MIRANT MID ATLANTIC LLC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: N/A
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MIRANT MID-ATLANTIC, LLC
(Exact name of registrant as specified in its charter)

DELAWARE 58-2574140
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

1155 PERIMETER CENTER WEST, SUITE 100, 30338
ATLANTA, GEORGIA (Zip code)
(Address of principal executive offices)

(678) 579-5000 WWW.MIRANT.COM
(Registrant's telephone number, including area (Web Page)
code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

All of our outstanding membership interests are held by our parent, Mirant
Americas Generation, LLC, so we have no membership interests held by
non-affiliates.

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

DEFINITIONS

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PART I

ITEM 1. BUSINESS

OVERVIEW

We are a direct wholly owned subsidiary of Mirant Americas Generation, LLC
("Mirant Americas Generation"), which is an indirect wholly owned subsidiary of
Mirant Corporation ("Mirant"). We were formed as a Delaware limited liability
company on July 12, 2000. We began operations on December 19, 2000 in
conjunction with Mirant's acquisition of certain generating assets and other
related assets from Potomac Electric Power Company ("PEPCO"). Mirant previously
assigned its rights and obligations under its acquisition agreement to us, our
subsidiaries and certain of our affiliates.

The Company is an independent power provider that produces and sells
electricity. We use derivative financial instruments, such as forwards, futures,
options and swaps, to manage our exposure to fluctuations in electric energy and
fuel commodity prices. These transactions are executed by Mirant Americas Energy
Marketing, L.P. ("Mirant Americas Energy Marketing").

We or our subsidiaries, along with two of our affiliates, Mirant Potomac
River, LLC ("Mirant Potomac River") and Mirant Peaker, LLC ("Mirant Peaker"),
own or lease approximately 5,256 MW of electric generation capacity in the
Washington, D.C. area, out of the 6,062 MW which we operate. These generating
facilities serve the PJM Interconnection Market ("PJM"). The PJM independent
system operator operates the largest centrally dispatched control area in the
United States, which covers all or parts of Pennsylvania, New Jersey, Maryland,
Delaware, Virginia and the District of Columbia.

Mirant has incurred substantial indebtedness on a consolidated basis to
finance its business. As of December 31, 2002, Mirant's total consolidated
indebtedness was $8.9 billion (approximately $4.4 billion of which was recourse
to Mirant Corporation). Mirant is working on a restructuring plan pursuant to
which Mirant will ask certain of its and its subsidiaries' creditors to defer
repayment of principal. We refer you to "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Mirant Restructuring" and
"-- Factors That Could Affect Future Performance."

Also refer to our Management's Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere in this report.

RECENT DEVELOPMENTS

Beginning August 1, 2001, we sold all of our capacity and energy pursuant
to a fixed rate energy and capacity sales agreement (the "ECSA") with Mirant
Americas Energy Marketing, also a subsidiary of Mirant (see "Revenues" under
Item 7 and Note 5 of "Notes to Consolidated Financial Statements" contained
elsewhere in this report) that provided us with payments for our committed
capacity and energy at prices that were not directly linked to market prices.
Over the term of the ECSA, PJM market prices have tended to be lower than the
prices received from Mirant Americas Energy Marketing under the ECSA.

Effective May 1, 2003, we agreed to terminate the ECSA and sell all of our
capacity and energy under a power sales, fuel supply and service agreement (the
"Power and Fuel Agreement") to Mirant Americas Energy Marketing at market
prices. Our subsidiary, Mirant Chalk Point, and our affiliates Mirant Peaker and
Mirant Potomac River also entered into power sales, fuel supply and services
agreements on substantially similar terms. Under this agreement Mirant Americas
Energy Marketing resells our energy products in the PJM spot and forward markets
and to other third parties. The Company is paid the amount received by Mirant
Americas Energy Marketing for such capacity and energy. As was true with the
ECSA, under the Power and Fuel Agreement, we have credit exposure to Mirant
Americas Energy Marketing for essentially all of our revenues. We expect to pay
Mirant Americas Energy Marketing a fee of $7 million per year for this service.

