~~Joaquin ~~lenders~~Delta ~~under~~at ~~certain~~its ~~pre-petition~~Contra ~~credit~~Costa ~~agreements,~~and ~~filed~~Pittsburg agenerating ~~claim~~facilities ~~against~~potentially affects certain fish species protected under the ~~Company~~Federal in Endangered Species Act and the ~~bankruptcy~~California ~~proceedings~~Endangered Species Act. On ~~December 15,~~Mirant ~~2003,~~Delta ~~Wells~~therefore ~~Fargo~~must ~~Bank,~~maintain authorization under both ~~N.A.~~statutes ~~(“Wells~~to ~~Fargo”)~~engage ~~also~~in ~~filed~~operations ~~claims~~that could result in a take of (i.e., harm to) fish of the ~~bankruptcy~~protected ~~proceedings~~species. ~~as successor~~In ~~indenture~~January ~~trustee~~and ~~for~~February ~~bond~~2006, ~~indebtedness~~Mirant ~~under~~Delta areceived ~~certain~~correspondence ~~indenture against~~from the ~~Company~~U. InS. ~~addition~~Fish toand ~~their~~Wildlife ~~original~~Service ~~claims,~~and onthe ~~that~~Army ~~same~~Corps of Engineers ~~date,~~expressing ~~Lehman~~the ~~and~~view ~~Wells~~that ~~Fargo~~the ~~filed~~Federal ~~supplemental~~Endangered ~~claims~~Species ~~against~~Act take authorization for the ~~Company, Mirant~~Contra Costa and aPittsburg ~~number~~facilities ofwas ~~other~~no ~~subsidiaries~~longer ofin effect due to changed circumstances. Mirant (Delta disagreed with the ~~“Supplemental~~agencies’ ~~Claims”)~~characterization of its ~~seeking~~take ~~recovery~~authorization ofas ~~principal,~~no ~~interest,~~longer ~~fees~~being in effect. In late October 2007, Mirant Delta received correspondence from the U.S. Fish and ~~costs~~Wildlife ~~under~~Service, the National Marine Fisheries Service and the Army Corps of Engineers clarifying that Mirant Delta ~~Americas~~continued ~~Generation~~to ~~loan~~be ~~documents~~authorized ~~and~~to ~~bond~~take ~~documents,~~four ~~respectively~~species of fish protected under the federal Endangered Species Act. ~~In their~~ ~~Supplemental~~The ~~Claims~~agencies have initiated a process that will review the environmental effects of Mirant Delta’s water usage, ~~Lehman~~including ~~and~~effects ~~Wells~~on ~~Fargo~~the protected ~~essentially~~species ~~seek~~of fish. That process could lead to ~~preserve for~~changes ~~themselves~~in the ~~claims~~manner ~~previously~~in ~~sought~~which toMirant beDelta ~~asserted~~can byuse river water for the ~~Mirant Americas~~operation ~~Generation~~of ~~Creditor~~the ~~Committee~~Pittsburg and Contra Costa generating facilities.

OnMirant ~~November~~and Mirant Delta received two letters, one dated September 327, ~~2004~~2007, ~~the~~ ~~Mirant~~sent ~~Debtors~~on ~~objected~~behalf toof the ~~Supplemental~~Coalition ~~Claims~~for ~~against~~a ~~the~~Sustainable ~~Company~~Delta, ~~and~~four water ~~the~~districts, ~~other~~and ~~Mirant~~an ~~entities~~individual, onand the ~~grounds~~second ~~that:~~dated ~~(1)~~October ~~Lehman~~16, ~~and~~2007, ~~Wells~~sent ~~Fargo lack~~on ~~standing~~behalf toof ~~pursue~~San ~~the~~Francisco ~~Supplemental~~Baykeeper ~~Claims,~~(collectively ~~which~~with ~~are~~the ~~derivative~~parties ~~claims belonging~~sending tothe ~~each~~September 27, ~~respective~~2007, ~~Mirant~~letter, ~~Debtor’s~~the ~~estate;~~“Noticing (2Parties”) ~~there~~, isproviding nonotice that ~~factual~~the ~~basis~~Noticing ~~for~~Parties ~~any~~intend ofto ~~the~~file ~~“potential”~~suit ~~causes~~alleging ofthat ~~action~~Mirant ~~against~~Delta ~~the~~has ~~Company~~ violated, and nocontinues ~~basis~~to ~~whatsoever~~violate, ~~for~~ the ~~claims~~federal ~~against~~Endangered ~~any~~Species ~~other~~Act ~~Mirant~~through ~~entities;~~the ~~and~~operation ~~(3) the Supplemental~~of ~~Claims~~its ~~are~~Contra ~~duplicative~~Costa and ~~contingent~~Pittsburg generating facilities. In ~~addition~~The toNoticing ~~the~~Parties ~~objection,~~contend that the ~~Mirant~~facilities ~~Debtors~~use ~~also~~of ~~filed~~water adrawn ~~motion~~from tothe ~~dismiss~~Sacramento-San ~~the~~Joaquin ~~Supplemental Claims~~Delta onfor ~~the~~cooling ~~basis~~purposes ~~that~~results ~~the~~in ~~Supplemental~~harm ~~Claims~~to dofour ~~not~~species ~~allege~~of ~~any~~fish ~~independent harm~~listed toas ~~Lehman~~endangered ~~and~~species. ~~Wells~~The ~~Fargo~~Noticing ~~and~~Parties assert ~~nothing~~that ~~more~~the ~~than~~take ~~derivative~~authorizations, ~~claims~~a biological ~~belonging~~opinion toand incidental take statement issued by the ~~Mirant~~National ~~Debtors’~~Marine ~~estates~~Fisheries ~~that~~Service ~~cannot~~on beOctober 17, ~~asserted~~2002, byfor ~~Lehman~~three ~~and Wells~~of ~~Fargo.~~the ~~The~~fish ~~Bankruptcy~~species ~~Court~~and ~~issued~~a anbiological ~~order~~opinion onand ~~April 12,~~incidental ~~2005, ruling~~take ~~that~~statement ~~(A)~~ issued by the ~~Supplemental~~U.S. ~~Claims~~Fish ~~will~~and beWildlife ~~withdrawn,~~Service ~~(B) the~~on ~~withdrawal~~November 4, of2002, for the ~~Supplemental~~fourth ~~Claims~~fish species, tohave ~~the~~been ~~extent~~violated ~~that~~by ~~they~~Mirant ~~are~~Delta ~~not~~and ~~property of~~no ~~the~~longer ~~estates~~apply orto ~~derivative~~permit ofthe aeffects ~~Mirant~~on

4018

Debtor (theTable “Withdrawn Claims”), will be without prejudice and the Bar Date shall be extended through the date of confirmation of a plan in the Mirant Debtors Chapter 11 proceedings, and (C) the withdrawal of the Supplemental Claims does not impair the ability of Lehman or Wells Fargo to raise those claims as issues in the plan confirmation process.Contents

the four fish species caused by the operation of the Contra Costa and Pittsburg generating facilities. Following receipt of these letters, Mirant ~~Americas~~Delta received ~~Generation~~the ~~Securities~~correspondence ~~Class~~described above from the U.S. Fish and Wildlife Service, the National Marine Fisheries Service and the Army Corps of Engineers clarifying that Mirant Delta continues to be authorized to take the four species of fish protected under the federal Endangered Species Act. In a subsequent letter, the Coalition for a Sustainable Delta also alleged violations of the National Environmental Policy Act and the California Endangered Species Act associated with the operation of Mirant Delta’s facilities. Mirant Delta disputes the allegations made by the Noticing Parties. No lawsuits have been filed to date, and San Francisco Baykeeper, on February ~~Action~~1, 2008, withdrew its notice of intent to sue.

~~On June 11~~Additionally, ~~2003,~~in aSeptember ~~purported~~2007, ~~class~~Mirant ~~action lawsuit~~Delta ~~alleging~~signed ~~violations~~an ofamendment ~~Sections~~to 11a ~~and~~Memorandum 15 of ~~the~~Agreement ~~Securities~~with ~~Act of 1933 was filed in~~ the ~~Superior~~California ~~Court~~Department of ~~Fulton~~Fish ~~County, Georgia entitled Wisniak v. Mirant Americas Generation, LLC, et al. The lawsuit names as defendants the Company~~ and ~~certain current and former officers~~ ~~and managers of the Company~~Game. The ~~plaintiff~~amendment ~~seeks~~requires toMirant ~~represent~~Delta ato ~~putative~~initiate ~~class of~~monitoring ~~all persons who purchased debt securities~~ of the ~~Company~~effects ~~pursuant~~on tofish ~~or traceable to an exchange offer completed by the Company in May 2002 in which $750 million~~ of ~~bonds registered under~~ the ~~Securities~~operations ~~Act were exchanged for $750 million~~ of ~~previously issued senior notes of~~ the ~~Company.~~ ~~The~~Pittsburg ~~plaintiff~~and ~~alleges,~~Contra ~~among~~Costa ~~other things~~facilities, ~~that~~to ~~the~~prepare ~~Company’s restatement~~an inenvironmental ~~April 2003~~impact ~~of prior financial statements rendered the registration statement filed for the May 2002 exchange offer materially false. The complaint seeks damages~~report, ~~interest~~ and ~~attorneys’ fees. The defendants have removed the suit~~ to ~~the~~submit ~~United~~within ~~States~~24 ~~District~~months ~~Court~~an application for ~~the~~a ~~Northern~~new ~~District~~permit ofauthorizing ~~Georgia.~~Mirant ~~This~~Delta ~~action is stayed as~~ to ~~the~~take ~~Company by~~ the ~~filing~~ ofprotected ~~its~~fish ~~Chapter~~species 11affected ~~proceeding.~~by ~~On November 19, 2003,~~ the ~~Bankruptcy~~ ~~Court~~operation ~~entered an order staying this action also with respect to the individual defendants to avoid the suit impeding the ability~~ of ~~the Company to reorganize or having a negative effect upon~~ its ~~assets~~facilities. OnThe ~~December 8, 2003,~~amendment ~~the~~extends ~~district~~Mirant ~~court took notice of the Bankruptcy Court~~Delta’s ~~order~~authorization ~~dated~~for ~~November 19, 2003~~take ~~staying~~of ~~the~~fish ~~litigation~~species ~~and~~protected ~~administratively~~under ~~closed~~ the ~~action.~~California OnEndangered ~~December 16,~~Species ~~2003,~~Act ~~the~~until ~~plaintiff dismissed~~ the ~~Company~~California asDepartment aof ~~defendant,~~Fish ~~without prejudice,~~ and ~~filed~~Game acompletes ~~proof~~its consideration of ~~claim against~~ the ~~Company~~application infor the ~~bankruptcy~~new ~~proceedings asserting the same claims set forth in the lawsuit~~permit.

~~The Company and the~~National ~~plaintiff~~Pollution ~~have~~Discharge ~~entered~~Elimination ~~into~~System. On aJune 8, ~~stipulation~~2006, ofBayview-Hunters ~~settlement~~Point ofCommunity ~~the~~Advocates ~~Wisniak suit~~ and ~~the~~ ~~claim~~Communities ~~filed~~for ~~against~~a ~~the~~Better ~~Company~~Environment ~~that~~filed ~~was~~a ~~approved~~petition bychallenging the ~~Bankruptcy~~issuance ~~Court on January 19, 2005. Under the terms~~ of the ~~stipulation~~National ofPollution ~~settlement, the~~Discharge ~~plaintiff~~Elimination ~~will~~System ~~seek~~(“NPDES”) ~~certification~~permit offor aour ~~class~~Potrero byfacility. ~~the~~On ~~district~~February 8, ~~court~~2007, ~~that~~Bayview-Hunters ~~will receive~~Point ~~$2.25~~Community ~~million~~Advocates toand beCommunities ~~paid by insurers~~ for ~~the~~a ~~Company~~Better ~~and~~Environment anfiled ~~allowed, unsecured~~another ~~claim~~petition ~~for~~with $2a ~~million~~request ~~against Mirant subordinated~~ to ~~the~~amend ~~claims~~their ~~of its~~initial ~~other unsecured creditors~~petition. On ~~Members~~March 21, of2007, the ~~plaintiff~~California ~~class~~State ~~will~~Water ~~have~~Resources ~~the opportunity~~Control toBoard ~~opt~~notified ~~out of~~ the ~~settlement,~~parties ~~and~~that ifpetitioners ~~class~~requested ~~members~~that ~~who~~as ~~choose~~of ~~to opt~~March 19, ~~out~~2007, ~~own in~~ the ~~aggregate~~two ~~more~~petitions ~~than~~be 1%moved offrom ~~the~~active ~~Company’s~~status ~~bonds~~to ~~that~~abeyance. ~~are~~Those ~~the~~petitions ~~subject~~currently ofremain ~~the~~in ~~suit~~abeyance. Additionally, ~~then~~on ~~the~~June 15, ~~Mirant~~2007, ~~defendants~~Bayview-Hunters ~~have~~Point ~~the~~Community ~~option~~Advocates toand ~~withdraw from~~Communities ~~the~~for ~~settlement.~~a ~~The~~Better ~~stipulation~~Environment ofand ~~settlement~~San ~~must~~Francisco ~~also~~Baykeeper befiled ~~approved~~a bythird ~~the district~~petition ~~court~~requesting tothat ~~become~~the ~~effective.~~NPDES Onpermits ~~June 27,~~for ~~2005 the district court~~Potrero ~~entered~~and anMirant ~~order~~Delta’s ~~granting~~Pittsburg ~~preliminary~~facility ~~approval~~be toreopened. ~~the~~The ~~settlement,~~State ~~certifying~~Water ~~a settlement~~Resources ~~class,~~Control ~~and~~Board ~~scheduling~~denied athat ~~hearing~~petition ~~for~~on ~~final approval of the settlement for September~~November 627, ~~2005~~2007.

~~Operating~~Kendall ~~Leases~~NPDES and Surface Water Discharge Permit. On September 26, 2006, the Massachusetts Department of Environmental Protection and the EPA jointly issued to Mirant Kendall a Surface Water Discharge Permit (“SWDP”), a water quality certificate and an NPDES permit for the Kendall generating facility. The new permits impose new temperature limits at various points in the Charles River, an extensive temperature, water quality and biological monitoring program and a requirement to develop and install a barrier net system to reduce fish impingement and entrainment. The provisions regulating the thermal discharge could cause substantial curtailments of the operations of the Kendall facility. Mirant Kendall has appealed the permits in three proceedings: (1) appeal of the NPDES permit to the Environmental Appeals Board; (2) appeal of the SWDP to the Massachusetts Department of Environmental Protection; and (3) appeal of the Water Quality Certification to the Massachusetts Department of Environmental Protection. The effect of the permits has been stayed pending the outcome of these appeals. The two appeals to the Massachusetts Department of Environmental Protection have been stayed pending the outcome of the appeal to the Environmental Appeals Board. On September 28, 2007, the Environmental Appeals Board stayed the appeal proceedings until April 18, 2008, in order for the EPA to address the sections of the permit that are affected by the EPA’s suspension of the 316(b) regulations as described above under “Water Regulations.” We are unable to predict the outcome of these proceedings.

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

AtOur facilities ~~this~~are ~~time,~~subject ~~the~~to ~~Mirant Debtors~~laws ~~maintain~~and ~~that~~regulations ~~the~~governing ~~leases~~waste ~~are~~management. ~~not~~The ~~true~~federal ~~leases~~Resource Conservation and Recovery Act of 1976 contains comprehensive requirements for ~~bankruptcy~~the ~~purposes~~handling of solid and hazardous wastes. The generation of electricity ~~However~~produces non-hazardous and hazardous materials, ~~based~~and onwe ~~the~~incur ~~Bankruptcy~~substantial ~~Court’s~~costs ~~comments~~to store and dispose of waste materials. The EPA and the states in ~~its~~which ~~April 2005~~we operate coal-fired units may develop new regulations that impose additional requirements on ~~ruling~~facilities that store or dispose of fossil fuel combustion materials, ~~the~~including ~~Mirant~~types ~~Debtors~~of coal ash. If so, we may be required to change the current waste

4119

determine toTable modify their proposed Plan (and related Disclosure Statement) to propose that the leases be assumed conditioned upon certain provisions in the leases—including the limitations on restricted payments and the restrictions on the incurrence of indebtedness and liens—being modified, stricken or determined to be unenforceable and certain alleged defaults determined as not requiring “cure” as a condition to assumption. In order to assume leases, a debtor-lessee must obtain bankruptcy court approval and, subject to certain exceptions set forth in the Bankruptcy Code, must cure any existing defaults under the applicable leases (unless such defaults are duly waived). It would be the Mirant Debtors’ objective that assumption would be approved at or before confirmation of the Plan, and that as part of the assumption or confirmation order, Mirant Mid-Atlantic would be relieved of the obligation to cure certain defaults and of the obligation to perform certain covenants. If it is not feasible for Mirant Mid-Atlantic to assume the leases because relief from certain defaults and/or covenants is not available, the two remaining alternatives are rejection and revisiting the issue of recharacterization. In the latter circumstance, if the Bankruptcy Court recharacterizes the leases as indebtedness, Mirant Mid-Atlantic may be required to re-evaluate the accounting for the leases. If, on the other hand, recharacterization is not sought or is not available, and/or Mirant Mid-Atlantic cannot or does not assume the leases, then the leases will be rejected. In that event, the owner lessors would be entitled to a return of the leased assets and would have a claim for damages, if any, arising from such rejection, subject to the limitation on allowed claims under section 502(b)(6) of the Bankruptcy Code applicable to leases of real property. Any claims arising on account of rejection would be subject to compromise in Mirant Mid-Atlantic’s Chapter 11 case. The impact of any of these events would be reflected in Mirant Mid-Atlantic’s and the Company’s consolidated financial statements if and when the events occur.Contents

~~PEPCO~~ management ~~Litigation~~practices at some facilities and incur additional costs for increased waste management requirements. The MDE has proposed new regulations to govern the disposal of coal ash and we expect these regulations to become final in 2008. We do not expect any significant effect on the operations of our coal ash disposal facilities as a result of these new regulations.

InAdditionally, ~~2000~~CERCLA, ~~Mirant~~also ~~purchased~~known ~~certain~~as ~~power~~the ~~generating assets~~Superfund ~~and certain other assets from PEPCO~~law, ~~including~~establishes ~~certain~~a ~~power~~federal ~~purchase agreements~~framework ~~(“PPAs”).~~for ~~Under~~dealing with the ~~terms~~cleanup of ~~the~~contaminated ~~Asset~~sites. ~~Purchase~~Many ~~and Sale Agreement~~states ~~(the~~have ~~“APSA”)~~enacted ~~Mirant~~similar ~~and~~state ~~PEPCO~~superfund ~~entered~~statutes ~~into~~as awell ~~contractual~~as ~~arrangement~~other ~~(the~~laws ~~“Back-to-Back Agreement”)~~imposing ~~with~~obligations ~~respect~~ to ~~certain~~investigate ~~PPAs,~~and ~~including~~clean ~~PEPCO’s~~up ~~long-term~~contamination. ~~PPAs~~Our ~~with Ohio~~Pittsburg, ~~Edison~~Contra ~~Company~~Costa ~~(“Ohio~~and ~~Edison”)~~Potrero ~~and~~facilities ~~Panda-Brandywine~~have ~~L.P.~~areas ~~(“Panda”), under~~of ~~which~~soil ~~(1) PEPCO~~and ~~agreed~~groundwater tocontamination ~~resell~~subject to ~~Mirant all capacity, energy,~~CERCLA ~~ancillary services~~ and ~~other~~the ~~benefits~~California toHealth ~~which it is entitled under those agreements;~~ and ~~(2) Mirant~~Safety ~~agreed~~Code. toPrior ~~pay PEPCO each month all amounts due from PEPCO~~ to ~~the~~our ~~sellers~~acquisition ~~under~~of those ~~agreements~~facilities ~~for~~from ~~the~~PG&E ~~immediately~~in ~~preceding month associated with such capacity~~1998, ~~energy,~~PG&E ~~ancillary~~conducted ~~services~~soil and ~~other benefits.~~groundwater ~~The~~investigations ~~Panda~~at ~~and~~those ~~Ohio~~facilities ~~Edison~~which ~~PPAs~~revealed ~~run~~contamination. ~~until~~The ~~2021~~consultants ~~and~~conducting ~~2005 respectively.~~the ~~Under~~investigation estimated the ~~Back-to-Back~~aggregate ~~Agreement,~~cleanup ~~Mirant~~costs ~~is obligated to purchase power from PEPCO~~ at ~~prices~~those ~~that~~facilities ~~are~~could ~~significantly~~be ~~higher~~as ~~than~~much ~~existing~~as ~~market prices for power~~$60 million. InPursuant to the ~~Chapter~~terms ~~11 cases~~ of the ~~Mirant~~Purchase ~~Debtors, PEPCO has asserted that an Assignment~~ and ~~Assumption~~Sale Agreement ~~dated~~with ~~December 19~~PG&E, ~~2000~~PG&E ~~that includes~~has asresponsibility ~~parties~~for ~~PEPCO,~~the ~~various~~containment ~~subsidiaries~~or capping of ~~the Company, Mirant Potomac~~all ~~River,~~soil and ~~Mirant~~groundwater ~~Americas~~contamination ~~Energy~~and ~~Marketing, causes~~ the ~~Company’s~~disposition ~~subsidiaries that~~of ~~are~~up ~~parties~~ to ~~the~~60,000 ~~agreement~~cubic toyards beof ~~jointly~~contaminated ~~and~~soil ~~severally~~from ~~liable~~the toPotrero ~~PEPCO for~~generating ~~various~~facility ~~obligations,~~and ~~including~~ the ~~obligations~~remediation ~~under~~of ~~the~~any ~~Back-to-Back Agreement.~~groundwater ~~PEPCO~~or ~~also~~solid ~~asserts~~contamination ~~that~~identified ~~the~~at ~~Assignment and Assumption Agreement causes~~ the ~~Company’s~~Pittsburg ~~subsidiaries to be jointly~~ and ~~severally~~Contra ~~liable for a~~Costa ~~claim~~generating offacilities, ~~$105 million filed by PEPCO~~ in ~~the~~each ~~Chapter~~case 11with ~~cases~~respect ~~related~~ to ~~modifications~~ ~~agreed~~contamination toexisting ~~between~~at ~~Mirant~~those ~~Americas~~facilities ~~Energy Marketing and PEPCO related to the Transition Power Agreements~~ in ~~place~~1999 ~~between~~when ~~PEPCO~~they ~~and~~were ~~Mirant Americas~~purchased ~~Energy~~by ~~Marketing~~our ~~through January 2005~~subsidiaries. ~~The~~Pursuant ~~Company~~to isour ~~disputing this~~requests, ~~interpretation~~PG&E ofhas ~~the~~disposed ~~Assignment~~of ~~and~~807 ~~Assumption~~cubic ~~Agreement~~yards inof ~~proceedings before~~contaminated ~~the~~soil ~~Bankruptcy~~from ~~Court, but~~ the Potrero ~~outcome~~generating ~~of those proceedings is uncertain~~facility. If ~~the~~We ~~Company’s subsidiaries~~ are ~~determined~~not toaware ~~be jointly and severally liable for the obligations~~ of ~~Mirant~~soil ~~and~~or ~~Mirant~~groundwater ~~Americas~~conditions ~~Energy~~for ~~Marketing~~which towe ~~PEPCO under~~expect ~~the~~remediation ~~Assignment~~costs ~~and Assumption Agreement, then the claim related~~ to ~~the Transition~~be ~~Power~~material ~~Agreements~~that ~~and~~are ~~the~~not ~~proceedings described below involving~~ the ~~Back-to-Back~~ ~~Agreement~~responsibility ~~could~~of ~~have~~other anparties. ~~adverse effect upon~~

4220

theTable Company’sof financial condition, although such an effect would be mitigated by Mirant and Mirant Americas Energy Marketing also having responsibility for those obligations.Contents

~~Back-to-Back~~Employees Agreement Litigation. On August 28, 2003, the Mirant Debtors filed a motion in the bankruptcy proceedings to reject the Back-to-Back Agreement (the “Rejection Motion”), along with an adversary proceeding to enjoin PEPCO and the FERC from taking certain actions against the Mirant Debtors (the “Injunction Litigation”). On October 9, 2003, the United States District Court for the Northern District of Texas entered an order that had the effect of transferring to that court from the Bankruptcy Court the Rejection Motion and the Injunction Litigation. In December 2003, the district court denied the Rejection Motion and, thereafter, dismissed the Injunction Litigation. The district court ruled that the Federal Power Act preempts the Bankruptcy Code and that a bankruptcy court cannot affect a matter within the FERC’s jurisdiction under the Federal Power Act, including the rejection of a wholesale power purchase agreement regulated by the FERC.

~~The~~Under ~~Mirant~~our ~~Debtors~~services ~~appealed~~agreement ~~the~~with ~~district~~Mirant ~~court’s orders to the United States Court of Appeals for the Fifth Circuit (the “Fifth Circuit”). The Fifth Circuit reversed the district court’s decision~~Services, ~~holding that the Bankruptcy Code authorizes~~ a ~~district~~direct ~~court~~subsidiary ~~(or bankruptcy court) to reject a contract for the sale~~ of ~~electricity~~Mirant, ~~that~~Mirant isServices ~~subject~~provides toour ~~the FERC’s regulation under the Federal Power Act as part of a bankruptcy proceeding and that the Federal Power Act does not preempt that authority~~personnel. ~~The~~At ~~Fifth~~December ~~Circuit remanded~~31, ~~the~~2007, ~~proceeding~~approximately to1,255 ~~the~~Mirant ~~district~~Services ~~court~~employees ~~for~~worked ~~further~~at ~~action~~our ~~on that motion~~facilities. The ~~Fifth~~following ~~Circuit indicated that on remand the district court could~~details ~~consider applying a more rigorous standard than~~ the ~~business~~employees ~~judgment~~subject ~~standard typically applicable~~ to ~~contract~~collective ~~rejection~~bargaining ~~decisions~~agreements: ~~by debtors in bankruptcy, which more rigorous standard would take into account the public interest in the transmission and sale of electricity.~~

On December 9, 2004, the district court held that the Back-to-Back Agreement was a part of and not severable from, and therefore could not be rejected apart from, the APSA. The district court also noted that if the Fifth Circuit overturned the district court’s ruling with respect to severability, the Back-to-Back Agreement should be rejected only if Mirant can prove that the Back-to-Back Agreement burdens the bankrupt estates; that, after scrutiny and giving significant weight to the comments of the FERC relative to the effect of rejection on the public interest, the equities balance in favor of rejecting the Back-to-Back Agreement; and that rejection of the Back-to-Back Agreement would further the Chapter 11 goal of permitting the successful rehabilitation of the Mirant Debtors. The Mirant Debtors have appealed the district court’s December 9, 2004 decision to the Fifth Circuit and requested that the Fifth Circuit hear this appeal on an expedited basis. On March 8, 2005, the Fifth Circuit denied the Mirant Debtor’s request to have the appeal expedited.


Union	Location	Number of Employees Covered	Contract Expiration Date
Mid-Atlantic Region
IBEW Local 1900	Maryland and Virginia	503	6/1/2010

Northeast Region
IBEW Local 503	New York	122	6/1/2008
UWUA Local 369	Cambridge, Massachusetts	33	2/28/2009
UWUA Local 480	Sandwich, Massachusetts	51	6/1/2011

California
IBEW Local 1245	California	124	10/31/2008


Total		833

~~On January~~ 21, 2005, the Mirant Debtors filed a motion in the bankruptcy proceedings to reject the APSA, including the Back-to-Back Agreement but not including other agreements entered into between Mirant and its subsidiaries and PEPCO under the terms of the APSA (the “Second Rejection Motion”). On February 10, 2005, PEPCO filed a motion requesting the district court to assert jurisdiction over and rule upon the Second Rejection Motion rather than having the Bankruptcy Court rule on that motion. On March 1, 2005, the district court ruled that it would withdraw the reference to the Bankruptcy Court of the Mirant Debtors’ January 21, 2005 motion seeking to reject the APSA and would itself hear that motion.

SuspensionTable of PEPCO Back-to-Back Payments. On December 9, 2004, in an effort to halt further out-of-market payments under the Back-to-Back Agreement while awaiting resolution of issues related to the potential rejection of the Back-to-Back Agreement (but prior to notice of entry of the district court’s order of December 9, 2004), Mirant filed a notice in the Bankruptcy Court that Mirant was suspending further payments to PEPCO under the Back-to-Back Agreement absent further order of the court (the “Suspension Notice”). On December 10, 2004, in response to the Suspension Notice, PEPCO filed a motion in the district court seeking a temporary restraining order and injunctive relief to require Mirant to perform under the Back-to-Back Agreement (the “Injunctive Relief Motion”). On December 13, 2004, the Contents

43Item 1A. Risk Factors

~~district~~The ~~court issued an~~following ~~order~~are ~~referring~~factors ~~the~~that ~~Injunctive~~could ~~Relief~~affect ~~Motion~~our tofuture ~~the~~performance: ~~Bankruptcy Court. On December 21, 2004, the Bankruptcy Court issued an order denying the temporary restraining order sought by PEPCO.~~

OnOur ~~December 14,~~revenues ~~2004,~~are ~~PEPCO~~unpredictable ~~filed~~because ~~the~~most ~~following additional litigation: (1) a motion seeking relief from the automatic stay provision~~ of ~~Bankruptcy~~our ~~Code~~facilities ~~section~~operate ~~362(a) to~~without ~~permit~~long-term ~~PEPCO to terminate~~power ~~performance~~sales ~~under the APSA (the “Lift Stay Motion”); (2) a motion to compel the Mirant Debtors to pay~~agreements, asand ~~administrative~~our ~~expenses,~~revenues ~~payments that had been suspended under the Back-to-Back Agreement (the “Administrative Expense Motion”);~~ and ~~(3) an~~results ~~adversary~~of ~~proceeding~~operations ~~seeking~~depend to compel the Mirant Debtors to make payments under the Back-to-Back Agreement (the “PEPCO Lawsuit”). On December 16, 2004, PEPCO filed a motion requesting the district court to withdraw the reference to the Bankruptcy Court with respect to the litigation filed by PEPCO on ~~December 14,~~market ~~2004,~~and ascompetitive ~~well~~forces asthat ~~the~~are ~~Injunctive Relief~~beyond ~~Motion~~our ~~(the “Second Withdrawal Motion”)~~control. ~~On January 4, 2005, the district court denied the Second Withdrawal Motion in its entirety.~~

OnWe ~~January 19,~~sell ~~2005~~capacity, ~~the~~energy ~~Bankruptcy~~and ~~Court~~ancillary ~~entered an~~services ~~order~~from ~~embodying~~most aof ~~ruling~~our ~~made~~generating ~~orally~~facilities byinto ~~the~~competitive ~~court~~power markets on ~~January 14,~~a ~~2005~~short-term fixed price basis or through power sales agreements. Since mid-2007, our revenues from selling capacity inhave ~~which~~become ita ~~denied~~significant ~~the~~part ~~Lift~~of ~~Stay~~our ~~Motion~~overall ~~and~~revenues. ~~the~~We ~~Administrative~~are ~~Expense~~not ~~Motion, but~~guaranteed ~~required~~recovery ~~the~~of ~~Mirant~~our ~~Debtors~~costs toor ~~pay~~any ~~amounts~~return ~~due~~on ~~under~~our ~~the~~capital ~~Back-to-Back Agreement~~investments inthrough ~~January 2005~~mandated rates. The market for wholesale electric energy and ~~thereafter~~energy ~~until~~services ~~(1) the~~reflects ~~Mirant~~various ~~Debtors~~market ~~filed~~conditions abeyond ~~motion~~our tocontrol, ~~reject~~including the ~~APSA~~balance of supply and demand, ~~(2)~~ the ~~Fifth~~marginal ~~Circuit~~and ~~issued~~long anrun ~~order reversing~~costs ~~the~~incurred ~~district~~by ~~court’s~~our ~~order~~competitors and the effect of ~~December 9,~~market ~~2004~~regulation. ~~denying~~Being ~~the~~concentrated in a few geographic markets results in concentrated ~~motion~~exposure to ~~reject~~those ~~the~~markets, ~~Back~~especially PJM. The price for which we can sell our output may fluctuate on a day-to-~~Back~~day ~~Agreement,~~basis. The markets in which we compete remain subject to one or ~~(3) the~~more ~~Mirant~~forms of regulation that limit our ability to raise prices ~~Debtors~~during ~~were~~periods ~~successful~~of inshortage ~~having~~to the ~~obligations~~degree ~~under~~that ~~the~~would ~~Back-to-Back Agreement~~occur ~~recharacterized~~in asa ~~debt~~fully ~~obligations.~~deregulated ~~PEPCO~~market ~~filed~~and anmay ~~appeal~~thereby oflimit ~~the Bankruptcy~~our ~~Court’s~~ability ~~January 19,~~to ~~2005~~recover ~~order~~costs and an adequate return on our investment. OnOur ~~January 21,~~revenues ~~2005,~~and ~~the~~results of operations are influenced by factors ~~Mirant~~that ~~Debtors~~are ~~filed~~beyond ~~the~~our ~~Second~~control, ~~Rejection~~including: ~~Motion.~~

On• ~~March 1, 2005,~~ the ~~district~~failure ~~court withdrew the reference to the Bankruptcy Court~~ of ~~the~~market ~~Second~~regulators ~~Rejection Motion and the Administrative Expense Motion, ordered the Mirant Debtors~~ to ~~pay~~develop ~~PEPCO all past-due, unpaid obligations under the Back-to-Back Agreement by March 10, 2005~~ and ~~dismissed~~maintain asefficient ~~moot~~mechanisms ~~PEPCO’s appeal of the January 19, 2005 order denying the Administrative Expense Motion. The Mirant Debtors on March 4, 2005 filed a motion requesting the district court~~ to ~~reconsider~~compensate ~~its~~merchant ~~order~~generators of March 1, 2005 or alternatively to stay that order while the Mirant Debtors appeal it to the Fifth Circuit. On March 7, 2005, the district court modified the March 1, 2005 order to require PEPCO to file a response to the Mirant Debtors’ motion for ~~reconsideration by March 14, 2005 and to delay until March 18, 2005,~~ the ~~date~~value byof ~~which~~providing ~~the~~capacity ~~Mirant~~needed ~~Debtors were~~ to ~~pay~~meet ~~past-due, unpaid obligations under the Back-to-Back Agreement.~~demand;

On• ~~March 16,~~actions ~~2005,~~by ~~the Mirant Debtors filed a petition for writ of mandamus with the Fifth Circuit asking it to order the district court to vacate the March 1~~regulators, ~~2005 order~~ISOs, asRTOs ~~modified,~~ and ~~to reinstate~~other ~~PEPCO’s~~bodies appeal of the Bankruptcy Court’s order of January 19, 2005 denying the Administrative Expense Motion. The petition asked the Fifth Circuit alternatively to stay the March 1, 2005 order until the Mirant Debtors’ appeal of that ~~order~~may ~~was~~prevent ~~resolved.~~capacity ~~Also~~and onenergy ~~March 16,~~prices ~~2005~~from ~~the district~~rising ~~court further modified its order of March 1, 2005~~ to ~~clarify that~~ the ~~amounts~~level tonecessary be paid by the Mirant Debtors by March 18, 2005 did not include any amounts that became due prior to the filing of the Chapter 11 cases on July 14, 2003. On March 16, 2005, the Mirant Debtors also appealed the district court’s March 1, 2005 order, as modified, to the Fifth Circuit. On March 17, 2005, the Fifth Circuit issued a temporary stay of the March 1, 2005 order, as modified. On April 11, 2005, the Fifth Circuit vacated the temporary stay entered on March 17, 2005, denied the petition for ~~writ~~recovery of ~~mandamus~~our ~~and denied the Mirant Debtors’ request for a stay pending appeal. In its order the Fifth Circuit concluded that the Mirant Debtors’ challenges to the district court’s order of March 1~~costs, ~~2005,~~our ~~as modified,~~investment ~~could be remedied in their pending appeals~~ and ~~that the Mirant Debtors had not shown they would suffer irreparable harm if the order was not stayed pending appeal. On April 20, 2005, the district court entered~~ an ~~order~~ ~~directing~~adequate ~~the~~return ~~Mirant~~on ~~Debtors~~our to pay PEPCO by April 25, 2005 all unpaid amounts due under the Back-to-Back Agreement accruing since the Petition Date to the extent they had not already done so, and to continue performance of all obligations under the agreement investment;

44• legal and political challenges to the rules used to calculate capacity payments in the markets in which we operate;

~~until~~• ~~further~~the ~~order~~possibility that appellate courts considering the pending appeals of the ~~district~~ ~~court.~~FERC’s ~~The~~rulings ~~Mirant~~that ~~Debtors~~approved ~~have~~the ~~paid~~RPM ~~all~~and ~~amounts~~FCM ~~due~~tariffs ~~under~~do not affirm the ~~Back-~~ FERC’s approval of those tariffs, resulting in modifications to~~-Back~~ ~~Agreement~~the ~~accruing~~capacity ~~since~~payments made under those tariffs in the ~~Petition~~future ~~Date.~~and possibly refunds for past periods;