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Spot and forward power prices in the PJM market have risen since Mirant
Americas Energy Marketing renewed its commitment to purchase capacity and energy
under the ECSA. The termination of the ECSA and the sale of energy and capacity
under the Power and Fuel Agreement is expected to result in additional cash
flows to Mirant Mid-Atlantic in 2003 based on projected power prices in the PJM
Market. In addition, while a portion of the amounts received for the sale of
energy and capacity under the ECSA are accounted for as capital contributions,
all amounts received under the Power and Fuel Agreement will be accounted for as
revenues. Thus, such amounts will be included as revenues in the calculation of
the fixed charge coverage ratio under the pass through certificates, in contrast
to the capital contribution component of the amounts received under the ECSA
which is excluded from such calculation. As of March 31, 2003, the fixed charge
coverage ratio under the pass through certificates for the most recently ended
four fiscal quarters is estimated to be approximately 1.6 to 1.0, less than the
1.7 to 1.0 required to make distributions under the terms of the pass through
certificates. Management does not expect to meet the distribution test until
delivery of financial statements for the fiscal quarter ended September 30,
2003, based on current projections. At that time management expects that we will
be able to make distributions, although there can be no assurance that such
expectation will prove correct. If the ECSA had not been terminated, based on
current projections of fuel and power prices, the fixed charge coverage ratio
was expected to remain below 1.7 to 1.0 through 2003.

We expect the majority of our revenues to be derived from sales of capacity
and energy into the PJM market and from fees earned under the operations and
maintenance agreement with a non-affiliated company. Our revenues and results of
operations will depend upon prevailing market prices for energy and capacity in
the PJM and other competitive markets to the extent that we have not sold our
energy and capacity under fixed price agreements.

Our costs primarily consist of the ongoing maintenance and operation of the
generating facilities owned or leased by us, capital expenditures needed to
ensure their continued reliable, safe and environmentally compliant operation
and our obligation to make rental payments on leased facilities. Mirant Americas
Energy Marketing acts as our agent and procures fuel and emissions credits
necessary for the operation of the generating facilities owned or leased by us.
In addition, Mirant and Mirant Services provide us with certain administrative
services.

PASS THROUGH CERTIFICATES

In conjunction with our PEPCO acquisition, PEPCO sold undivided interests
in the Dickerson and Morgantown baseload generating facilities to third party
lessors. These owner lessors each own the undivided interests in these baseload
generating facilities. We have long-term leases for each of these undivided
interests. 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 $1.224 billion needed for the owner lessors to
acquire the undivided interests.

The pass through certificates are not our direct obligations. 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 us and State Street Bank and Trust Company of Connecticut,
National Association, as pass through trustee under each pass through trust
agreement. 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.

Although neither the certificates nor the lessor notes are obligations of,
or guaranteed by, us, the amount unconditionally payable by us under our leases
of the leased facilities will be at least sufficient to pay in full when due all
payments of principal, premium, if any, and interest on the lessor notes. Our
lease obligations are not obligations of, or guaranteed by, our indirect parent,
Mirant, or any of its other affiliates.

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However, Mirant has arranged a letter of credit to provide for the rent payment
reserve required in connection with this lease transaction in the event that we
are unable to pay our lease payment obligations.

Our lease payment obligations are senior unsecured obligations and rank
equally in right of payment with all of our other existing and future senior
unsecured obligations. Under the terms of the lease, we are 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 participants.

COMPETITION

We compete in the PJM market with a number of other major power generators
on the basis of price, operating characteristics of our generating facilities
and the availability of our generating facilities to supply capacity and energy
to the market as needed. A number of additional generating facilities are being
developed in the PJM market and these facilities will increase competition in
the PJM market over time. Additional generating facilities are also being
planned for the PJM market and could be developed in the future.

REGULATION

The United States electric industry is subject to comprehensive regulation
at the federal and state levels. Under the Federal Power Act ("FPA"), the
Federal Energy Regulatory Commission ("FERC") has the exclusive jurisdiction
over sales of electricity at wholesale and the transmission of electricity in
interstate commerce. Because we own generating facilities and sell electricity
at wholesale in the United States, we are subject to the FERC's jurisdiction
under the FPA and must file rates with the FERC with respect to our wholesale
sales. We are also subject to the FPA regulation relating to accounting and
reporting requirements, as well as oversight of mergers and acquisitions,
securities issuances and dispositions of facilities. We are not subject to the
Public Utility Holding Company Act of 1935 ("PUHCA"), as amended.