~~Potential~~• ~~Adjustment Related to Panda Power Purchase Agreement. At~~ the ~~time~~ability of ~~the~~wholesale ~~acquisition~~purchasers of the Mirant Mid-Atlantic assets from PEPCO, Mirant also entered into an agreement with PEPCO that, as subsequently modified, provided that the price paid by Mirant for its December 2000 acquisition of PEPCO assets would be adjusted if by April 8, 2005 a binding court order had been entered finding that the Back-to-Back Agreement violated PEPCO’s power purchase agreement with Panda (the “Panda PPA”) as a prohibited assignment, transfer or delegation of the Panda PPA or because it effected a prohibited delegation or transfer of rights, duties or obligations under the Panda PPA that was not severable from the rest of the Back-to~~-Back~~ ~~Agreement.~~make ~~Panda~~timely ~~initiated~~payment ~~legal~~for ~~proceedings~~energy ~~in 2000 asserting that the Back-to-Back Agreement violated provisions in the Panda PPA prohibiting PEPCO from assigning the Panda PPA~~ or ~~delegating its duties under the Panda PPA to a third party without Panda’s prior written consent. On June 10~~capacity, ~~2003,~~ ~~the~~which ~~Maryland~~may ~~Court~~be ofadversely ~~Appeals,~~affected ~~Maryland’s highest court, ruled that the assignment of certain rights and delegation of certain duties~~ by ~~PEPCO~~factors ~~to Mirant~~such ~~did~~as ~~violate~~retail ~~the~~rate ~~non-assignment provision of the Panda PPA and was unenforceable. The court~~caps, ~~however,~~refusals left open the issues whether the provisions found to violate the Panda PPA could be severed and the rest of the Back-to-Back Agreement enforced and whether Panda’s refusal to consent to the assignment of the Panda PPA by ~~PEPCO~~regulators to ~~Mirant~~allow ~~was~~utilities ~~unreasonable and violated the Panda PPA. The Company believes that the June 10, 2003 decision by the Maryland Court of Appeals does not suffice~~ to ~~trigger~~recover afully ~~purchase~~their ~~price adjustment~~wholesale ~~under~~power ~~the~~costs ~~agreement between Mirant~~ and ~~PEPCO.~~investments Ifthrough ~~that court order were found to have triggered the purchase price adjustment~~rates, ~~the~~catastrophic ~~agreement~~losses ~~between Mirant~~ and ~~PEPCO~~losses ~~provides~~from ~~that~~investments ~~the~~by ~~amount~~utilities ~~of the adjustment would be negotiated~~ in ~~good~~unregulated faith by the parties or determined by binding arbitration so as to compensate PEPCO for the termination of the benefit of the Back-to-Back Agreement while also holding Mirant economically indifferent from such court order.businesses;

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

~~City~~• increases in supplies due to actions of ~~Alexandria~~our ~~Zoning~~current ~~Action~~competitors or new market entrants, including the development of new generating facilities or alternative energy sources that may be able to produce electricity less expensively than our generating facilities and improvements in transmission that allow additional supply to reach our markets;

On• ~~December 18,~~decreases ~~2004, the City Council for the City of Alexandria, Virginia (the “City Council”) adopted certain zoning ordinance amendments recommended by the City Planning Commission that result~~ in ~~the~~ ~~zoning~~energy ~~status~~consumption ofresulting ~~Mirant Potomac River’s generating plant being changed~~ from ~~“noncomplying~~ ~~use”~~demand-side tomanagement ~~“nonconforming~~programs ~~use~~such ~~subject~~as toautomated ~~abatement.”~~demand ~~Under the nonconforming use status~~response, ~~unless~~which ~~Mirant~~may ~~Potomac~~alter ~~River applies for and is granted a special use permit for~~ the ~~plant~~amount ~~during the seven-year abatement period, the operation of the plant must be terminated within a seven-year period,~~ and notiming ~~alterations that directly prolong the life~~ of ~~the~~consumer ~~plant~~energy ~~will be permitted during the seven-year period. Typically, the City Council grants special~~ use ~~permits with various conditions and stipulations as to the permitted use.~~;

At• ~~its December 18, 2004 meeting,~~ the ~~City Council~~competitive ~~also~~advantages ~~approved revocation~~ of ~~two~~certain ~~special~~competitors ~~use~~including ~~permits~~continued ~~issued~~operation ~~in 1989 (the “1989 SUPs”), one applicable to the administrative office space at Mirant Potomac River’s plant and the other for the plant’s transportation management plan. Under the terms~~ of ~~the~~older ~~approved~~power ~~action,~~plants ~~the~~in ~~revocation~~strategic oflocations ~~the 1989 SUPs was to take effect 120 days~~ after ~~the~~recovery ~~City~~of ~~Council~~historic ~~revocation,~~capital ~~provided, however,~~costs ~~that~~from ~~if Mirant Potomac River within such 120-day period filed an~~ ratepayers;

45• existing or future regulation of our markets by the FERC, ISOs and RTOs, including any price limitations and other mechanisms to address some of the price volatility or illiquidity in these markets or the physical stability of the system;

~~application~~22 for the necessary special use permits to bring the plant into compliance with the zoning ordinance provisions then in effect, the effective date of the revocation of the 1989 SUPs would be stayed until final decision by the City Council on such application. The approved action further provides that if such special use permit application is approved by the City Council, revocation of the 1989 SUPs will be dismissed as moot, and if the City Council does not approve the application, the revocation of the 1989 SUPs will become effective and the plant will be considered a nonconforming use subject to abatement. The City of Alexandria and Mirant Potomac River have agreed to a consent order to be entered by the Circuit Court for the City of Alexandria in the suit described in the next paragraph that extends through October 17, 2005 the period within which Mirant Potomac River may file an application for the necessary special use permits.

OnTable January 18, 2005, Mirant Potomac River and Mirant Mid-Atlantic filed a complaint against the City of Alexandria and the City Council in the Circuit Court for the City of Alexandria. The complaint seeks to overturn the actions taken by the City Council on December 18, 2004 changing the zoning status of Mirant Potomac River’s generating plant and approving revocation of the 1989 SUPs, on the grounds that those actions violated federal, state and city laws. The complaint asserts, among other things, that the actions taken by the City Council constituted unlawful spot zoning, were arbitrary and capricious, constituted an unlawful attempt by the City Council to regulate emissions from the plant, and violated Mirant Potomac River’s due process rights. Mirant Potomac River and Mirant Mid-Atlantic request the court to enjoin the City of Alexandria and the City Council from taking any enforcement action against Mirant Potomac River or from requiring it to obtain a special use permit for the continued operation of its generating plant.Contents

~~New~~• ~~York~~regulatory ~~Tax~~policies ~~Proceedings~~of state agencies that affect the willingness of our customers to enter into long-term contracts generally, and contracts for capacity in particular;

~~The~~• ~~Company’s~~weather ~~subsidiaries~~conditions that ~~own~~depress ~~generating~~demand ~~plants in New York are~~ or ~~were~~increase ~~(in~~ the ~~settled~~supply ~~proceedings discussed below) the petitioners in forty-one proceedings (“Tax Certiorari Proceedings”) initially brought in various New York state courts challenging the assessed value~~ of ~~those~~ ~~generating~~hydro ~~plants~~power; ~~determined by their respective local taxing authorities. Mirant Bowline has challenged the assessed value of the Bowline generating facility~~ and the resulting local tax assessments paid for tax years 1995 through 2003. Mirant Bowline succeeded to rights held by Orange & Rockland Utilities, Inc. (“Orange & Rockland”) for the tax years prior to its acquisition of the Bowline Plant in 1999 under its agreement with Orange & Rockland for the purchase of that plant. Mirant Lovett has initiated proceedings challenging the assessed value of the Lovett facility for each of the years 2000 through 2003. Mirant NY-Gen, LLC (“Mirant NY-Gen”) and, collectively with Mirant Bowline and Mirant Lovett, (the “New York Debtors”) has settled its tax certiorari proceedings with respect to the combustion turbine and hydroelectric facilities it owns for each of the years 2000 through 2003. If the remaining Tax Certiorari Proceedings result in a reduction of the assessed value of the generating facility at issue in each proceeding, the New York Debtor owning the facility would be entitled to a refund with interest of any excess taxes paid for those tax years.

On• ~~September 30,~~changes 2003, the Mirant Debtors filed a motion (the “Tax Determination Motion”) with the Bankruptcy Court requesting that it determine what the property tax liability should have been for the Bowline generating facility in ~~each of~~ the ~~years~~rate ~~1995 through 2003, for the Lovett generating facility in each~~ of ~~the~~growth ~~years 2000 through 2003, and for the generating facilities owned by Mirant NY-Gen~~ in ~~each~~electricity ofusage ~~the~~as ~~years~~a ~~2000~~result ~~through 2003. The bases for the relief requested in the Tax Determination Motion on behalf~~ of ~~each~~such offactors ~~the~~as ~~New~~national ~~York~~and ~~Debtors~~regional ~~were~~economic ~~that~~conditions ~~the assessed values of generating facilities located in New York made by the relevant taxing authorities had no justifiable basis~~ and ~~were~~implementation ~~far in excess~~ of ~~their~~conservation ~~actual value~~programs. The local taxing authorities have opposed the Tax Determination Motion, arguing that the Bankruptcy Court either lacks jurisdiction over the matters addressed by the Tax Determination Motion or should abstain from addressing those issues so that they can be addressed by the state courts in which the Tax Certiorari Proceedings described in the preceding paragraph were originally filed.

46In addition, unlike most other commodities, electric energy can only be stored on a very limited basis and generally must be produced at the time of use. As a result, the wholesale power markets are subject to substantial price fluctuations over relatively short periods of time and can be unpredictable.

~~Collectively,~~Changes ~~the~~in ~~New~~commodity ~~York~~prices ~~Debtors~~may ~~have~~negatively ~~not~~affect ~~paid approximately~~our ~~$62~~financial ~~million~~results ~~assessed~~ by ~~local~~increasing ~~taxing authorities on~~ the ~~Bowline and~~cost Lovett generating facilities for 2003, which fell due on September 30, 2003 and January 30, 2004, and approximately $53 million assessed by local taxing authorities on the generating facilities for 2004 that fell due on September 30, 2004 and January 30, 2005, in order to preserve their respective rights to offset the overpayments of ~~taxes~~producing ~~made~~power inor ~~earlier~~lowering ~~years against~~ the ~~sums~~price ~~payable on~~at ~~account~~which ofwe ~~current~~are ~~taxes.~~able ~~The failure~~ to ~~pay the taxes due on September 30,~~ ~~2003,~~sell ~~January 30,~~our ~~2004, September 30, 2004, and January 30, 2005 could subject Mirant Bowline and Mirant Lovett to additional penalties and interest~~power.

~~All~~Our ofgenerating ~~the~~business ~~tax~~is ~~certiorari proceedings~~subject ~~related~~ to ~~the~~changes ~~generating~~in ~~facilities~~power ~~owned~~prices and fuel costs, and these commodity prices are influenced by ~~Mirant~~many ~~NY-Gen~~factors ~~have~~outside of our control, including weather, market liquidity, transmission and transportation inefficiencies, availability of competitively priced alternative energy sources, demand for energy commodities, production of ~~been~~natural ~~resolved~~gas, oncrude ~~terms~~oil ~~favorable~~and tocoal, ~~the~~natural ~~New~~disasters, ~~York~~wars, ~~Debtors~~embargoes and other catastrophic events, ~~but~~and ~~the~~federal, ~~tax~~state and environmental regulation and legislation. Significant fluctuations in commodity prices may affect our financial results and ~~certiorari~~financial ~~proceedings~~position ~~related~~by toincreasing the ~~Bowline~~cost of producing power and ~~Lovett~~decreasing ~~generating~~the ~~facilities remain~~amounts ~~unresolved~~we receive from the sale of power.

~~Utility~~Our ~~Choice~~use of derivative contracts in our asset management activities will not fully protect us from fluctuations in commodity prices and ~~Cirro~~our ~~Group~~risk ~~Claims~~management policy cannot eliminate the risks associated with these activities.

OnWe ~~February 18,~~engage ~~2005, two providers of electricity at retail~~ in ~~Texas,~~asset ~~Utility~~management ~~Choice,~~activities ~~L.P.~~related ~~and~~to ~~Cirro Group, Inc.,~~sales ~~filed a suit in the United States District Court for the Southern District~~ of ~~Texas,~~electricity ~~entitled Utility Choice, L.P., et al. v. TXU Corp., et al., against numerous owners of generating facilities~~ and ~~power~~purchases ~~marketers in Texas, including Mirant Americas Energy Marketing, Mirant Americas Development, Inc., and two subsidiaries~~ of ~~the Company owning generating facilities in Texas~~fuel. The ~~plaintiffs~~ ~~allege~~income ~~that the defendants, including the Mirant defendants, acting individually~~ and inlosses ~~collusion~~from ~~with~~these ~~each~~activities ~~other,~~are ~~engaged in various types of~~recorded ~~unlawful~~as ~~manipulation~~operating ofrevenues ~~the short-term~~ and ~~bilateral~~fuel ~~wholesale~~costs. ~~power~~We ~~markets in~~may ~~the~~use ~~ERCOT~~forward ~~region~~contracts ~~beginning in 2001~~ and ~~continuing~~other toderivative ~~the~~financial ~~period~~instruments ~~immediately prior~~ to ~~the~~manage ~~filing~~market ofrisk ~~the~~and ~~suit~~exposure ~~that caused the plaintiffs~~ to ~~pay~~volatility ~~significantly higher~~in prices ~~for power they purchased and to incur other significant costs. The types~~ of ~~conduct~~electricity, ~~that the plaintiffs allege were engaged in by the defendants~~coal, ~~including~~natural ~~the Mirant defendants~~gas, ~~include~~emissions ~~submitting false schedules~~ and ~~bids,~~oil. ~~“hockey~~We ~~stick”~~cannot ~~bidding, withholding generation resources from the~~provide ~~market~~assurance ~~and~~that ~~bidding~~these ~~generation~~strategies ~~resources~~will atbe ~~artificially~~successful ~~high prices,~~ in ~~each case~~managing ~~with~~our ~~the~~price ~~intent to create artificially high market prices. The complaint asserts various causes of action~~risks, ~~including~~or ~~without~~that ~~limitation~~they ~~claims~~will ~~under~~not ~~the federal~~result ~~and~~in ~~Texas~~net ~~antitrust~~losses ~~acts~~to ~~and~~us ~~the federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act,~~ as ~~well~~a asresult ~~state~~of ~~law~~future ~~claims~~volatility ~~for~~in ~~fraud~~electricity, ~~negligent~~ ~~misrepresentation,~~fuel and ~~promissory~~emissions ~~estoppel~~markets. ~~The~~Actual ~~plaintiffs~~power ~~seek~~prices ~~lost profits~~ and ~~other~~fuel ~~compensatory~~costs ~~damages of an unspecified amount, treble~~may ~~damages,~~differ ~~exemplary~~from ~~damages~~our ~~and attorneys’ fees~~expectations.

OnOur ~~March 21,~~asset ~~2005, the~~management ~~plaintiffs~~activities ~~filed~~include anatural ~~motion~~gas ~~with~~derivative ~~the~~instruments ~~district~~that ~~court~~we ~~seeking~~use to ~~dismiss without~~hedge ~~prejudice~~power ~~the Mirant defendants, noting that those Mirant defendants~~prices ~~are~~for ~~the~~our ~~subject~~baseload ~~of pending bankruptcy proceedings~~generation. The ~~district~~effectiveness ~~court~~of ~~granted that~~these ~~motion~~hedges onis ~~March 21,~~dependent ~~2005.~~upon ~~On April 1, 2005,~~ the ~~plaintiffs~~correlation ~~filed a~~between ~~motion~~power ~~with the Bankruptcy Court seeking leave to file claims in the Chapter 11 cases against Mirant Americas Energy Marketing, Mirant Americas Development, Inc.,~~ and ~~the~~natural ~~two~~gas ~~subsidiaries~~prices ~~of the Company based upon the same allegations made~~ in the ~~suit~~markets ~~filed~~where ~~February 18,~~we ~~2005 and seeking to assert claims in excess of $100 million~~operate. ~~The~~If ~~Mirant~~those ~~Debtors~~prices are ~~opposing~~not ~~that motion.~~sufficiently ~~On June 29~~correlated, ~~2005,~~our ~~Mirant~~financial ~~Americas~~results ~~Energy Marketing entered into a~~and ~~settlement~~financial ~~agreement~~position ~~with~~could ~~the~~be ~~plaintiffs~~adversely ~~under which the plaintiffs agreed to release all claims against the Mirant Debtors in return for allowed claims against Mirant Americas Energy Marketing totaling $20,000~~affected. ~~The settlement agreement is subject to the approval of the Bankruptcy Court.~~

47Additionally, we expect to have an open position in the market, within our established guidelines, resulting from the management of our portfolio. To the extent open positions exist, fluctuating commodity prices can affect our financial results and financial position, either favorably or unfavorably. Furthermore, the risk management procedures we have in place may not always be followed or may not always work as planned. Unauthorized hedging and related activities by our employees could result in significant penalties and financial losses. As a result of these and other factors, we cannot predict the outcome that risk management decisions may have on our businesses, operating results or financial position. Although management devotes a considerable amount of attention to these issues, their outcome is uncertain.

~~Environmental~~We ~~Matters~~are exposed to the risk of fuel and fuel transportation cost increases and volatility and interruption in fuel supply because our facilities generally do not have long-term agreements for the supply of natural gas, coal and oil.

~~EPA~~Although ~~Information~~we ~~Request. In January 2001,~~attempt ~~the EPA issued a request for information~~ to ~~Mirant concerning~~purchase ~~the~~fuel ~~air permitting and air emissions control implications under the~~based ~~EPA’s~~on ~~new~~our ~~source~~expected ~~review~~fuel ~~regulations promulgated under the Clean Air Act (“NSR”) of past repair and maintenance activities at Mirant Potomac River’s plant in Virginia and Mirant Mid-Atlantic’s Chalk Point~~requirements, ~~Dickerson~~we ~~and~~still ~~Morgantown~~face ~~plants in Maryland. The requested information concerns~~ the ~~period~~risks of ~~operations~~supply ~~that predates~~interruptions ~~Mirant Mid-Atlantic’s ownership~~ and ~~lease~~fuel ofprice ~~the plants~~volatility. ~~Mirant~~Our ~~has responded~~cost fully to this request. Under the sales agreement with PEPCO for those plants, PEPCO is responsible for fines and penalties arising from any violation associated with historical operations prior to the Company’s acquisition or lease of ~~the~~fuel ~~plants. If a violation is determined to have occurred at any of the plants, the Mirant entity owning or leasing the plant~~ may benot ~~responsible for~~reflect ~~the~~changes ~~cost~~in ofenergy ~~purchasing~~ and ~~installing~~fuel ~~emissions~~prices ~~control~~in ~~equipment,~~part ~~the~~because ~~cost of~~we ~~which~~must ~~may~~pre-purchase beinventories ~~material.~~of Ifcoal such violation is determined to have occurred after the Company acquired or leased the plants or, if occurring prior to the acquisition or lease, is determined to constitute a continuing violation, the Mirant entity owning or leasing the plant at issue would also be subject to fines and ~~penalties~~oil ~~by the state or federal government~~ for ~~the period subsequent~~ toreliability ~~its~~and ~~acquisition~~dispatch ~~or lease of the plant~~requirements, ~~the~~and ~~cost~~thus ~~of which may be material.~~

~~Mirant~~23 Potomac River Notice of Violation. On September 10, 2003, the Virginia Department of Environmental Quality (“Virginia DEQ”) issued a Notice of Violation (“NOV”) to Mirant Potomac River alleging that it violated its Virginia Stationary Source Permit to Operate by emitting NOx in excess of the “cap” established by the permit for the 2003 summer ozone season. Mirant Potomac River responded to the NOV, asserting that the cap is unenforceable, noting that it can comply through the purchase of emissions allowances and raising other equitable defenses. Virginia’s civil enforcement statute provides for injunctive relief and penalties. On January 22, 2004, the EPA issued an NOV to Mirant Potomac River alleging the same violation of its Virginia Stationary Source Permit to Operate as set out in the NOV issued by the Virginia DEQ.

OnTable September 27, 2004, Mirant Potomac River, Mirant Mid-Atlantic, the Virginia DEQ, the Maryland Department of the Environment, the DOJ and the EPA entered into, and filed for approval with the United States District Court for the Eastern District of Virginia, a consent decree that, if approved, will resolve Mirant Potomac River’s potential liability for matters addressed in the NOVs previously issued by the Virginia Department of Environmental Quality and the EPA. The consent decree requires Mirant Potomac River and Mirant Mid-Atlantic to (1) install pollution control equipment at the Potomac River plant and at the Morgantown plant leased by Mirant Mid-Atlantic in Maryland, (2) comply with declining system-wide ozone season NOx emissions caps from 2004 through 2010, (3) comply with system-wide annual NOx emissions caps starting in 2004, (4) meet seasonal system average emissions rate targets in 2008 and (5) pay civil penalties and perform supplemental environmental projects in and around the Potomac River plant expected to achieve additional environmental benefits. Except for the installation of the controls planned for the Potomac River units and the installation of selective catalytic reduction (“SCR”) or equivalent technology at Mirant Mid-Atlantic’s Morgantown Units 1 and 2 in 2007 and 2008, the consent decree does not obligate the Mirant entities to install specifically designated technology, but rather to reduce emissions sufficiently to meet the various NOx caps. Moreover, as to the required installations of SCRs at Morgantown, Mirant Mid-Atlantic may choose not to install the technology by the applicable deadlines and leave the units off either permanently or until such time as the SCRs are installed. The aggregate amount of the civil penalties to be paid and costs to be incurred by Mirant Potomac River for the supplemental environmental projects is $1.5 million. The consent decree is subject to the approval of the district court and the Bankruptcy Court.Contents

~~Mirant~~ the ~~Potomac~~price ~~River~~of ~~Downwash~~fuel ~~Study. On September 23,~~may ~~2004,~~have been determined at an earlier date than the ~~Virginia~~price ~~DEQ~~of ~~and~~energy ~~Mirant~~generated ~~Potomac~~from ~~River~~it. ~~entered~~The ~~into an~~price ~~order~~we bycan ~~consent~~obtain ~~with~~from ~~respect~~the tosale of energy may not rise at the ~~Potomac~~same ~~River~~rate, ~~plant~~or ~~under~~may ~~which~~not ~~Mirant Potomac~~rise ~~River~~at ~~agreed~~all, to ~~perform~~match a ~~modeling~~rise ~~analysis~~in tofuel ~~assess~~costs. ~~the~~This ~~potential~~may have a material adverse effect on our financial performance. The volatility of ~~“downwash”~~fuel prices could adversely affect our financial results and operations.

48Our asset management and proprietary trading activities may increase the volatility of our quarterly and annual financial results.

~~from~~We ~~the~~engage ~~plant~~in ~~(1) on ambient~~asset ~~concentrations~~management ofactivities ~~SO2,~~to ~~nitrogen~~hedge ~~dioxide~~economically ~~(“NO2”),~~our ~~carbon~~exposure ~~monoxide~~to ~~(“CO”) and~~market ~~particulate~~risk ~~matter~~with ~~less~~respect ~~than or equal~~ to: ~~10 micrometers~~ (~~“PM10”~~1) ~~for~~ electricity ~~comparison~~sales tofrom ~~the~~our ~~applicable~~generating ~~national~~facilities; ~~ambient~~(2) fuel ~~air~~used ~~quality~~by ~~standards~~those ~~(“NAAQS”)~~ facilities; and (23) onemissions ~~ambient~~allowances. ~~concentrations~~We ofgenerally ~~mercury~~attempt ~~for comparison~~ to ~~Virginia Standards~~balance ofour ~~Performance~~fixed-price ~~for~~purchases ~~Toxic~~and ~~Pollutants.~~sales ~~Downwash~~commitments isin ~~the~~terms ~~effect~~of ~~that occurs~~contract ~~when~~volumes ~~aerodynamic~~and ~~turbulence~~the ~~induced~~timing ~~by nearby structures causes~~of ~~pollutants~~performance ~~from~~and andelivery ~~elevated~~obligations ~~source,~~through ~~such as a smokestack, to be mixed rapidly toward~~ the ~~ground~~use ~~resulting~~of infinancial ~~higher~~and ~~ground~~physical ~~level~~derivative ~~concentrations of pollutants~~contracts. IfWe ~~the~~also ~~modeling~~use ~~analysis~~derivative ~~indicates~~contracts ~~that~~with ~~emissions~~respect ~~from~~to ~~the~~our ~~facility may~~limited ~~cause~~proprietary ~~exceedances~~trading ofand ~~the~~fuel ~~NAAQS~~oil ~~for~~management ~~SO2~~activities, ~~NO2,~~through COwhich orwe ~~PM10,~~attempt ~~or exceedances of~~to ~~mercury~~achieve ~~compared~~incremental toreturns ~~Virginia~~by ~~Standards~~transacting ofwhere ~~Performance~~we ~~for~~have ~~Toxic~~specific ~~Pollutants,~~market ~~the consent~~expertise. ~~order~~Derivatives ~~requires~~from ~~Mirant~~our ~~Potomac~~asset ~~River~~management toand ~~submit~~proprietary totrading ~~the~~activities ~~Virginia~~are ~~DEQ~~recorded ~~a plan~~on ~~and~~our ~~schedule~~balance tosheet ~~eliminate~~at ~~and~~fair ~~prevent~~value ~~such~~pursuant ~~exceedances~~to onSFAS a133. ~~timely~~None ~~basis.~~of our ~~Upon~~derivatives ~~approval~~recorded byat ~~the~~fair ~~Virginia~~value ~~DEQ~~are ofdesignated ~~the~~as ~~plan~~hedges ~~and~~under ~~schedule,~~SFAS ~~the~~133 ~~approved plan~~ and ~~schedule~~changes isin totheir befair ~~incorporated~~values byare ~~reference~~therefore ~~into~~recognized ~~the~~currently ~~consent~~in ~~order.~~earnings Toas ~~the extent~~unrealized ~~that~~gains ~~the~~or ~~downwash~~losses. ~~study~~As ~~indicates~~a ~~that~~result, ~~emissions~~our ~~from~~financial ~~the~~results—including ~~Potomac~~gross ~~River~~margin, ~~plant~~operating ~~exceed~~income ~~either~~and ~~the~~balance ~~NAAQS~~sheet orratios—will, ~~the~~at ~~Virginia Standards of Performance for Toxic Pollutants~~times, ~~the~~be ~~remedial~~volatile ~~actions~~and ~~required~~subject ~~could~~to ~~include~~fluctuations ~~material modifications~~in tovalue ~~the~~primarily ~~plant~~due or to ~~its~~changes ~~operation.~~in ~~The~~forward ~~financial~~electricity and ~~operational implications~~fuel ofprices. ~~any~~For ~~such~~a ~~remedial~~more ~~actions~~detailed ~~are~~discussion ~~not~~of ~~known~~the ataccounting ~~this~~treatment ~~time.~~of ~~Mirant~~our asset ~~Potomac~~management ~~River~~and ~~received~~proprietary ~~the~~trading ~~Virginia~~activities, ~~DEQ’s~~see ~~approval~~Note of4 ~~the~~to ~~modeling~~our ~~protocol~~consolidated ~~on June 20, 2005~~ and ~~has~~combined 60financial ~~days~~statements ~~from~~contained ~~that~~elsewhere ~~date~~in tothis ~~complete the modeling analysis~~report.

~~New~~Operation ~~York Opacity. On October 20, 2004, the New York State Department~~ of ~~Environmental~~our Affairs Region 3 Staff filed a complaint against Mirant Bowline, Mirant Lovett and Mirant New York with the New York State Department of Environmental Conservation (“NYSDEC”). The complaint alleges that the generating facilities ~~owned~~involves byrisks ~~Mirant Bowline and Mirant Lovett violated Article 19 of New York’s Environmental Conservation Law and regulations promulgated pursuant to~~ that ~~law~~may byhave ~~violating opacity~~a ~~standards~~material ~~set~~adverse ~~for~~effect ~~smoke emissions~~ on ~~more~~our ~~than~~cash ~~100~~flows ~~occasions between the second quarter of 2002~~ and ~~the~~results ~~first quarter~~ of ~~2004~~operations. The complaint seeks a cease and desist order and fines of $1.96 million against the Mirant defendants. On June 8, 2005, the NYSDEC entered an order agreed to by the Mirant defendants that set penalty amounts for future violations of opacity standards by Mirant Bowline and Mirant Lovett and required the Mirant defendants to pay a penalty of $44,100 for emissions violations occurring prior to January 1, 2005. The agreed to order does not become effective until it has been approved by the Bankruptcy Court.

~~Mirant~~The ~~NY-Gen~~operation ~~Pipeline Leak. In the fall~~ of ~~2003,~~ ~~Mirant~~our ~~NY-Gen discovered a leaking underground pipeline at the Hillburn~~ generating ~~facility~~facilities ininvolves ~~Ramapo,~~various ~~New~~operating ~~York. The underground line was used for supplying kerosene fuel to the gas turbines located on site. After confirmatory testing revealed a potential leak~~risks, the line was removed from service and plans were undertaken to excavate and sample portions of the line to determine the extent of the line damage and the possible soil contamination. Upon initial discovery the leak was reported to the NYSDEC and the Rockland County Health Department. In the summer of 2004 soil contamination was discovered and a subsequent testing of portions of the line revealed a small hole. Currentlyincluding, ~~investigations~~but ~~are~~not continuing to determine the extent of contamination and possible remedial activities to clean up the area. Additionally, Mirant NY-Gen is working under the direction of the NYSDEC to remove all free product contamination from the groundwater and undertake remediation actions for additional on-site and off-site contamination. The current estimate of the cost of cleanup is greater than $3limited ~~million; however, due~~ to: ~~the ongoing evaluation to determine the extent of the contamination, the exact cost of remediation is unknown at this time.~~

On• ~~May 19, 2005,~~ the ~~NYSDEC~~output ~~issued a Notice of Hearing~~ and ~~Complaint~~efficiency tolevels ~~Mirant~~at ~~NY-Gen~~which ~~seeking~~those angenerating ~~order~~facilities requiring Mirant NY-Gen to implement its approved remediation plan, payment of all costs relating to the cleanup (including all costs incurred by the NYSDEC) and payment of a civil penalty in the amount of $100,000. The outcome of this proceeding cannot now be determined.perform;

~~Riverkeeper~~• ~~Suit~~interruptions ~~Against Mirant Lovett. On March 11, 2005, Riverkeeper, Inc. filed suit against Mirant Lovett~~ in ~~the~~ ~~United~~fuel ~~States District Court for the Southern District of New York under the Federal~~ supply;

49• disruptions in the delivery of electricity;

~~Water~~• ~~Pollution~~adverse Control Act (the “Clean Water Act”). The suit alleges that Mirant Lovett’s failure to implement a marine life exclusion system at its Lovett generating plant and to perform monitoring for the exclusion of certain aquatic organisms from the plant’s cooling water intake structures violated Mirant Lovett’s water discharge permit issued by the State of New York. The plaintiff requests the court to enjoin Mirant Lovett from continuing to operate the Lovett generating plant in a manner that allegedly violates the Clean Water Act, to impose civil penalties of $32,500 per day of violation, and to award the plaintiff attorney’s fees. On April 20, 2005, the district court approved a stipulation agreed to by the plaintiff and Mirant Lovett that stays the suit until 60 days after entry of an order by the Bankruptcy Court confirming a plan of reorganization for Mirant Lovett becomes final and non-appealable.zoning;

~~Mirant~~• ~~Lovett~~breakdowns ~~CAMF. On~~or ~~July 8,~~equipment ~~2004,~~failures as supplemented on January 19, 2005, the NYSDEC issued a notice of violation to Mirant Lovett for alleged improper closure techniques used for the coal ash management facility located at the Lovett generating facility. On May 16, 2005 the NYSDEC Staff filed a complaint with the NYSDEC against Mirant Lovett and Mirant New York, Inc. (~~“Mirant~~whether ~~New~~due ~~York”) based on the allegations of improper closure techniques. The complaint seeks a civil penalty of $100,000 and an order requiring Mirant Lovett~~ to ~~make~~age ~~certain~~or equipment enhancements and to provide a letter of credit to cover estimated closure and post closure costs and to make certain informational filings. The outcome of this proceeding cannot now be determined.otherwise);

~~New~~• ~~York~~restrictions Dissolved Oxygen. On September 29, 2003, the NYSDEC issued a complaint to Mirant New York for alleged failure to comply with state regulatory standards for minimum dissolved oxygen in the Mongaup River at the Swinging Bridge, Mongaup Falls and Rio hydroelectric projects owned by Mirant NY-Gen. The complaint sought a civil penalty of $120,000 and an order requiring Mirant New York to upgrade the three hydroelectric projects to prevent further discharges that do not meet the standards for minimum dissolved oxygen. In its complaint the NYSDEC proposed that $100,000 of the $120,000 penalty it was seeking be suspended on the condition that Mirant New York complete corrective actions for each facility by a certain schedule it proposed. On June 1, 2004, Mirant New York filed an answer and motion to dismiss on grounds including that Mirant New York is not the owner of the hydroelectric projects. Mirant New York granted an extension of time to allow the NYSDEC to respond, and the NYSDEC has not yet responded.emissions;

~~Other~~• ~~Governmental~~violations ~~Proceedings~~of our permit requirements or changes in the terms of or revocation of permits;

~~Department~~• ofreleases ~~Justice Inquiries. In November 2002, Mirant received a subpoena from the DOJ, acting through the United States Attorney’s office for the Northern District~~ of ~~California, requesting~~pollutants ~~information about the activities of Mirant~~ and ~~its~~hazardous ~~subsidiaries, including~~substances ~~the~~to ~~Company and its subsidiaries~~air, ~~for the period since January 1~~soil, ~~1998.~~ ~~The~~surface ~~subpoena~~water ~~requested information related to the California energy markets and other topics, including the reporting of inaccurate information to the trade press that publish natural gas~~ or electricity spot price data. The subpoena was issued as part of a grand jury investigation. Mirant has continued to receive additional requests for information from the United States Attorney’s office, and it intends to continue to cooperate fully with the United States Attorney’s office in this investigation.groundwater;

~~Other~~• ~~Legal~~shortages ~~Matters~~of equipment or spare parts;

~~The~~• ~~Company~~labor is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.disputes;

~~Item~~• ~~4. Submission~~operator ~~of Matters to a Vote of Security Holders~~errors;

~~None.~~• curtailment of operations due to transmission constraints;

50• failures in the electricity transmission system which may cause large energy blackouts;

~~PART II~~• implementation of unproven technologies in connection with environmental improvements; and

~~Item~~• ~~5. Market~~catastrophic ~~for~~events ~~Registrant’s~~such ~~Common~~as ~~Equity~~fires, ~~Related~~explosions, ~~Stockholder~~floods, ~~Matters~~earthquakes, ~~and Issuer~~hurricanes ~~Purchases~~or ofother ~~Equity~~similar ~~Securities~~occurrences.

We24 are an indirect wholly-owned subsidiary of Mirant. Our membership interests are not publicly traded and all of our membership interests are held by our parent Mirant Americas, Inc. Since filing for protection under Chapter 11, we have not paid dividends. We have no equity compensation plans under which we issue our membership interests.

ItemTable 6. Selectedof Financial DataContents

~~The~~A ~~information~~decrease ~~set~~in, ~~forth below~~or ~~should~~the beelimination ~~read~~of, ~~together~~the ~~with~~revenues ~~“Management’s~~generated ~~Discussion~~by ~~and~~our ~~Analysis~~facilities ~~of Financial~~or ~~Condition~~an ~~and~~increase ~~Results~~in the costs of ~~Operations”~~operating ~~and~~such ~~our~~facilities ~~historical~~could ~~consolidated financial~~materially ~~statements~~affect our cash flows and ~~the~~results ~~notes~~of ~~thereto~~operations, ~~which~~including ~~are~~cash ~~included~~flows ~~elsewhere~~available ~~in this~~to ~~Form 10-K.~~us ~~The~~to ~~selected~~make ~~financial~~payments ~~data~~on ~~has~~our ~~been~~debt ~~derived~~or ~~from~~ our ~~consolidated~~ ~~financial~~other ~~statements~~obligations.

~~Selected Financial~~Our ~~Data~~operating results are subject to quarterly and seasonal fluctuations.

	Years Ended December 31,
	2004		2003			2002		2001		2000
	(in millions)
Statement of Operations Data:
Operating revenues	$	2,114	$	2,015		$	1,939	$	4,489	$	2,153
Net income (loss)	22		(2,989		)	78		414		153
Balance Sheet Data (at end of period):
Total assets	4,030		3,903			6,996		7,065		6,262
Member’s equity	194		172			3,125		3,019		2,913

Our operating results have fluctuated in the past and may continue to do so in the future as a result of a number of factors, including seasonal variations in demand and fuel prices.

51We compete to sell energy and capacity in the wholesale power markets against some competitors that enjoy competitive advantages, including the ability to recover fixed costs through rate base mechanisms and a lower cost of capital.

~~Item~~Regulated 7.utilities ~~Management’s~~in ~~Discussion~~the wholesale markets generally enjoy a lower cost of capital than we do and ~~Analysis~~often are able to recover fixed costs through regulated retail rates including, in many cases, the costs of ~~Financial~~generation, ~~Condition~~allowing them to build, buy and ~~Results~~upgrade generating facilities without relying exclusively on market clearing prices to recover their investments. The competitive advantages of ~~Operations~~such participants could adversely affect our ability to compete effectively and could have an adverse impact on the revenues generated by our facilities.

~~Executive~~Our ~~Summary~~business and activities are subject to extensive environmental requirements and could be adversely affected by such requirements, including future changes to them.

~~Overview~~Our business is subject to extensive environmental regulations promulgated by federal, state and local authorities, which, among other things, restrict the discharge of pollutants into the air, water and soil, and also govern the use of water from adjacent waterways. Such laws and regulations frequently require us to obtain operating permits and remain in continuous compliance with the conditions established by those operating permits. To comply with these legal requirements and the terms of our operating permits, we must spend significant sums on environmental monitoring, pollution control equipment and emissions allowances. If we were to fail to comply with these requirements, we could be subject to civil or criminal liability and the imposition of liens or fines. We may be required to shut down facilities if we are unable to comply with the requirements, or if we determine the expenditures required to comply are uneconomic.