In granting authority to us to sell electricity at wholesale at
market-based rates, the FERC has reserved the right to revoke or limit that
market-based rate authority if the FERC subsequently determines that we possess
excessive market power. If the FERC were to revoke our market-based rate
authority, we would have to file, and obtain the FERC's approval of, cost-based
rate schedules for all or some of our sales of electricity at wholesale.

State or local authorities have historically overseen and regulated the
distribution and sale of retail electricity to the ultimate end user. They have
also had regulatory authority with respect to siting, permitting and the
construction of generating and transmission facilities. Where individual states
have allowed for retail access, state and local authorities will normally
establish the bidding rules for default service to customers who choose to
remain with their regulated utility suppliers. As a result, our existing
generation may be subject to a variety of state and local regulations regarding
maintenance and expansion of our facilities and financing capital additions
depending upon whether the law of the state in which such generation is located
provides for state public service commission regulation of such activities by
entities that produce electricity for sale at wholesale. The terms and
conditions of our wholesale power sales are subject exclusively to FERC
regulation under the FPA and to tariff requirements of PJM as authorized by the
FERC under the FPA.

Beginning in 1996 and continuing over the last several years, the FERC has
issued transmission initiatives that require electric transmission services to
be offered on an open-access basis unbundled from commodity sales. In December
1999, FERC issued Order No. 2000, which provided for the development of Regional
Transmission Organizations ("RTO") to control the transmission facilities within
a certain region. Compliance by transmission-owning utilities has been
inconsistent and the order has been met with significant political resistance on
the part of state public utility commissions and state governments in certain
regions of the country. For example, recently, the Virginia legislature passed a
law that bars

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American Electric Power ("AEP") or any other Virginia transmission owner, from
joining any regional grid until after June 2004.

In addition, in July 2002 FERC initiated its Standard Market Design ("SMD")
and Interconnection rule-making proceedings. FERC's intention under the SMD
proceedings is to eliminate discrimination in transmission service, to
standardize electricity market design nationally, and to strongly encourage the
creation of RTOs. While the SMD is viewed as a positive step in the evolution of
the wholesale electric market, there is significant opposition to SMD. We can
not predict at this time whether the SMD will be adopted as proposed or what
changes will be implemented prior to adoption.

While RTO participation by transmission-owning public utilities has been
and is expected to continue to be voluntary, the majority of such public
utilities have either joined or indicated that they will join the proposed RTO
for their region. Currently there are approximately nine proposed RTO's covering
the majority of the United States. In addition, large portions of the nation's
transmission system are currently operated by an independent entity.

We own assets and sell power in the Pennsylvania-New Jersey-Maryland
Interconnection, or PJM, market. PJM was certified by the FERC as an ISO in
1997, and as an RTO in December 2002. It is the nation's first fully functioning
RTO. PJM's stated objectives are to ensure reliability of the bulk power
transmission system and to facilitate an open, competitive wholesale electricity
market. To achieve these objectives, PJM manages the PJM Open Access
Transmission Tariff (the first power pool open access tariff approved by FERC),
which provides comparable pricing and access to the transmission system. PJM
operates the PJM Interchange Energy Market, which is the region's spot market
(power exchange) for wholesale electricity. PJM also provides ancillary services
for its transmission customers and performs transmission planning for the
region. To account for transmission congestion and losses, energy prices in PJM
are determined through a locational-based marginal pricing ("LMP") model and
dispatch is on a security constrained least cost basis. PJM has been expanding
its reach to the South and West and has entered into negotiations with the
Mid-West Independent Transmission System Operator ("MISO") to establish a common
and seamless market. This expansion was viewed favorably by the Company as it
would extend the scope and footprint of the PJM market which would increase the
market and liquidity of PJM. We can not predict when PJM will be able to
complete the expansion and improve the market in its region, or when or
precisely how such expansion will impact our operations. PJM protocols allow
energy demand to respond to price changes under locational marginal pricing.
Currently PJM has set a $1,000/MWh cap on prices for energy and a mitigation
process in designated transmission constrained areas that provide for revenues
that allow for recovery of incremental cost plus 10%. PJM's working groups and
market monitor are reviewing other energy price mitigation measures. We can not
predict what other modifications to protocols PJM may develop or precisely how
such protocols could impact our future operations.