WeFrom ~~operate~~time asto ~~a debtor-in-possession~~time ~~under~~we ~~the~~may ~~jurisdiction~~not ofbe ~~the~~able ~~Bankruptcy Court in~~to ~~accordance~~obtain ~~with~~necessary ~~Chapter~~environmental 11regulatory ofapprovals. ~~the~~Such ~~Bankruptcy~~approvals ~~Code.~~could Asbe adelayed ~~result,~~or ~~our~~subject ~~financial statements~~to ~~include~~onerous ~~the~~conditions. ~~results~~If ofthere ~~Bankruptcy~~is ~~Court~~a ~~actions,~~delay ~~probable~~in ~~claims against~~obtaining ~~our~~environmental ~~estate~~regulatory ~~and~~approval ~~professional~~or ~~and~~if ~~administrative~~onerous ~~costs~~conditions ~~related~~are toimposed, the ~~bankruptcy~~ ~~process.~~operation Onof ~~January 19,~~our ~~2005,~~generating ~~the~~facilities ~~Mirant~~or ~~Debtors~~the ~~filed~~sale aof ~~Plan~~electricity ofto ~~Reorganization~~third ~~with~~parties ~~the~~could ~~Bankruptcy Court,~~be ~~which~~prevented ~~was~~or ~~amended~~become onsubject ~~March 25,~~to ~~2005~~additional costs. ~~For~~Such ~~further~~delays ~~discussion~~or ofonerous ~~our proposed~~conditions ~~Plan,~~could ~~see~~have ~~Item~~a 1material ~~contained~~adverse ~~elsewhere~~effect inon ~~this~~our ~~report~~financial performance and condition.

In ~~general~~addition, itenvironmental islaws, particularly with respect to air emissions, wastewater discharge and cooling water systems, are generally becoming more stringent, which may require us to make expensive facility upgrades or restrict our ~~current~~operations. With the trend toward stricter standards, greater regulation and more extensive permitting requirements, we expect our environmental ~~view~~expenditures ~~that~~to be substantial in the Ufuture.S. ~~electricity~~Although ~~markets~~we have ~~excess~~budgeted ~~generation~~for ~~capacity. Additionally~~significant expenditures to comply with these requirements, ~~generation~~actual ~~capacity~~expenditures ismay ~~expected~~be togreater ~~exceed~~than ~~combined~~budgeted ~~demand~~amounts. ~~levels~~We may have underestimated the cost of the ~~and~~environmental ~~reserve~~work ~~generation~~we ~~targets~~are ~~through~~planning ~~2008~~or tothe ~~2010~~air ~~for~~emissions ~~most~~allowances ~~major~~we ~~markets~~anticipate buying. In addition, new environmental laws may be enacted, new or revised regulations under those laws may be issued, the interpretation of such laws and regulations ~~This~~by ~~market~~regulatory ~~situation~~authorities ~~has~~or the ~~potential~~courts tomay ~~result~~change, or additional information concerning the way in ~~continued~~which ~~narrow~~such ~~fuel~~requirements apply to ~~electricity~~ ~~conversion~~us ~~spreads~~may be identified. InFor ~~this~~example, ~~environment~~in April 2006, ~~customers~~Maryland ~~typically~~enacted the Healthy Air Act, which requires more ~~transact~~significant ~~over~~reductions ~~shorter~~in ~~durations~~emissions of NOx, SO2 and ~~rely~~mercury ~~more~~than ~~heavily~~the onCAIR. ~~spot~~This ~~markets~~legislation toaffects ~~meet their~~our ~~energy~~coal-fired ~~needs~~units at Chalk Point, ~~thus~~Dickerson ~~making~~and itMorgantown. ~~more~~We ~~difficult~~anticipate ~~for~~that usthe tototal ~~sell~~capital ~~our~~expenditures ~~power~~to achieve compliance for ~~longer-term~~ ~~durations~~SO2 and NOx emissions at ~~prices~~these ~~that~~facilities ~~provide~~will abe ~~reasonable~~approximately ~~return,~~$1.6 ~~most notably~~billion onthrough ~~our~~the ~~gas~~first ~~fired~~quarter ~~units~~of 2010.

~~For~~25 our business, changing commodity prices can result in volatile financial results as our derivative instruments do not currently receive cash flow hedge accounting treatment in our financial statements. Instead, these derivative instruments are reflected in our financial statements at fair value, resulting in volatility in our gross margin. Our unrealized gains and losses for each period reflect changes in fair value of commodity contracts not yet settled and the reversal of unrealized gains and losses recognized in previous periods that settled in the current reporting period.

OurTable gross margin increased $148 million in 2004 compared to 2003. This increase was driven primarily by the termination of the Energy and Capacity Sales Agreement (“ECSA”) with Mirant Americas Energy Marketing in May 2003, along with higher market prices for power, capacity and ancillary services received by our Mid-Atlantic assets, increased volumes of generation produced by our New England assets and reduced unrealized losses on derivative fuel contracts for future periods, partially offset by an increase in unrealized losses on derivative power contracts for future periods due to increased forward power prices. Our cash flows from operating activities increased $27 million in 2004 compared to 2003, which reflects a significant increase in working capital requirements primarily as a result of an increase in accounts receivable in 2004 as compared to a decrease in 2003.Contents

WeIncreased public concern and ~~our~~growing ~~subsidiaries~~political pressure related to global warming has resulted in ~~have~~significant ~~entered~~increases ~~into~~in athe ~~number~~regulation of ~~service~~greenhouse ~~agreements~~gases, ~~with~~including ~~other~~CO2 ~~Mirant~~at ~~subsidiaries for~~ the ~~procurement~~state oflevel. ~~fuel~~Future local, ~~labor~~state and ~~administrative~~federal ~~services~~regulation ~~essential~~of greenhouse gases are likely to create substantial environmental costs for us in the form of taxes or ~~operating~~purchases ~~our~~of ~~business~~emissions allowances. ~~These~~Many ~~agreements~~of ~~are~~the ~~primarily~~states ~~with~~where ~~Mirant~~we own generating facilities, ~~Mirant Americas~~including ~~Energy~~California, ~~Marketing~~Maryland, Massachusetts and ~~Mirant~~New ~~Services.~~York, ~~See~~have ~~Note~~recently 5committed to ~~our~~mandatory ~~consolidated financial~~reductions ~~statements~~in ~~for~~statewide CO2 emissions through a ~~description~~regional cap-and-trade program. Some of these ~~agreements~~programs include proposals that would not allocate emissions allowances to existing sources of emissions and instead require all allowances to be purchased initially through an auction process. This could decrease the amount of available allowances and substantially increase their prices. Because our generating facilities emit CO2, these regulations and similar future laws may significantly increase our operating costs.

~~Bankruptcy~~Certain ~~Considerations~~environmental laws, including CERCLA and comparable state laws, impose strict and, in many circumstances, joint and several liability for costs of remediating contamination in soil, groundwater and elsewhere. Some of our facilities have areas with known soil and/or groundwater contamination. Releases of hazardous substances at our generating facilities, or at locations where we dispose of (or in the past disposed of) hazardous substances and other waste, could require us to spend significant sums to remediate contamination, regardless of whether we caused such contamination. The discovery of significant contamination at our generating facilities, at disposal sites we currently use or have used, or at other locations for which we may be liable, or the failure or inability of parties contractually responsible to us for contamination to respond when claims or obligations regarding such contamination arise, could have a material adverse effect on our financial performance and condition.

~~While~~Major ~~in bankruptcy, we~~environmental ~~expect~~construction ~~our~~projects ~~financial~~planned ~~results~~by to2010 ~~continue~~at toour beMid-Atlantic ~~volatile~~coal asfacilities ~~asset~~may ~~impairments, asset~~not ~~dispositions,~~meet ~~restructuring~~their ~~activities~~anticipated schedule, ~~contract~~which ~~terminations~~would ~~and rejections,~~restrict ~~and~~these ~~claims~~units ~~assessments~~from ~~may~~running ~~significantly~~at ~~impact~~their ~~our~~maximum ~~consolidated financial~~economic ~~statements~~levels. AsIn athe ~~result,~~event ~~our~~that ~~historical~~the ~~financial~~operating ~~performance~~constraints iswere ~~likely~~sufficiently severe, Mirant Mid-Atlantic may not ~~indicative~~have ofsufficient ~~our~~cash ~~financial~~flow ~~performance~~to ~~post-bankruptcy~~permit it to make distributions or, if more severe, to meet its obligations.

InUnder ~~addition,~~the ~~upon~~Maryland ~~emergence~~Healthy ~~from~~Air ~~Chapter 11~~Act, ~~the amounts~~we ~~reported~~are inrequired ~~subsequent~~to ~~consolidated~~reduce ~~financial~~annual ~~statements~~emissions ~~may~~below ~~materially change~~certain ~~relative~~levels toby ~~historical~~January 2010. ~~consolidated~~The ~~financial~~levels ~~statements~~established asdo anot ~~result~~allow ~~of revisions~~for tothe ~~our~~use ~~operating~~of ~~plans~~emissions ~~set~~allowances ~~forth~~to inmeet the ~~Plan~~mandated levels. ~~and,~~To ifmeet ~~required~~these requirements, ~~the impact~~we ofare ~~revaluing~~installing ~~our~~pollution ~~assets~~control ~~and~~equipment ~~liabilities~~on byall ~~applying~~of ~~fresh~~our ~~start accounting~~Maryland incoal ~~accordance~~facilities. ~~with~~We ~~Statement~~may ofnot ~~Position~~meet ~~90-7,~~this ~~“Financial~~construction ~~Reporting~~ schedule by ~~Entities~~January 2010 indue ~~Reorganization~~to ~~under~~a ~~the~~number ~~Bankruptcy~~of ~~Code.”~~factors, including:

52• failure or delays in obtaining necessary permits and approvals;

As• ~~part~~adverse ofweather the bankruptcy process, claims are filed with the Bankruptcy Court related to amounts that claimants believe we owe them. These claims, except for claims by certain governmental agencies, were required to be filed with the Court by December 16, 2003. In the absence of a specific Bankruptcy Court order providing otherwise, all governmental agencies were required to file claims with the Bankruptcy Court by January 12, 2004. See “Critical Accounting Policies and Estimates” for additional information.conditions;

~~Results~~• ofunanticipated ~~Operations~~cost increases;

~~Our operating~~• ~~revenues~~engineering ~~and expenses from affiliates and nonaffiliates aggregated by classification are as follows (in millions):~~problems;

	Years Ended December 31,
	2004			2003		Increase/ Decrease		2003		2002			Increase/ Decrease
Operating Revenues:
Affiliate		$ 1,795		$ 1,681		$ 114		$ 1,681			$ 1,706		$ (25	)
Nonaffiliate		319		334		(15	)	334			233		101
Total operating revenues		2114		2015		99		2015			1939		76
Cost of fuel, electricity and other products:
Affiliate		1094		1174		(80	)	1174			890		284
Nonaffiliate		195		164		31		164			88		76
Total cost of fuel, electricity and other products		1289		1338		(49	)	1338			978		360
Gross Margin		825		677		148		677			961		(284	)
Operating Expenses:
Generation facilities rent		103		96		7		96			96		—
Depreciation and amortization		89		121		(32	)	121			110		11
Operations and maintenance
Affiliate		260		194		66		194			190		4
Nonaffiliate		218		236		(18	)	236			272		(36	)
Loss (gain) on sales of assets, net		65		(3	)	68		(3	)		—		(3	)
Impairment loss		—		2715		(2,715	)	2,715			20		2,695
Total operating expenses		735		3359		(2,624	)	3359			688		2,671
Operating Income (loss)		90		(2682	)	2,772		(2,682	)		273		(2,955	)
Other income (expense), net:
Affiliate		(5	)	20		(25	)	20			41		(21	)
Nonaffiliate		7		(193	)	200		(193	)		(194	)	1
Reorganization items, net		89		25		64		25			—		25
(Benefit) provision for income taxes		(19	)	113		(132	)	113			56		57
Income from discontinued operations		—		7		(7	)	7			14		(7	)
Cumulative effect of change in accounting principle		—		(3	)	3		(3	)		—		(3	)
Net income (loss)		$ 22		$ (2,989	)	$ 3,011		$ (2,989	)		$ 78		$ (3,067	)

•

shortages of equipment, materials or skilled labor;

53• unscheduled delays in delivery of materials and equipment; and

~~The following~~• ~~table~~work ~~summarizes gross margin by region for the years ended December 31, 2004, 2003 and 2002 (in millions):~~stoppages.

	Years Ended December 31,
	2004		2003		Increase/ (Decrease)			2003		2002		Increase/ (Decrease)
Northeast	$ 238		$ 143			$ 95		$ 143		$ 163			$ (20	)
Mid-Atlantic	424		352			72		352		469			(117	)
West	164		183			(19	)	183		334			(151	)
Other	(1	)	(1	)		—		(1	)	(5	)		4
Total	$ 825		$ 677			$ 148		$ 677		$ 961			$ (284	)

Any of these factors may significantly increase the estimated costs of our environmental construction projects or result in a loss of cash flows from operations due to reduced unit operations.

The ~~following~~ ~~table~~expected ~~summarizes~~decommissioning ~~capacity~~and/or ~~factor~~site ~~(average~~remediation ~~percentage~~obligations of ~~full~~certain ~~capacity used~~of ~~over~~our agenerating ~~year)~~facilities bymay ~~region~~negatively ~~for~~affect ~~the~~our ~~years~~cash ~~ended~~flows. ~~December 31, 2004 and 2003:~~

	Years Ended December 31,
	2004			2003			Increase/ (Decrease)
Northeast		33	%		31	%		2	%
Mid-Atlantic		44	%		45	%		(1	)%
West		19	%		9	%		10	%

We expect that certain of our generating facilities and related properties will become subject to decommissioning and/or site remediation obligations that may require material expenditures. For example, we may start decommissioning the Lovett facility if the final operating unit ceases operation on April 19, 2008. We expect the decommissioning of the Lovett facility to cost approximately $20 million. The exact amount and timing of such expenditures is not presently known. Furthermore, laws and regulations may change to impose

~~The following~~26 ~~table summarizes power generation volumes by region for the years ended December 31, 2004 and 2003 (in gigawatt hours):~~

	Years Ended December 31,
	2004	2003	Increase/ (Decrease)
Northeast	8,797	8,492		305
Mid-Atlantic	16,461	16,884		(423	)
West	4,880	4,062		818
Total	30,138	29,438		700

~~2004~~ material ~~versus~~additional ~~2003~~decommissioning and remediation obligations on us in the future. If we are required to make material expenditures to decommission or remediate one or more of our facilities, such obligations will affect our cash flows and may adversely affect our ability to make payments on our obligations.

~~Gross~~Our ~~Margin. Gross margin~~consolidated ~~increased~~indebtedness ~~$148~~could ~~million~~adversely inaffect ~~2004~~our ability to raise additional capital to fund our operations, ~~primarily~~limit ~~due~~our ability to react to changes in the ~~following:~~economy or our industry and prevent us from meeting or refinancing our obligations.

~~· Northeast~~As ~~operations~~of ~~gross~~December 31, ~~margin~~2007, ~~increased~~our consolidated indebtedness was $953.093 billion. In addition, the present value of ~~million~~lease ~~primarily~~payments ~~due~~under tothe Mirant Mid-Atlantic leveraged leases is approximately $1 billion (assuming a 10% discount rate) and the termination value of the Mirant Mid-Atlantic leveraged leases is $1.4 billion. Our leverage could have important consequences, including the following: (1) it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; (2) a substantial portion of our cash flows from operations must be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures and future business opportunities; (3) the debt service requirements of our indebtedness could make it more difficult for us to satisfy or refinance our financial obligations; (4) borrowings under Mirant North America’s senior secured credit facilities are at variable rates of interest, exposing us to the risk of increased interest rates; (5) it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared with our competitors that have less debt; and (6) we may be more vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out capital expenditures that are important to our long-term growth or necessary to comply with environmental regulations.

~~· An~~The ~~increase~~sale by our parent of ~~$43~~the ~~million~~six ~~related~~U.S. tonatural ~~net~~gas-fired ~~unrealized~~facilities ~~gains~~and onits ~~derivative~~Philippine and Caribbean ~~instruments~~businesses, ofand ~~approximately~~its decision to return a total of $314.6 ~~million~~billion in ~~2004~~excess ~~compared~~cash to ~~$12~~its ~~million~~stockholders, incould ~~net unrealized~~adversely ~~losses~~limit inits ~~2003;~~ability to make capital contributions to or otherwise support us and our subsidiaries.

~~· An~~We ~~increase~~and ofour ~~$27~~subsidiary, ~~million~~Mirant ~~due~~North toAmerica, ~~certain~~are ~~events~~holding ~~that~~companies ~~occurred~~and inwe ~~the first~~may ~~half~~not ofhave ~~2003,~~access ~~such~~to assufficient ~~certain~~cash ~~forced~~to ~~outages~~meet ~~and~~our ~~transmission~~obligations ~~line~~if our subsidiaries, in ~~problems~~particular, ~~that~~Mirant ~~did~~Mid-Atlantic, ~~not~~are ~~recur~~unable into ~~2004;~~make ~~and~~distributions.

~~· An~~We ~~increase~~and ofour ~~$22~~subsidiary, ~~million~~Mirant inNorth ~~our~~America, ~~realized~~are holding ~~economic~~companies ~~hedging~~and, ~~margin~~as ~~due~~a result, we are dependent upon dividends, distributions and other payments from our operating subsidiaries to generate the ~~impact~~funds necessary to meet our obligations. In particular, a significant portion of ~~2003~~cash ~~short~~from ~~positions~~our onoperations is generated by the power ingenerating facilities of Mirant Mid-Atlantic. Under the Mirant Mid-Atlantic leveraged leases, Mirant Mid-Atlantic is subject to a covenant that restricts its right to make distributions to its immediate parent, Mirant North ~~market~~America. ~~where~~In ~~prices~~turn, ~~for~~Mirant North America is subject to covenants that restrict its ability to make distributions to us. The ability of Mirant North America and Mirant Mid-Atlantic to satisfy the criteria set forth in their respective debt covenants in the future could be impaired by factors which negatively affect the performance of the power ~~were~~generating ~~rising~~facilities of Mirant Mid-Atlantic, including interruptions in operation or curtailment of operations to comply with environmental restrictions.

~~· Mid-Atlantic~~Our ~~operations gross~~obligations ~~margin~~and ~~increased $72 million primarily due to~~ the ~~termination~~obligations of ~~the ECSA with~~ Mirant ~~Americas~~North ~~Energy~~America, ~~Marketing~~including inour ~~May 2003.~~respective ~~Revenues~~indebtedness, ~~received under~~are ~~the~~effectively ~~ECSA~~subordinated into ~~2003 were $94 million less than what would have been~~the ~~received~~obligations ~~from~~or ~~the~~indebtedness ~~Pennsylvania-New~~of ~~Jersey-Maryland~~our ~~Interconnection~~respective subsidiaries, ~~LLC~~including ~~(“PJM”) spot market. Excluding~~ the ~~impact~~Mirant ~~of the ECSA,~~ Mid-Atlantic ~~gross~~leveraged ~~margin~~leases. ~~would have been $22 million lower in 2004 than in 2003, primarily due to the following:~~

~~· An~~We ~~increase~~may ofbe unable to generate ~~approximately~~sufficient ~~$46~~liquidity ~~million~~to ~~driven~~service byour ~~higher~~debt and to post required amounts of cash collateral necessary to hedge market ~~prices~~risk ~~for~~effectively. ~~power;~~

54Our ability to pay principal and interest on our debt depends on our future operating performance. If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital, restructure or refinance. There

~~· An~~27 ~~increase of $46 million related to an increase in prices for capacity and ancillary services;~~

· ATable decrease of approximately $69 million related to net unrealized losses on derivative contracts for future periods. Of these contracts, $59 million related to power and $10 million related to oil and gas, and were entered into to economically hedge a portion of the energy and fuel price risk related to future Mid-Atlantic operations. The decrease in value of these energy and fuel derivative contracts is due to an increase in forward power prices and a decrease in forward fuel prices;Contents

~~· A decrease of $18 million~~ ~~related~~can tobe ~~higher~~no ~~emissions~~assurance ~~expense~~that ~~due~~the ~~mainly~~terms toof ~~higher~~our ~~prices~~debt ~~for~~will ~~SO2 emissions~~allow ~~allowances.~~these Inalternative ~~order~~measures, ~~for~~that usthe tofinancial ~~meet~~markets ~~our~~will ~~current~~be ~~needs~~available to ~~operate~~us ~~our generation~~on ~~facilities~~acceptable ~~we had to purchase additional emissions allowances. The~~terms ~~average~~or ~~price~~that ofsuch ~~emissions~~measures ~~allowances~~would ~~increased~~satisfy ~~140%~~our ~~from~~scheduled ~~$180~~debt ~~per~~service ~~ton~~obligations. ~~in 2003 to $431 per ton in 2004;~~

~~· A~~We ~~decrease~~seek to manage the risks associated with the volatility in the price at which we sell power produced by our generating facilities and in the prices of fuel, emissions allowances and other inputs required to produce such power by entering into hedging transactions. These asset management activities may require us to post collateral either in the form of cash or letters of credit. As of December 31, 2007, we had approximately $14108 million of posted cash collateral and $290 million of letters of credit outstanding primarily to support our asset ~~related~~management activities, debt service reserve requirements and other commercial arrangements. See Note 9 to aour ~~reduction~~consolidated and combined financial statements contained elsewhere in ~~realized~~this ~~gains~~report for further information on ~~economic~~our ~~fuel~~posted ~~hedges;~~cash collateral and letters of credit. While we seek to structure transactions in a way that reduces our potential liquidity needs for collateral, we may be unable to execute our hedging strategy successfully if we are unable to post the amount of collateral required to enter into and support hedging contracts.

~~· A~~We ~~decrease~~are ofan ~~$11~~active ~~million~~participant in energy exchange and clearing markets. These markets require a ~~related~~per contract initial margin to be posted, regardless of the ~~termination~~credit quality of ~~contracts~~the participant. The initial margins are determined by the exchanges through the use of proprietary models that rely on a variety of inputs and factors, including market conditions. We have limited notice of any changes to the margin rates. Consequently, we are exposed to changes in ~~2004~~the per unit margin rates required by the exchanges and could be required to post additional collateral on short notice.

~~· West~~If ~~operations~~our ~~gross margin~~facilities ~~decreased~~experience ~~$19~~unplanned ~~million. In California~~outages, ~~gross~~we ~~margin~~may ~~decreased~~be ~~by approximately~~required ~~$3 million primarily due~~ to aprocure ~~decrease~~replacement power in ~~gains~~the onopen ~~realized economic~~market ~~hedges~~to ofsatisfy ~~$22 million~~contractual ~~as a result of reduced economic hedging~~commitments. ~~activity~~Without ~~offset~~adequate byliquidity ~~$18~~to ~~million~~post ofmargin ~~savings~~and oncollateral ~~gas reservation charges following a contract rejection. In Texas~~requirements, ~~gross~~we ~~margin~~may ~~decreased~~be byexposed ~~$16 million primarily due~~ to ~~lower~~significant ~~energy~~losses ~~prices~~ and amay ~~new~~miss ~~tolling~~significant ~~agreement~~opportunities, ~~that~~and ~~began~~we inmay ~~August 2004 with~~have aincreased ~~third~~exposure ~~party~~to ~~that~~the isvolatility atof ~~lower~~spot ~~prices than what these units received under a prior agreement with Mirant Americas Energy Marketing~~markets.

~~Operating~~Our ~~expenses~~business is subject to complex government regulations. ~~Operating expenses~~ ~~decreased~~Changes $2in these regulations,~~624~~ ~~million~~or ~~primarily~~their ~~due~~administration, toby legislatures, state and federal regulatory agencies, or other bodies may affect the ~~following:~~costs of operating our facilities or our ability to operate our facilities. Such cost impacts, in turn, may negatively affect our financial condition and results of operations.

~~· A~~We ~~decrease~~are subject to regulation by the FERC regarding the terms and conditions of $1wholesale service and rates,~~625~~ ~~million~~as ~~for~~well ~~goodwill~~as by state agencies regarding ~~impairment~~physical ~~charges~~aspects ~~related~~of toour ~~the~~generating ~~impairment~~facilities. The majority of ~~goodwill~~our ingeneration ~~2003~~is sold at market prices under market based rate authority granted by the FERC. ~~For~~If ~~further discussion~~certain conditions are not met, ~~see~~the ~~“Critical~~FERC ~~Accounting~~has ~~Policies~~the ~~and~~authority ~~Estimates”~~to withhold or rescind market based rate authority and ~~Note~~require 7sales to be made based on cost-of-service rates. A loss of our ~~consolidated~~ ~~financial~~market ~~statements~~based ~~contained~~rate ~~elsewhere~~authority incould ~~this~~have ~~report;~~a materially negative impact on our generating business.

~~· A~~Even ~~decrease~~where market based rate authority has been granted, the FERC may impose various forms of $1market mitigation measures,~~090~~ including price caps and ~~million~~operating ~~for~~restrictions, ~~long-lived~~where ~~asset~~it ~~impairment~~determines ~~losses~~that ~~due~~potential market power might exist and that the public interest requires such potential market power to anbe ~~impairment~~mitigated. ~~recorded~~In ~~in 2003~~addition ~~for~~to ~~several~~direct regulation by the FERC, most of our ~~assets~~facilities are subject to rules and terms of participation imposed and administered by various RTOs and ISOs. ~~For~~Although ~~further~~these ~~discussion~~entities are themselves ultimately regulated by the FERC, ~~see~~they ~~“Critical~~can impose rules, restrictions and terms of service that are quasi-regulatory ~~Accounting~~in ~~Policies~~nature and ~~Estimates”~~can have a material adverse impact on our business. For example, ISOs and ~~Note~~RTOs 6may impose bidding and scheduling rules, both to ~~our~~curb ~~consolidated~~the ~~financial~~potential exercise of market power and to ensure market functions. Such actions may materially ~~statements~~affect ~~contained~~our ~~elsewhere~~ability into ~~this~~sell ~~report;~~and the price we receive for our energy and capacity.

~~· A~~To ~~decrease~~conduct ofour ~~$18~~business, ~~million~~we inmust ~~operations~~obtain and periodically ~~maintenance—nonaffiliate~~renew ~~primarily~~licenses, ~~related~~permits toand aapprovals ~~reduction~~for inour ~~the~~facilities. ~~allowance related~~These licenses, permits and approvals can be in addition to ~~receivables~~any ~~from~~required ~~Enron~~environmental ofpermits. $5No ~~million~~assurance ~~and~~can $8be ~~million~~provided ~~lower~~that ~~property taxes~~we ~~due~~will be able to ~~settlements~~obtain ~~related~~and tocomply ~~certain~~with ~~California~~all ~~and~~necessary licenses, ~~New~~permits ~~York~~and ~~generation~~ ~~assets;~~

~~· A~~28 decrease of $32 million in depreciation and amortization expense primarily due to lower depreciation expense related to our property, plant and equipment after our $1,090 million impairment of long-lived assets in the fourth quarter of 2003;

· AnTable increase of $68 million in loss on sales of assets, net primarily relates to a loss on the sale of three natural gas combustion turbines at Bowline 3 in 2004;Contents

~~· An increase of $66 million~~ inapprovals ~~operations~~for ~~and~~these ~~maintenance—affiliate~~facilities. ~~primarily~~If ~~due~~we tocannot acomply ~~change~~with inall ~~the~~applicable ~~Mirant corporate~~regulations, ~~allocation~~our ~~methodology that was implemented January 1~~business, ~~2004.~~results ~~See Note~~of 5operations toand ~~our consolidated~~ financial ~~statements~~condition ~~contained~~could ~~elsewhere in this~~be ~~report~~adversely ~~for~~affected. ~~further discussion; and~~

~~· An~~On ~~increase~~August 8, of2005, $7the ~~million in~~EPAct ~~generation~~2005 ~~facilities~~was ~~rent~~enacted. ~~related~~Among toother things, the ~~additional~~EPAct ~~rent~~2005 ~~expense~~provides incentives for ~~our~~various ~~Morgantown~~forms ~~and~~of ~~Dickerson~~electric ~~baseload~~generating ~~units~~technologies, aswhich awill ~~result~~subsidize certain of ~~the~~our ~~Bankruptcy~~competitors. ~~Court’s granting~~Regulations ~~the~~that ~~motion~~could ~~compelling~~be usissued pursuant to ~~pay~~the ~~incremental~~EPAct ~~rent~~2005 inmay ~~2004.~~have ~~See~~an ~~Note~~adverse ~~12 contained~~impact ~~elsewhere~~on inour ~~this report for further discussion~~business.

55We cannot predict whether the federal or state legislatures will adopt legislation relating to the restructuring of the energy industry. There are proposals in many jurisdictions both to advance and to roll back the movement toward competitive markets for the supply of electricity, at both the wholesale and retail levels. In addition, any future legislation favoring large, vertically integrated utilities and a concentration of ownership of such utilities could affect our ability to compete successfully, and our business and results of operations could be adversely affected. We cannot provide assurance that the introductions of new laws, or other future regulatory developments, will not have a material adverse impact on our business, operations or financial condition.

~~Other~~Changes income (expense), net. Other income (expense), net decreased $175 million primarily due to the Chapter 11 proceedings. The accrual of interest expense associated with pre-petition debt was suspended subsequent to the Petition Date, and no interest expense related to pre-petition debt was recorded. Contractual interest on liabilities subject to compromise in ~~excess~~technology ofmay ~~reported~~significantly ~~interest~~affect ~~was~~our ~~approximately $238 million~~generating ~~and~~business ~~$110 million~~by ~~for~~making ~~the~~our ~~years~~generating ~~ended~~facilities ~~December 31, 2004~~less ~~and 2003, respectively~~competitive. Contractual interest on liabilities subject to compromise in excess of reported interest for the period from the Petition Date through December 31, 2004 is approximately $348 million. This amount includes approximately $225 million of interest related to Mirant Americas Generation long dated bonds that would be reinstated under the proposed Plan.

~~2003~~We ~~versus~~generate ~~2002~~electricity using fossil fuels at large central facilities. This method results in economies of scale and lower costs than newer technologies such as fuel cells, microturbines, windmills and photovoltaic solar cells. It is possible that advances in those technologies will reduce their costs to levels that are equal to or below that of most central station electricity production, which could have a material adverse effect on our results of operations.

~~Gross~~Terrorist ~~Margin. Gross margin~~attacks, ~~decreased~~future bywar ~~$284~~or ~~million~~risk ~~primarily~~of ~~due~~war may adversely affect our results of operations, our ability to ~~the~~raise ~~following:~~capital or our future growth.

~~· Northeast~~As ~~operations~~power ~~gross~~generators, we face heightened risk of an act of terrorism, either a direct act against one of our generating facilities or an inability to ~~margin~~operate ~~decreased~~as ~~$20~~a ~~million~~result ~~primarily~~of ~~due~~systemic damage resulting from an act against the transmission and distribution infrastructure that we use to transport our power. If such an ~~unsuccessful~~attack ~~economic~~were ~~hedging~~to occur, our business, financial condition and results of operations ~~strategy~~could ~~related~~be materially adversely affected. In addition, such an attack could affect our ability to aservice ~~short~~our ~~position~~indebtedness, ~~for~~our ~~power~~ability asto ~~power~~raise ~~prices~~capital ~~increased~~and ~~in 2003~~our future growth opportunities.

~~· Mid-Atlantic~~ Our operations ~~gross~~are ~~margin~~subject ~~decreased~~to ~~$117 million~~hazards ~~primarily~~customary ~~due~~ to the power generating industry. We may not have adequate insurance to cover all of these hazards. ~~following:~~

~~· A~~Our ~~decrease~~operations ofare ~~$79~~subject ~~million in~~to ~~revenues~~many ~~primarily~~hazards ~~due~~associated towith the ~~termination~~power ofgenerating ~~the~~industry, ~~ECSA~~which inmay ~~May 2003.~~expose us to significant ~~During~~liabilities ~~2002~~for which we may not have adequate insurance coverage. Power generation involves hazardous activities, ~~revenues~~including ~~under~~acquiring, ~~the~~transporting ~~ECSA~~and ~~were~~unloading ~~$179~~fuel, ~~million~~operating ~~higher~~large ~~than~~pieces ~~what~~of ~~would~~rotating equipment and delivering electricity to ~~have~~transmission ~~been~~and ~~received~~distribution ~~from~~systems. ~~the~~In ~~PJM~~addition ~~spot~~to ~~market~~natural risks, such as earthquake, flood, lightning, hurricane and wind, hazards, such as fire, explosion, collapse and machinery failure, are inherent risks in our operations. ~~From~~These ~~January 1~~hazards can cause significant injury to personnel or loss of life, ~~2003~~severe damage to ~~May 1~~and destruction of property, ~~2003~~ ~~the~~plant ~~revenue~~and ~~received~~equipment, ~~under~~contamination of, or damage to, the ~~agreement~~environment ~~was~~and ~~$94~~suspension ~~million~~of ~~less~~operations. ~~than~~The ~~what~~occurrence of any one of these events may ~~would~~result ~~have~~in ~~been~~our ~~received~~being ~~from~~named ~~the~~as ~~PJM~~a ~~spot~~defendant ~~market~~in lawsuits asserting claims for substantial damages, environmental cleanup costs, personal injury and fines and/or penalties. ~~For~~We ~~the~~maintain ~~remainder~~an amount of ~~2003~~insurance protection that we consider adequate, but we cannot assure that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we ~~received~~may ~~market~~be ~~prices~~subject. A successful claim for ~~power;~~which we are not fully insured could have a material adverse effect on our financial results and our financial condition.

~~· A decrease of $41 million related primarily to higher fuel prices of approximately $~~29 ~~million and emissions allowances of $12 million; and~~

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

~~· Gross~~We ~~margin~~are incurrently ~~our~~involved ~~California operations decreased $151 million primarily related to reduced profitability due to the expiration of our power sales agreement with DWR~~ in ~~December 2002.~~significant ~~In 2003,~~litigation ~~we converted the units~~ that, ~~were~~if ~~contracted~~decided ~~under~~adversely ~~the DWR agreement~~ to ~~RMR~~ ~~Contract Condition 2 of approximately 1~~us,~~700~~ MWcould ~~out~~materially ~~of 2,000 MW. Revenues~~adversely ~~under~~affect ~~the~~our ~~DWR~~results ~~agreement were based on the market prices at the time we entered into the agreement~~ of ~~approximately~~operations ~~$150/MWh. Under the RMR Contract Condition 2 contracts, revenues are based on a fixed rate of return~~ and ~~the costs of operating the unit~~profitability.

~~Operating~~We ~~expenses. Operating expenses~~are ~~increased~~currently $2involved in various litigation matters,~~671~~ ~~million~~which ~~primarily~~are ~~due~~described in more detail in this Form 10-K. We intend to defend vigorously against those claims that we are unable to settle, but the ~~following:~~results of this litigation cannot be determined. Adverse outcomes for us in this litigation could require significant expenditures by us and could have a material adverse effect on our results of operations and profitability.

~~· An~~Item ~~increase~~1B. ofUnresolved ~~$1,625 million~~Staff ~~for goodwill impairment charges related to the impairment of goodwill in 2003;~~Comments

~~· An~~None. ~~increase of $1,070 million for long-lived asset impairment losses in 2003; and~~

~~· A~~30 decrease of $36 million in operations and maintenance—nonaffiliate primarily due to cost reduction initiatives as part of our effort to downsize our organization. Operations and maintenance expense includes such costs as plant operations and maintenance, administrative expenses, such as consulting, accounting and legal fees, and property taxes.

OtherTable income (expense), net. Other income (expense), net decreased $20 million primarily due to the Chapter 11 proceedings. As a result of the bankruptcy proceedings, no intercompany interest income or expense was recorded on affiliate pre-petition balances subsequent to the Petition Date.Contents

56Item 2. Properties

~~Financial~~The ~~Condition~~properties below were owned or leased as of December 31, 2007. Our leasehold or ownership interest is 100% for each property.

Liquidity and Capital Resources


Operating Plants	Location	Plant Type	Primary Fuel	Total MW(1)	2007 Net Capacity Factor(2)
Mid-Atlantic Region:
Chalk Point	Maryland	Intermediate/Baseload/Peaking	Natural Gas/Coal/Oil	2,417	24	%
Dickerson	Maryland	Baseload/Peaking	Natural Gas/Coal/Oil	853	41	%
Morgantown	Maryland	Baseload/Peaking	Coal/Oil	1,492	54	%
Potomac River	Virginia	Intermediate/Baseload	Coal	482	34	%

Total Mid-Atlantic				5,244	37	%

Northeast Region:
Canal	Massachusetts	Intermediate	Natural Gas/Oil	1,112	23	%
Kendall	Massachusetts	Baseload/Peaking	Natural Gas/Oil/ Jet fuel	256	65	%
Martha’s Vineyard	Massachusetts	Peaking	Diesel	14	3	%

Total New England				1,382	30	%

Bowline	New York	Intermediate/Peaking	Natural Gas/Oil	1,124	6	%
Lovett	New York	Baseload	Natural Gas/Coal	183	67	%

Total New York				1,307	15	%

Total Northeast				2,689	22	%


California:
Contra Costa	California	Intermediate	Natural Gas	674	2	%
Pittsburg	California	Intermediate	Natural Gas	1,311	2	%
Potrero	California	Intermediate/Peaking	Natural Gas/Oil	362	16	%

Total California				2,347	4	%

Total Operations				10,280	25	%

~~The~~(1) ~~matters~~Total ~~described~~MW inamounts ~~this~~reflect ~~section~~nominal ~~relate~~net todependable ~~future events or expectations and may be significantly affected by the Chapter 11 proceedings~~capacity. The Chapter 11 proceedings have resulted in various restrictions on our activities including limitations on financing, the need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers and others with whom we may conduct or seek to conduct business. Upon exiting from bankruptcy we will no longer be subject to these restrictions.