In the Mid-Atlantic region, our Chalk Point power plant located in Prince
George's County Maryland and our Morgantown Power Plant located in Charles
County Maryland rely on an underground oil pipeline for delivery of number six
fuel oil supply. Recently, the Maryland Public Service Commission staff
considered, but did not act on, policies that could substantially restrict the
operations of the pipeline. We can not predict if such regulatory actions will
be reconsidered in the future. However, since the cycling units at Chalk Point
and the base load units at Morgantown are dual fuel capable, such a potential
regulatory action would not fully halt operations, although it could potentially
increase the cost of fuel oil delivery to operate the units.

FEDERAL AND STATE LEGISLATION

Congress is currently considering legislation to modify federal laws
affecting the electric industry. Certain provisions in the bills under
consideration could effect FERC jurisdiction over interstate transmission.
Additional provisions in the bills under consideration propose to repeal or
modify both PURPA and the PUHCA. As with other bills before the Congress, we can
not predict the outcome or the impact on our business.

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In addition, various states have either enacted or are considering
legislation designed to deregulate the production and sale of electricity in
order to provide for the further development of a competitive wholesale and/or
retail marketplace. Although the legislation and regulatory initiatives vary,
common themes include the availability of market pricing, retail customer
choice, recovery of stranded costs and separation of generation assets from
transmission, distribution and other assets. The impetus for enacting state
driven legislation to deregulate the sale of electricity within individual
states has slowed significantly over the last few years. Proposed reforms to
state-mandated deregulatory measures have also included the repeal of measures
implementing retail competition, although the state of California is the only
jurisdiction in which such a proposal is active. Reforms of this type would have
a negative impact on the competitive wholesale electricity market and could
adversely impact our operations.

Lease Transaction Filings and Approvals. We and the appropriate financial
participants in the lease transactions received all FERC approvals required for
the consummation of the lease transactions. In the event that the indenture
trustees exercise certain remedies under their respective indentures and the
collateral becomes the property of an indenture trustee, additional federal and
state approvals may be required from the Securities and Exchange Commission
("SEC"), the FERC or the State of Maryland (and other state or federal agencies
with respect to permits and other like entitlements) before the exercise of such
remedies may be consummated. The likelihood of obtaining such approvals, or any
associated terms and conditions, will depend on the law then in effect and on
the particular facts and circumstances presented by such proposed transfer.

ENVIRONMENTAL REGULATION

Our projects, facilities, and operations are subject to extensive federal,
state, and local laws and regulations relating to environmental protection and
human health, including air quality, water quality, waste management, and
natural resources protection. Our compliance with these environmental laws and
regulations necessitates significant capital and operating expenditures,
including costs associated with monitoring, pollution control equipment and
mitigation of other environmental impacts, emission fees, reporting, and
permitting at our various operating facilities. Our expenditures, while not
prohibitive in the past, are anticipated to increase in the future along with
the increase in stricter standards, greater regulation, and more extensive
permitting requirements. We cannot provide assurance that future compliance with
these environmental requirements will not have a material adverse effect on our
operations or financial condition.

Our most significant environmental requirements arise under the federal
Clean Air Act and similar state laws. Under the Clean Air Act, we are required
to comply with a broad range of requirements and restrictions concerning air
emissions, operating practices and pollution control equipment. Several of our
facilities are located in or near areas that are classified by the Environmental
Protection Agency ("EPA") as not achieving federal ambient air quality
standards. This regulatory classification of these areas subjects our operations
to more stringent air regulation requirements.

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

For example, the EPA recently promulgated new regulations (known as the
"Section 126 Rule" and "NOx SIP Call") which establish emission caps for
nitrogen oxide ("NOx") emissions from electric generating units in most of the
eastern states that will be implemented beginning May 2004. Under either rule, a
plant receives an allocation of NOx emission allowances, and 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 emission controls. Our plants in Maryland are already subject to
a similar state and regional NOx emission cap program, which will become a part
of the EPA NOx cap program. Some of our plants are required to purchase
additional NOx allowances to cover their emissions and maintain compliance. The
cost of these allowances is expected to increase in future years and may result
in some of our plants choosing to reduce NOx emissions through the installation
of

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emission controls, the cost of which could be significant but would be offset in
part by the avoided cost of purchasing NOx allowances to operate the plant.