~~During~~(2) ~~the~~Net ~~pendency~~capacity offactor ~~the~~is ~~Chapter 11 proceedings, Mirant and certain of its subsidiaries, including us, are participating in an intercompany cash management program approved by~~ the ~~Bankruptcy~~average ~~Court~~production pursuant to which cash balances at Mirant and the participating subsidiaries are transferred to central concentration accounts and, if necessary, lent to Mirant or any participating subsidiary to fund working capital and other needs, subject to the intercompany borrowing limits approved by the Bankruptcy Court. Under the intercompany cash management program, the Bankruptcy Court imposed borrowing limits for intercompany loans among the respective subsidiary sub-groups. In December 2004, the Bankruptcy Court amended the intercompany cash management program to exclude from the intercompany borrowing limits amounts borrowed by Mirant Americas Energy Marketing from the non-Mirant Americas Energy Marketing sub-groups to fund cash collateral posted and cash prepayments made to third parties on account of transactions entered into by Mirant Americas Energy Marketing for the benefit of the members of the non-Mirant Americas Energy Marketing sub-groups. All intercompany transfers by such Mirant entities are recorded as ~~intercompany loans on~~ a ~~junior superpriority~~percentage ~~administrative basis and are secured by junior liens on the assets~~ of the ~~relevant~~potential ~~borrowing~~net ~~group.~~dependable ~~Additionally,~~capacity ~~the~~used ~~Company~~over ~~and~~a its subsidiaries are subject to maximum intercompany borrowing limits under the DIP Facility of $200 million at Mirant Mid-Atlantic and an additional $150 million for the remaining Mirant Americas Generation subsidiariesyear. Upon entering into the debtor-in-possession credit facility described below, the cash balances of the participating Mirant Debtors became subject to security interests in favor of the debtor-in-possession lenders and, upon certain conditions, such cash balances are swept into concentration accounts controlled by the debtor-in-possession lenders.

OnWe ~~November 5,~~also ~~2003,~~own certain of the Mirant Debtors (the “DIP Borrowers”) entered into a two-year debtor-in-possession credit facility (the “DIP Facility”) providing for borrowings or the issuance of letters of credit in an ~~amount~~oil ~~not~~pipeline, towhich ~~exceed the lesser of $500 million or the then-existing “borrowing base.” The borrowing base~~ is ~~the~~approximately ~~aggregate value assigned to specified power generation assets of the DIP Borrowers that serve as collateral for the DIP Facility~~51. However, upon the occurrence of certain triggering events, including the sale of borrowing base assets or an event that has a material adverse effect on the business, operations or value of a power generation facility, the borrowing base may be revalued or reserves against the borrowing base may be imposed, thus lowering the borrowing base amount. The borrowing base as of December5 ~~31,~~miles ~~2004~~long ~~was $724 million. The borrowing base decreased $48 million in January~~ and ~~will~~serves ~~decrease another $37 million following~~ the ~~consummation~~Chalk ofPoint the pending sale of certain Mirant assets. The orders entered by the Bankruptcy Court approving the DIP Facility permit up to $300 million of borrowings, which amount may be increased to $500 million upon written approval of each of the Statutory Committees or further order of the Bankruptcy Court. The DIP Facility also contains an option, exercisable by Mirant or us, to remove us and ~~our~~Morgantown ~~subsidiaries~~generating ~~as borrowers and obligors under the DIP Facility and reduce the DIP Facility commitment to a maximum of $200 million of borrowings~~facilities. ~~Borrowings under the DIP Facility are secured by substantially all of the assets of the DIP Borrowers, including the assets of our subsidiaries.~~

~~Pursuant~~31 ~~to the DIP Facility, the DIP Borrowers are subject to a number of affirmative and restrictive covenants, reporting requirements, and, subject to usage, financial covenants. The DIP borrowers,~~

57Table of Contents

~~including~~ Item 3. Legal ~~the~~Proceedings—See ~~Company, were~~Note in14 ~~compliance~~to ~~with~~our ~~the~~consolidated ~~DIP~~and ~~Facility~~combined ~~covenants,~~financial orstatements ~~had~~contained ~~received~~elsewhere ~~affirmative waivers~~in this report for discussion of ~~compliance~~the ~~where~~material ~~compliance~~legal proceedings ~~was~~to ~~not~~which ~~attained,~~we asare ~~of December 31,~~a ~~2004~~party.

~~After we emerge from bankruptcy, we expect to satisfy~~ ~~our~~Item 4. Submission ~~liquidity and capital requirements with cash generated by operations and letters~~ of ~~credit~~Matters ~~and~~to ~~borrowings under~~ a ~~new~~Vote ~~revolving~~of ~~credit~~Security ~~facility~~Holders ~~as contemplated by the Plan.~~

We are a holding company and as a result, we are dependent upon dividends and other payments from our subsidiaries to generate the funds necessary to meet our outstanding debt service and other obligationsNone. In particular, a substantial portion of our cash provided by operating activities is generated by Mirant Mid-Atlantic. The Mirant Mid-Atlantic leveraged leases as currently constituted contain a number of covenants, including limitations on dividends, distributions and other restricted payments. Under the leveraged leases, Mirant Mid-Atlantic is not permitted to make any dividends, distributions and other restricted payments unless (1) it satisfies the fixed charge coverage ratio on a historical basis for the last period of four fiscal quarters, (2) it is projected to satisfy the fixed charge coverage ratio for the next two periods of four fiscal quarters, and (3) no significant lease default or event of default has occurred and is continuing. See Note 12 for a further description of the restricted payments test under the leveraged leases. In the event of a default under the leveraged leases or if the restricted payments test is not satisfied, the cash of Mirant Mid-Atlantic would not be available for distribution to us. During the bankruptcy, cash movements among the Mirant Debtors have been made pursuant to intercompany loans as described above and the Mirant Debtors have not made dividends, distributions or capital contributions. The projected fixed charge coverage ratios are based on projections that were not prepared to conform to the guidelines established by the American Institute of Certified Public Accountants regarding forecasts, and were not audited, reviewed, or compiled by our independent registered public accounting firm. It should be noted that the forecasts, market assumptions and many other factors are inherently inaccurate and should not be relied on. If Mirant Mid-Atlantic were to calculate the fixed charge coverage ratio under the leveraged leases as of June 30, 2005, we expect that it would meet the required 1.7 to 1.0 ratio for restricted payments, both on a historical and projected basis. However, the expected historical ratio for June 30, 2005 and the projected historical ratio for September 30, 2005 are close to the required ratio. Further, the calculation of the fixed charge coverage ratio requires the determination of the “Consolidated EBITDA”, as defined in the lease documentation, of Mirant Mid-Atlantic exclusive of depreciation, amortization and similar non-cash charges. Management has calculated the fixed charge coverage ratio excluding certain non-cash charges that management believes to be reasonable and appropriate. The relevance of the restricted payments test under the leveraged leases post-bankruptcy is unclear given the potential determination of the Mirant Debtors to modify their proposed Plan to provide for the assumption of the leveraged leases conditioned upon certain provisions thereof being determined to be unenforceable—including the limitations on restricted payments. In the event the resolution of the outstanding litigation with respect to the treatment of the leveraged leases results in Mirant Mid-Atlantic assuming the leases with the same or similar limitations on restricted payments, Mirant Mid-Atlantic intends to seek confirmation of its application of the calculation of the fixed charge coverage ratio.

~~The~~32 proposed Plan provides for the organization of Mirant North America as an intermediate holding company that would be our subsidiary and the parent of our indirect subsidiaries, including Mirant Mid-Atlantic. The proposed Plan provides for Mirant North America to incur certain indebtedness to be issued in connection with the Plan and to enter into a revolving credit facility for working capital and other purposes and secured by the assets of Mirant North America and its subsidiaries other than Mirant Mid-Atlantic and its subsidiaries. We expect that any such revolving credit facility will include certain covenants typical in such credit facilities, including restrictions on dividends, distributions and other restricted payments. Further, we expect that any such revolving credit facility will include financial covenants that will exclude from the calculation of compliance with such covenants the financial results of any subsidiary that is unable to make distributions or dividends at the time of such calculation. Thus, the ability of Mirant

58Table of Contents

~~Mid-Atlantic~~PART II to make distributions to Mirant North America under the leveraged lease transaction is expected to have a material impact on the calculation of the financial covenants under the revolving credit facility and other debt of Mirant North America and on its ability to make distributions to us. The availability of the Mirant North America revolving credit facility, an important source of liquidity for our subsidiaries post-bankruptcy, and our ability to pay our obligations may be adversely affected in the event that Mirant Mid-Atlantic is unable to make distributions to Mirant North America.

~~See~~Item ~~Note~~5. 12Market ~~to our consolidated financial statements~~ for aRegistrant’s ~~summary~~Common ofEquity, ~~the~~Related ~~covenants~~Stockholder ~~under~~Matters ~~the Mirant Mid-Atlantic lease financing documents~~ and ~~the~~Issuer ~~expected~~Purchases ~~covenants~~of inEquity ~~the anticipated Mirant North America indebtedness.~~Securities

~~Off~~We are an indirect wholly-~~Balance~~owned ~~Sheet~~subsidiary ~~Arrangements~~of Mirant. Our membership interests are not publicly traded and ~~Contractual~~all of our membership interests are held by ~~Obligations~~our parent, Mirant Americas. For the years ended December 31, 2007 and 2006, we made cash distributions to Mirant Americas of $534 million and $236 million, respectively. We have no equity compensation plans under which we issue our membership interests.

~~We are in the process of evaluating the Mirant Debtors’ executory contracts in order to determine which contracts will be assumed, assumed and assigned, or rejected. See “~~Item ~~1. Business—Overview—Proceedings~~ ~~under Chapter 11 of the Bankruptcy Code~~6.~~” The~~ ~~table~~Selected ~~presented~~Financial ~~below does not include contracts that we have successfully rejected through the bankruptcy process.~~Data

AsThe following ofdiscussion ~~December 31, 2004~~should be read in conjunction with our ~~off-balance~~consolidated ~~sheet~~and ~~arrangements~~combined financial statements and ~~contractual~~the ~~obligations~~notes thereto, which are ~~as follows~~included (elsewhere in ~~millions):~~this Form 10-K. The following tables present our selected financial information, which is derived from our consolidated and combined financial statements.

	Off-Balance Sheet Arrangements and Contractual Obligations by Year
	Total		2005		2006		2007		2008		2009		More than 5 years
Operating leases(1)	$	2,483	$	111	$	108	$	113	$	122	$	143		$	1,886
Purchase commitments:
Fuel purchase and transportation commitments(2)	360		139		113		108		—		—			—
Long-term service agreements(3)	266		8		12		14		22		22			188
Coal purchases—affiliate(4)	463		224		135		104
Other(5)	52		52		—		—		—		—			—
Total excluding pre-petition debt.	3,624		$	534	$	368	$	339	$	144	$	165		$	2,074
Liabilities subject to compromise(6)	3,438
Total	$	7,062

During our bankruptcy proceedings, our consolidated and combined financial statements were prepared in accordance with SOP 90-7. Our Statements of Operations Data for the years ended December 31, 2004 and 2003, do not include interest expense on debt that was subject to compromise subsequent to the Petition Date. Our Statement of Operations Data for the year ended December 31, 2005, reflects the effects of accounting for the Plan confirmed on December 9, 2005.

(1) Operating leases are off-balance sheet arrangements and are discussed in Note 12 to our consolidated financial statements contained elsewhere in this report. These amounts primarily relate to our minimum lease payments associated with our lease of the Morgantown and Dickerson baseload units.


	Years Ended December 31,
	2007			2006		2005			2004			2003
	(in millions)
Statements of Operations Data:
Operating revenues	$	2,041		$	3,257	$	2,941		$	3,449		$	3,958
Income (loss) from continuing operations		(68	)		1,197		(755	)		113			(3,182	)
Income (loss) from discontinued operations		8			3		(9	)		(7	)		(17	)
Net income (loss)	$	(60	)	$	1,200	$	(779	)	$	106		$	(3,209	)

~~(2) Fuel purchase~~The ~~and~~consolidated ~~transportation~~Balance ~~commitments~~Sheet ~~are~~Data ~~discussed~~for inyears ~~Note 12~~2006, to2005, ~~our consolidated~~2004 ~~financial~~and ~~statements~~2003, ~~contained~~segregates ~~elsewhere in this report. These~~pre-petition ~~amounts~~liabilities ~~primarily~~subject ~~relate~~ to ~~the~~compromise ~~minimum~~from ~~fuel~~those ~~purchase~~liabilities ~~and~~that ~~transportation commitments~~were atnot ~~the~~subject ~~Morgantown~~to ~~facility which became effective in July 2002, and the commitments at the Lovett facility~~compromise.

(3) Long-term service agreements are discussed in Note 12 to our consolidated financial statements and represent our total estimated commitments under long-term service agreements associated with turbines installed or in storage.


	Years Ended December 31,
	2007		2006		2005		2004			2003
	(in millions)
Balance Sheet Data:
Total assets	$	5,007	$	5,837	$	7,020	$	6,157		$	6,296
Total long-term debt		3,093		3,272		2,582		38			43
Liabilities subject to compromise		—		34		34		5,364			5,345
Equity (deficit)	$	1,169	$	1,644	$	703	$	(326	)	$	(439	)

~~(4) Coal purchases—affiliate~~Our ~~are~~debt ~~discussed~~that was reinstated in ~~Note~~2005 12is included in liabilities subject to ~~our~~compromise ~~consolidated~~for ~~financial~~2003 and ~~statements~~2004. ~~contained~~In ~~elsewhere~~2005, inwe ~~this~~recorded ~~report~~the effects of the Plan. ~~These~~As ~~amounts~~a ~~relate~~result, liabilities subject to compromise at December 31, 2005 and 2006, only reflect the liabilities of our ~~coal purchase~~New ~~commitments~~York ~~with~~entities ~~Mirant~~that ~~Americas~~remained ~~Energy~~in ~~Marketing~~bankruptcy at that time.

~~(5) Other purchase~~33 ~~commitments represent open purchase orders less invoices received or accrued related to open purchase orders for general procurement and services purchased in the ordinary~~

59Table of Contents

~~course~~Item ~~of business~~7. ~~These include~~Management’s ~~construction,~~Discussion ~~maintenance~~ and ~~labor~~Analysis ~~activities~~of atResults ~~our~~of ~~generation facilities.~~Operations ~~The~~and ~~estimated~~Financial ~~walk away cost related to our construction activities is approximately $1 million as of December 31, 2004.~~Condition

~~(6) Liabilities~~This ~~subject~~section ~~to compromise~~is ~~represent~~intended ~~liabilities incurred prior~~ to provide the ~~Petition~~reader ~~Date.~~with ~~As discussed~~information inthat ~~Note~~will 2assist toin understanding our ~~consolidated~~ financial statements ~~contained elsewhere in this report~~, the ~~amounts~~changes ofin ~~liabilities subject to compromise~~those ~~represent~~financial ~~our~~statements ~~estimate~~from ofyear ~~known~~to oryear ~~potential~~and ~~pre-petition~~the ~~claims~~primary ~~that~~factors wecontributing ~~expect will~~to bethose ~~resolved in the bankruptcy process~~changes. ~~Adjustments~~The tofollowing ~~liabilities~~discussion ~~subject to~~should ~~compromise~~be ~~may~~read ~~result~~in ~~from~~conjunction ~~negotiations~~ with ~~the~~our ~~respective~~consolidated ~~creditors, actions~~and ofcombined ~~the~~financial ~~Bankruptcy~~statements ~~Court, rejection of executory contracts~~ and the ~~determination~~ asnotes toaccompanying ~~the~~those ~~value of any such claim or the value of the respective~~financial ~~obligor~~statements.

~~Cash~~Overview ~~Flows~~

~~Our~~We ~~cash~~are ~~flows~~a competitive ~~related~~energy tocompany ~~revenues~~that ~~recognized~~produces ~~from our affiliates~~ and ~~nonaffiliates,~~sells ~~and~~electricity. ~~the~~We ~~related~~are ~~capital~~an ~~contribution~~indirect ~~received pursuant~~wholly-owned tosubsidiary ~~the~~of ~~ECSA,~~Mirant. ~~generally~~We ~~were~~own ~~received~~or inlease ~~the~~10,280 MW ~~month~~of ~~following recognition~~electric ingenerating ~~the~~capacity ~~income~~located ~~statement.~~in ~~Our~~markets ~~cash~~in ~~payments~~the ~~related~~Mid-Atlantic toand ~~services rendered~~Northeast byregions ~~our affiliates~~ and ~~nonaffiliates~~in California. ~~generally~~We ~~are~~also ~~paid~~operate inan ~~the~~integrated ~~month following~~asset ~~the~~management ~~month~~and ~~the~~energy ~~services~~marketing ~~are~~organization ~~recorded~~based asin anAtlanta, ~~expense~~Georgia.

~~Operating~~Dispositions ~~Activities. Net cash provided by operating activities was $131 million in 2004 as compared to $104 million in 2003. The $27 million increase is detailed as follows (in millions):~~

	Years Ended December 31,						Increase
	2004			2003			(Decrease)
Cash provided by (used in) operating activities excluding working capital and other assets and liabilities	$	266		$	(4	)		$	270
Cash (used in) provided by working capital and other assets and liabilities	(135		)	108				(243		)
Net cash provided by operating activities	$	131		$	104			$	27

In the third quarter of 2006, Mirant commenced auction processes to sell six U.S. natural gas-fired facilities including our indirectly owned Zeeland and Bosque facilities. On May 1, 2007, we completed the sale of the Zeeland and Bosque natural gas-fired facilities. In addition, on May 7, 2007, we completed the sale of Mirant NY-Gen, an indirect wholly-owned subsidiary. In accordance with Mirant North America’s debt covenants, approximately $524 million of the proceeds from the sale of the Zeeland and Bosque facilities are being reinvested in the business of Mirant North America. At December 31, 2007, $273 million of such proceeds have been reinvested in Mirant North America. See Note 10 to our consolidated and combined financial statements contained elsewhere in this report for additional information regarding the accounting for these facilities as discontinued operations.

~~Net~~Exploration ~~cash provided by operating activities, excluding the effects~~ of ~~working~~Strategic ~~capital,~~Alternatives was $266 million in 2004 compared to net cash used in operating activities of $4 million in 2003. Our gross margin increased $148 million, which included an increase of $18 million of unrealized losses on derivative instruments. The increase in cash related to the $166 million increase in realized gross margin is primarily due to the termination of the ECSA, higher market prices for power, capacity and ~~ancillary~~Share ~~services for~~Repurchases our Mid-Atlantic assets, and an increase in generation volumes produced by our New England assets. Cash provided by operating activities also improved as a result of lower interest expense associated with the suspension of payments on our bonds due to the Chapter 11 proceedings.