The EPA is also developing regulations to govern mercury emissions from
power plants, which are scheduled to be finalized in 2004 and go into effect in
2007. These mercury regulations are likely to require significant emission
reductions from coal fired power plants in particular. Also, during the course
of this decade, the EPA will be implementing new, more stringent ozone and
particulate matter ambient air quality standards and will address regional haze
visibility issues, which will result in new regulations that will likely require
more emission reductions from power plants, along with other emission sources
such as vehicles. These future regulations will increase compliance costs for
our operations and will likely require emission reductions from some of our
power plants, which could necessitate significant expenditures on emission
controls or have other impacts on our operations. However, these rulemakings are
at a preliminary stage, and we cannot opine at this time on specific impacts or
whether the regulations will have a material adverse effect on our financial
condition, results of operations or cash flows.

The States of Maryland and Virginia are expected to promulgate additional
air quality laws and regulations in future years. For example, the states may be
required to impose more stringent emission requirements on some sources, such as
power plants and vehicles, to address exceedances of federal ambient air quality
standards in the District of Columbia metropolitan area. If so, we may incur
additional compliance costs as a result of these additional state requirements,
which could include significant expenditures on emission controls or have other
impacts on our operations.

These are illustrative but not a complete discussion of the additional
federal and state air quality laws and regulations which we expect to become
applicable to our plants and operations in the coming years. We expect to
continue to evaluate these requirements and develop compliance plans that ensure
we appropriately manage the costs and impacts and provide for prudent capital
expenditures.

In 1999, the United States Department of Justice ("DOJ") commenced
litigation against seven electric utilities for alleged violations of the EPA's
new source review regulations promulgated under the Clean Air Act ("NSR") and
the EPA also issued an administrative order to the Tennessee Valley Authority
alleging similar violations at seven of its coal-fired power plants. Since then,
the EPA has added additional power generators to the litigation and has also
issued administrative notices of violation alleging similar violations at other
coal-fired power plants. These enforcement actions concern maintenance, repair
and replacement work at power plants that the EPA alleges violated permitting
and other requirements under the NSR law, which, among other things, could
require the installation of emission controls at a significant cost. The power
generation industry disagrees with the EPA's positions in the lawsuits. Trials
in some of the cases are scheduled to occur in 2003. To date, no lawsuits or
administrative actions alleging similar violations have been brought by the EPA
against us, our subsidiaries or any of our power plants, but the EPA has
requested information concerning certain of our Mid-Atlantic business unit
plants covering a time period that predates our ownership. For more information
about this matter, see Item 3, "Legal Proceedings." We cannot provide assurance
that lawsuits or other administrative actions against our power plants under NSR
will not be filed or taken in the future. If an action is filed against us or
our power plants and we are judged to not be in compliance, this could require
substantial expenditures to bring our power plants into compliance and could
have a material adverse effect on our financial condition, results of operations
or cash flows.

There are several other environmental laws, in addition to air quality
laws, which also affect our operations. For example, we are required under the
Clean Water Act to comply with effluent and intake requirements, technological
controls and operating practices. Our wastewater discharges are permitted under
the Clean Water Act, and our permits under the Clean Water Act are subject to
review every five years. As with air quality regulations, federal and state
water regulations are expected to increase and impose additional and more
stringent requirements or limitations in the future. For example, the EPA has
issued a new rule that imposes more stringent standards on the cooling water
intakes for new plants and has proposed a similar regulation for intakes on
existing plants. We expect to incur additional compliance

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costs if this proposed water regulation is adopted; however, based on the
currently proposed regulation, we do not expect these costs to be material.

Our facilities are also subject to several waste management laws and
regulations in the United States. The Resource Conservation and Recycling Act
sets forth very comprehensive requirements for the handling of solid and
hazardous wastes. The generation of electricity produces non-hazardous and
hazardous materials, and we incur substantial costs to store and dispose of
waste materials from our facilities. The EPA may develop new regulations that
impose additional requirements on facilities that store or dispose of fossil
fuel combustion materials, including types of coal ash. If so, we may be
required to change our current waste management practices at some of our
facilities and incur additional costs for increased waste management
requirements.

The Federal Comprehensive Environmental Response, Compensation and
Liability Act, known as the Superfund, establishes a framework for dealing with
the cleanup of contaminated sites. Many states have enacted state superfund
statutes. We do not expect any corrective actions to require significant
expenditures.