InOn ~~2004~~April 9, ~~working capital changes~~2007, ~~which~~Mirant ~~are~~announced ~~reflected as~~that ~~changes~~its inBoard ~~operating~~of ~~assets~~Directors ~~and~~had ~~liabilities,~~decided ~~required~~to ~~$135 million~~explore ~~in cash~~strategic ~~compared~~alternatives to ~~providing~~enhance ~~$108 million~~stockholder ofvalue. ~~cash~~In inthe exploration ~~2003.~~process, ~~Decreases~~the inBoard ~~cash from~~of ~~working~~Directors ~~capital~~considered ~~changes~~whether ~~were~~the ainterests ~~result~~ of ~~the~~stockholders ~~change~~would inbe ~~inventory~~best ofserved ~~$74 million~~by ~~which~~returning ~~was~~excess ~~primarily~~cash ~~due~~from the sale proceeds to ~~increased~~stockholders, ~~prices~~with onMirant ~~SO2~~continuing ~~allowances~~to ~~and~~operate ~~the change~~its inretained ~~customer~~businesses ~~accounts~~or, alternatively, ~~receivable~~whether ~~and~~greater ~~affiliate~~stockholder ~~receivable~~value ofwould ~~$399~~be ~~million which~~achieved ~~was~~by ~~primarily~~entering ~~due~~into toa ~~intercompany~~transaction ~~cash~~with ~~management~~another ~~activity.~~company, ~~This~~including ~~was offset~~a bysale ~~increases~~of Mirant in ~~cash~~its ~~primarily~~entirety. ~~due~~On toNovember 9, 2007, Mirant announced the ~~changes~~conclusion inof ~~payables~~the tostrategic review ~~affiliate~~process. ~~and~~Mirant ~~accounts~~plans ~~payable~~to ~~and~~return ~~accrued~~a ~~liabilities~~total of $934.6 ~~million, accrued~~billion ~~taxes~~ of ~~$79~~excess ~~million~~cash ~~and~~to ~~prepaid~~its ~~rent of $45 million~~stockholders.

~~Investing~~Hedging ~~activities: Net~~Activities cash used in investing activities totaled $41 million in 2004, as compared to $24 million in 2003. In 2004, the proceeds from the sale of the Bowline unit 3 turbines were $42 million offset by capital expenditures of $83 million. In 2003, the proceeds from the sale of our Neenah plant in Wisconsin were $109 million offset by $118 million of capital expenditures and a net increase in notes receivable from affiliate of $19 million.

60We economically hedge a substantial portion of our Mid-Atlantic coal-fired baseload generation and certain of our Northeast coal, gas and oil-fired generation through OTC transactions. A significant portion of our hedges are financial swap transactions that are senior unsecured obligations of Mirant Mid-Atlantic and do not require the posting of cash collateral either for initial margin or for securing exposure as a result of changes in power prices. However, we generally do not hedge our intermediate and peaking units for tenors greater than 12 months. At February 25, 2008, we were economically hedged as follows:

Financing activities: Net cash provided in financing activities had no activity in 2004, as compared to net cash used of $11 million in 2003. In 2003, we received $55 million in capital contributions pursuant to the ECSA prior to the termination of the ECSA in May 2003. In 2003 capital contributions received and dividends paid were $78 million and $150 million, respectively, prior to the suspension of such activities due to the bankruptcy proceedings in 2003. Additionally, we received $6 million net from the issuance of notes payable to affiliate in 2003.


	Aggregate Hedge Levels Based on Expected Generation
	2008		2009		2010		2011		2012
Power	98	%	53	%	38	%	21	%	20	%
Fuel	95	%	79	%	31	%	29	%	5	%
SO2/NOx	100	%	100	%	100	%	100	%	100	%

~~Critical Accounting~~34 ~~Policies and Estimates~~

TheTable accounting policies described below are considered critical to obtaining an understanding of our consolidated financial statements because their application requires significant estimates and judgments by management in preparing our consolidated financial statements. Management’s estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. We believe that the following critical accounting policies and the underlying estimates and judgments involve a higher degree of complexity than others do. We discussed the selection of and application of these accounting policies with our Board of Managers and our independent auditors.Contents

~~Potential~~Capital ~~Applicability~~Expenditures ofand ~~Fresh~~Capital ~~Start~~Resources ~~Accounting~~

WeFor ~~may~~the beyear ~~required~~ended December 31, ~~as part of our emergence from bankruptcy protection~~2007, towe ~~adopt~~paid ~~fresh~~$553 ~~start~~million ~~accounting~~of incapital ~~a future period. If fresh start accounting is applicable~~expenditures, ~~our~~primarily ~~assets~~related ~~and~~to ~~liabilities will be recorded at fair value as of~~ the ~~fresh~~Maryland ~~start~~Healthy ~~reporting~~Air ~~date~~Act. The ~~fair value of~~following ~~our~~table ~~assets~~details ~~and liabilities may differ materially from the recorded values of assets and liabilities on~~ our ~~consolidated~~estimated ~~balance~~capital ~~sheets.~~expenditures, Inexcluding ~~addition~~capitalized ~~if fresh start accounting is required~~interest, ~~our~~for ~~financial~~2008 ~~results~~through ~~after~~2010 ~~the~~(in ~~application~~millions): ~~of fresh start accounting will be different than historical trends and those differences may be material.~~

See Note 2 to our consolidated financial statements for further information on our accounting while in bankruptcy.


	2008		2009		2010
Maryland Healthy Air Act	$	689	$	286	$	125
Other environmental		63		35		28
Maintenance		130		142		99
Construction		74		52		18
Other		8		1		4

Total	$	964	$	516	$	274

~~Accounting~~Through December 31, 2007, we paid approximately $500 million for ~~Price~~capital ~~Risk~~expenditures related ~~Management~~to ~~Activities~~the Maryland Healthy Air Act. We will have extended planned outages during the installation of equipment and, during those outages, we will perform other routine maintenance activities. We expect that available cash and future cash flows from operations will be sufficient to fund these capital expenditures.

~~See~~35 ~~Note 8 to our consolidated financial statements for further information on financial instruments related to price risk management activities.~~

OurTable business uses derivatives and other energy contracts to economically hedge our electricity generation assets. We use a variety of derivative contracts, such as futures, swaps and option contracts, in the management of our business. Such derivative contracts have varying terms and durations, or tenors, which range from a few days to a number of years, depending on the instrument.Contents

~~Most~~Consolidated ofFinancial ~~these~~Performance activities are reflected in our financial statements at fair value, with changes in fair value recognized currently in earnings. The fair value of these contracts is included in price risk management assets and liabilities—affiliate in our consolidated balance sheets. Certain transactions do not meet the definition of a derivative or are considered normal purchases or normal sales and, therefore, qualify for the use of accrual accounting.

~~The~~We ~~fair~~reported ~~value~~a ~~amounts~~net ~~contained~~loss ~~within our consolidated financial statements are estimates based largely on the mid-point~~ of ~~quoted~~$60 million ~~market~~for ~~prices. The mid-point may vary significantly from~~ the ~~bid~~year ~~or ask~~ended ~~price~~December 31, ~~for some delivery points. If no active market exists~~2007, wenet ~~estimate~~income ~~the fair value~~ of ~~certain derivative contracts using quantitative pricing models~~$1. ~~Our~~2 billion ~~modeling techniques include assumptions~~ for ~~market~~the ~~prices,~~year ~~correlation and~~ended ~~volatility~~December 31, ~~such~~2006, asand ~~using~~a ~~the~~net ~~prices~~loss of ~~one~~$779 million ~~delivery~~for ~~point to calculate~~ the ~~price~~ ofyear ~~the~~ended ~~contract’s~~December 31, ~~delivery point~~2005. The ~~degree~~change ofin ~~complexity~~net ofincome ~~our~~(loss) ~~pricing models~~is ~~increases~~detailed ~~for~~as ~~longer~~follows ~~duration~~(in millions): ~~contracts, contracts with multiple pricing features and off-hub delivery points.~~


	Years Ended December 31,
	2007			2006			Increase/ (Decrease)			2006			2005			Increase/ (Decrease)
Realized gross margin	$	1,626		$	1,340		$	286		$	1,340		$	848		$	492
Unrealized gross margin		(624	)		609			(1,233	)		609			(23	)		632

Total gross margin		1,002			1,949			(947	)		1,949			825			1,124

Operating expenses:
Operations and maintenance
Affiliate		276			274			2			274			287			(13	)
Nonaffiliate		353			260			93			260			360			(100	)
Depreciation and amortization		120			122			(2	)		122			115			7
Impairment losses		175			119			56			119			—			119
Gain on sales of assets, net		(39	)		(9	)		(30	)		(9	)		(1	)		(8	)

Total operating expenses		885			766			119			766			761			5

Operating income		117			1,183			(1,066	)		1,183			64			1,119

Total other expense (income), net
Affiliate		1			(1	)		2			(1	)		23			(24	)
Nonaffiliate		186			220			(34	)		220			750			(530	)
Gain on sales of investments		—			(74	)		74			(74	)		(44	)		(30	)

Income (loss) from continuing operations before reorganization items, net and income taxes		(70	)		1,038			(1,108	)		1,038			(665	)		1,703
Reorganization items, net		(2	)		(164	)		162			(164	)		85			(249	)
Provision for income taxes		—			5			(5	)		5			5			—

Income (loss) from continuing operations		(68	)		1,197			(1,265	)		1,197			(755	)		1,952
Income (loss) from discontinued operations		8			3			5			3			(9	)		12

Income (loss) before cumulative effect of changes in accounting principles		(60	)		1,200			(1,260	)		1,200			(764	)		1,964

Cumulative effect of changes in accounting principles		—			—			—			—			(15	)		15

Net income (loss)	$	(60	)	$	1,200		$	(1,260	)	$	1,200		$	(779	)	$	1,979

~~The~~Results ~~fair value~~ of ~~price~~Operations risk management assets—affiliate and price risk management liabilities—affiliate in our consolidated balance sheets are also impacted by our assumptions regarding interest rate and counterparty credit risk. The nominal value of the contracts is discounted using a forward interest rate curve based on the London InterBank Offered Rate (“LIBOR”). In addition, the fair value of our derivative contracts is reduced to reflect the estimated risk of default of counterparties on their contractual obligations to us.

The ~~amounts~~following ~~recorded~~discussion ~~as revenues—affiliate and as cost~~ of ~~fuel,~~our ~~electricity~~performance ~~and~~is ~~other~~organized ~~products—affiliate change~~by asreportable ~~estimates~~operating ~~are~~segment, ~~revised~~which tois ~~reflect~~consistent ~~actual~~with ~~results~~the ~~and~~way ~~changes~~we inmanage ~~market conditions~~our orbusiness. ~~other~~In ~~factors~~2007, ~~many~~we ofcompleted ~~which~~the ~~are~~sale ~~beyond~~of ~~our~~the ~~control.~~Zeeland ~~Because~~and weBosque facilities ~~use~~and ~~derivatives~~Mirant ~~that~~NY-Gen. doThe ~~not~~sales ~~qualify~~have ~~for~~resulted ~~cash~~in ~~flow~~the orreclassification ~~fair~~of ~~value~~the ~~hedge accounting~~revenues ~~under~~and ~~Statement~~expenses of ~~Financial~~these ~~Accounting~~facilities ~~Standard~~to ~~(“SFAS”)~~discontinued ~~133,~~operations ~~our financial~~and ~~statements—including~~the ~~gross~~reclassification ~~margin,~~of ~~operating~~the ~~income~~related assets and ~~balance~~liabilities ~~sheet ratios—are,~~to atassets ~~times,~~held ~~volatile~~for ~~and~~sale ~~subject~~for toall ~~fluctuations in value primarily~~periods ~~due~~presented tothrough ~~changes~~their inrespective ~~energy~~dates ~~and~~of ~~fuel prices~~sale.

~~Bankruptcy~~In ~~Claims~~the ~~Assessment~~tables below, the Mid-Atlantic region includes our Chalk Point, Morgantown, Dickerson and Potomac River facilities. The Northeast region includes our Bowline, Canal, Lovett, Kendall and Martha’s Vineyard facilities. The California region includes our Pittsburg, Contra Costa and Potrero facilities. Other Operations

~~See~~36 ~~Note 2 to our consolidated financial statements for further information on our bankruptcy proceedings and liabilities subject to compromise.~~

OurTable consolidated financial statements include, as liabilities subject to compromise, our estimated pre-petition liabilities and settlements approved by the Bankruptcy Court prior to December 31, 2004. In addition, we also reflect as liabilities subject to compromise the probable claim amounts relating to liabilities for rejected contracts, litigation, accounts payable and accrued liabilities, and debt and other liabilities (the “Probable Claims Estimates”). These Probable Claims Estimates require management to estimate the likely claim amount that will be allowed by the Bankruptcy Court prior to the Bankruptcy Court’s ruling on the individual claims. These estimates are based on reviews of claimants’ supporting material and assessments by management and outside experts. We expect that our estimates, although based on the best available information, will change as the claims are resolved in the Bankruptcy Court.Contents

~~The~~ ~~following~~includes ~~table~~proprietary ~~summarizes~~trading, fuel oil management and, for periods prior to 2006, includes gains and losses related to a long-term PPA with Pepco (the “Back-to-Back ~~claims~~Agreement”) ~~filed~~and the transition power agreement with Pepco that expired in January 2005. See Note 15 to our ~~Chapter~~consolidated 11and ~~case~~combined asfinancial statements contained elsewhere in this report for further discussion of ~~December 31,~~the ~~2004:~~Back-to-Back Agreement. Other Operations also includes interest on our and Mirant North America’s debt and interest income on our invested cash balances.

	Total Number of Claims		Total Claims Exposure
			(in millions)
Total claims filed		775		$	89,933
Less:
Redundant claims		53		1,036
Claims with basis for objection		304		85,918
Total claims		418		2,979
Additional scheduled liabilities				6
Total claims exposure				$	2,985

Operating Statistics

The ~~amount~~following oftable ~~the~~summarizes ~~claims,~~ net ofcapacity ~~redundancies~~factor ~~and amounts~~by ~~for~~region ~~which we have identified a basis~~ for objection, totals approximately $3 billion, as summarized above. This amount plus approximately $1.2 billion of estimated liabilities for which claims either have not been filed or have been filed with an undetermined amount represents the ~~total estimate~~years ~~of current claims exposure as of~~ ended December 31, ~~2004.~~2007, ~~The~~2006 ~~$1.2 billion~~and of2005: estimated liabilities is mainly related to our operating leases. Our estimates may be materially different than the amounts ultimately allowed in the Chapter 11 proceedings. The following is a summary of the procedures we performed to calculate the probable claim amount for each type of claim.

Contract Rejections: We recorded an estimated damage claim amount for those contracts that we have successfully rejected through the Bankruptcy Court process. We calculated the estimated claim


	Years Ended December 31,
	2007		2006		Increase/ (Decrease)		2006		2005		Decrease
Mid-Atlantic	37	%	36	%	1	%	36	%	39	%	(3	)%
Northeast	22	%	18	%	4	%	18	%	35	%	(17	)%
California	4	%	6	%	(2	)%	6	%	7	%	(1	)%
Total	25	%	24	%	1	%	24	%	31	%	(7	)%

62The following table summarizes power generation volumes by region for the years ended December 31, 2007, 2006 and 2005 (in gigawatt hours):

amount as the fair value of the rejected contract based on what we believe a willing third party would pay to us to step into the contract. For certain contracts, these estimates involve long-range commodity price assumptions that are difficult to predict.


	Years Ended December 31,
	2007	2006	Increase/ (Decrease)		2006	2005	Decrease
Mid-Atlantic	16,832	16,608	224		16,608	18,201	(1,593	)
Northeast	5,510	4,668	842		4,668	9,041	(4,373	)
California	822	1,136	(314	)	1,136	1,414	(278	)

Total	23,164	22,412	752		22,412	28,656	(6,244	)

~~Litigation: We~~2007 ~~assessed~~versus ~~our legal~~2006 exposure through discussions with legal counsel and analysis of applicable case law and legal precedents. We recorded our best estimate of a loss, or the low end of our range if no estimate was better than another estimate within a range of estimates, when the loss was considered probable. For matters that are not probable and/or estimable, we have recorded no liability. Our estimates do not include amounts related to the PEPCO Back-to-Back Agreement. See Note 13 to our consolidated financial statements for further discussion.

~~Accounts~~Gross ~~Payable—Affiliate~~Margin ~~and~~Overview Nonaffiliate: For all invoiced claims for services performed but not reflected in our pre-petition accounts payable on our consolidated balance sheets, we recorded a liability subject to compromise equal to the claim amount. For claims related to services that we cannot verify were performed or claims related to alleged damages resulting from our bankruptcy proceedings, we have not recorded any liability.

~~Debt: We~~The ~~compared~~following ~~estimated damage~~table ~~claim~~details ~~amounts~~realized ~~for our debt~~ and ~~pre-petition~~unrealized ~~accrued~~gross ~~interest~~margin ~~obligations to~~by ~~our~~operating ~~records~~segment ~~and accrued additional administrative and interest expenses for~~(in ~~properly~~millions): ~~supported claims.~~

Other: Other claims include claims filed across multiple categories such as taxes and employee claims. We recorded our best estimate of the probable allowed claim amount for these claims.


	Years Ended December 31,
	2007							2006
	Realized		Unrealized			Total		Realized		Unrealized		Total
Mid-Atlantic	$	1,084	$	(479	)	$	605	$	834	$	484	$	1,318
Northeast		280		(43	)		237		286		61		347
California		135		—			135		112		3		115
Other Operations		109		(102	)		7		70		61		131
Eliminations		18		—			18		38		—		38

Total	$	1,626	$	(624	)	$	1,002	$	1,340	$	609	$	1,949

~~Income~~37 ~~Taxes~~

SeeTable Noteof 11 to our consolidated financial statements for further information on income taxes.Contents

AtGross ~~December 31,~~margin ~~2004,~~for ~~we had a valuation allowance of approximately $666 million primarily related to our U.S. net deferred tax assets. In assessing~~ the ~~recoverability~~years ofended ~~our deferred tax assets~~December 31, we2007 ~~consider~~and ~~whether~~2006, it is ~~more~~further ~~likely~~detailed ~~than~~as ~~not~~follows ~~that some portion or all~~(in ofmillions): the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will be deductible.

As of December 31, 2004, we have approximately $170 million of federal income tax operating loss carryforwards and $300 million of net operating loss carryforwards for state income tax purposes. These net operating loss carryforwards are available to offset future federal and state income taxes. The ultimate utilization of our net operating loss carryforwards will depend on several factors, such as the amount of our debt that is cancelled through the bankruptcy proceedings and the financial plan contained in the proposed Plan. If a portion of our debt is cancelled in bankruptcy, the amount of the cancelled debt will reduce tax attributes such as our NOLs and tax basis on fixed assets which, depending on our proposed Plan and certain tax elections, could partially or fully utilize the available NOLs. We intend to include an indication in a later amendment to our Disclosure Statement regarding whether NOLs will be available post-bankruptcy and the projected timeframe for utilizing the available NOLs.


	Year Ended December 31, 2007
	Mid- Atlantic		Northeast		California		Other Operations		Eliminations		Total
Energy	$	686	$	128	$	3	$	109	$	18	$	944
Contracted and capacity		196		87		132		—		—		415
Incremental realized value of hedges		202		65		—		—		—		267

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