Over the past several years, federal, state and foreign governments and
international organizations have debated the issue of global climate change and
policies of whether to regulate greenhouse gases ("GHG"), one of which is carbon
dioxide emitted from the combustion of fossil fuels by sources such as vehicles
and power plants. Recently, the European Union and certain other developed
countries ratified the Kyoto Protocol, an international treaty regulating GHGs,
which makes the implementation of the treaty in certain countries more likely.
The current United States Administration is opposed to the treaty, and the
United States has not ratified and is not expected to ratify the treaty.
Therefore, the United States would not be bound by the treaty if it goes into
effect in the future in countries that have ratified it. However, we cannot
provide assurances that the United States or the States of Maryland or Virginia
will not enact a law or regulation governing GHG emissions from power plants in
the future that could materially impact our financial condition, results of
operations or cash flows.

We believe we are in compliance in all material respects with applicable
environmental laws. While we believe our operations and facilities comply with
applicable environmental laws and regulations, we cannot provide assurances that
additional costs will not be incurred as a result of new interpretations or
applications of existing laws and regulations.

EMPLOYEES

As of December 31, 2002, we employed, directly or through contracts with
Mirant Services, a direct subsidiary of Mirant, approximately 720 people, of
whom approximately 500 were employed at our power plants. In 2002, all employees
of Mirant Mid-Atlantic Services, LLC ("Mirant Mid-Atlantic Services") were
transferred to its holding company, Mirant Services, and are now employees of
Mirant Services.

LABOR SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS

At the Company's facilities located in Washington D.C. and Maryland, the
Company has a labor contract with the International Brotherhood of Electrical
Workers that covers approximately 486 employees, or 66% of Mirant's Mid-Atlantic
facilities' total personnel. The term of the Agreement extends to May 31, 2003
and continues for succeeding periods of 12 calendar months each, unless either
party, prior to April 1, 2003, or April 1 of any year thereafter, serves written
notice of its desire to amend and/or terminate the Agreement as of the following
June 1. The Company is currently negotiating a new contract with this union.
However, there is a substantial risk that a new labor agreement will not be
reached without a strike or other form of adverse collective action. If a strike
were to occur, there is a risk that such action would significantly disrupt the
Company's ability to produce and/or distribute energy. To mitigate and reduce
the risk of disruption as described above, the Company has engaged in
contingency planning for continuation of the Company's generation and/or
distribution activities to the extent possible during an adverse collective
action by the union.

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ITEM 2. PROPERTIES

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(1) MW amounts reflect net dependable capacity.

(2) Assets owned or leased by affiliates (a total of 1,004 MW) that are subject
to capital contribution agreements between Mirant and us.

The Company also owns an oil pipeline, which is approximately 51.5 miles long
and serves the Chalk Point and Morgantown generating facilities.

ITEM 3. LEGAL PROCEEDINGS

ENVIRONMENTAL INFORMATION REQUEST

In January 2001, the EPA issued a request for information to Mirant
Mid-Atlantic concerning the air permitting and air emission control implications
under the EPA's new source review regulations promulgated under the Clean Air
Act ("NSR") of past repair and maintenance activities at its Chalk Point,
Dickerson and Morgantown plants in Maryland. The requested information concerns
the period of operations that predates Mirant Mid-Atlantic's ownership of the
plants. Mirant Mid-Atlantic has responded fully to this request. If a violation
is determined to have occurred at any of the plants, Mirant Mid-Atlantic may be
responsible for the cost of purchasing and installing emission control
equipment, the cost of which may be material. 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 of the plants. If a violation is determined to have occurred after
Mirant Mid-Atlantic's acquisition of the plants or, if occurring prior to such
acquisition, is determined to constitute a continuing violation, Mirant
Mid-Atlantic would be subject to fines and penalties from the state or federal
governments for the period subsequent to its acquisition of the plants, the cost
of which may be material.

The Company cannot provide assurance that lawsuits or other administrative
actions against its power plants will not be filed or taken in the future. If an
action is filed against the Company or its power plants

9

and it is determined to not be in compliance, such a determination could require
substantial expenditures to bring the Company's power plants into compliance,
which could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.

ASBESTOS CASES

On December 19, 2000, Mirant Mid-Atlantic, together with affiliates Mirant
Potomac River and Mirant Peaker, and with lessors in a lease transaction,
purchased from PEPCO four electric generation facilities in the Washington D.C.
area. As a part of the purchase, Mirant Mid-Atlantic agreed to indemnify PEPCO
for certain liabilities arising in lawsuits related to the acquired assets filed
after December 19, 2000, even if they relate to incidents occurring prior to
that date, with certain qualifications. Since the acquisition, PEPCO has
notified Mirant Mid-Atlantic of approximately 50 asbestos cases, distributed
among three Maryland jurisdictions (Prince George's County, Baltimore City and
Baltimore County), as to which it claims a right of indemnity. In each of these
claims, the plaintiff's allegation of liability on the part of PEPCO is
primarily grounded on the theory that PEPCO owned premises at which the
plaintiff, who worked for a third party, was exposed to asbestos. Each plaintiff
seeks a multi-million dollar award. It is expected that additional such lawsuits
will be filed in the future; however, the number of such additional lawsuits
cannot now be determined. Two suits have been set for trial in 2003, while the
remainder have not yet been scheduled for trial. Mirant Mid-Atlantic believes
that substantial defenses to liability exist and that, even if found liable,
plaintiffs' damages claims are greatly exaggerated. Based on information and
relevant circumstances known at this time, Mirant Mid-Atlantic does not believe
these suits will have a material adverse effect on its financial position,
results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Mirant Mid-Atlantic is an indirect wholly owned subsidiary of Mirant.
Mirant Mid-Atlantic's membership interests are not publicly traded. In 2002 and
2001, we paid $312 million and $141 million, respectively, in dividends to our
parent companies. See "Liquidity and Capital Resources" in Item 7 and Note 5 to
our financial statements for a description of restrictions on our ability to pay
dividends. We have no equity compensation plans under which we issue our
membership interests.

ITEM 6. SELECTED FINANCIAL DATA

The information set forth below should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements and the notes thereto. The
selected financial data has been derived from our consolidated financial
statements. Our consolidated financial statements for the year ended December
31, 2001 and for the period from July 12, 2000 to December 31, 2000 have been
restated. See Note 3 to our consolidated financial

10

statements. Prior to the acquisition of our facilities from PEPCO, which
occurred on December 19, 2000, we had no operating history.

SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto, which are included
elsewhere in this report. The accompanying consolidated financial statements of
the Company have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As discussed below under "Mirant Restructuring," Mirant is
currently in discussions with certain of its lenders regarding the extension of
the maturities of a substantial portion of its indebtedness. If such
restructuring efforts are not successful, Mirant would likely be required to
seek bankruptcy court or other protection from its creditors, and if Mirant
seeks such protection, we believe it is likely that we would seek similar
protection. The Company's consolidated financial statements do not reflect
adjustments that might be required if the Company is unable to continue as a
going concern. See Note 1 to the Company's consolidated financial statements
included elsewhere in this report.

OVERVIEW AND BACKGROUND

We are an independent power provider and an indirect wholly owned
subsidiary of Mirant. We were formed as a Delaware limited liability company on
July 12, 2000. We, along with our subsidiaries, began operations on December 19,
2000 in conjunction with the acquisition of our facilities from PEPCO.

Prior to October 1, 2002, ninety-nine percent of our membership interests
were owned by Mirant Mid-Atlantic Investments, LLC and one percent of our
interests were owned by Mirant Mid-Atlantic Management, Inc., which were both
direct wholly owned subsidiaries of Mirant Americas Generation. Effective
October 1, 2002, all of our membership interests were transferred to Mirant
Americas Generation. Mirant Americas Generation is an indirect wholly owned
subsidiary of Mirant, our ultimate parent.

We and our subsidiaries, along with two of our affiliates, Mirant Potomac
River and Mirant Peaker, own or lease approximately 5,256 megawatts ("MW") of
electricity generating capacity in the Washington D.C. area. Beginning August 1,
2001, we sold all of our capacity and energy pursuant to the ECSA with Mirant
Americas Energy Marketing, also a subsidiary of Mirant (see Note 5 to our
financial statements contained elsewhere in this report) that provided us with
payments for our committed capacity and energy at prices that were not directly
linked to market prices. Effective May 1, 2003, we agreed to terminate the ECSA
and sell all of our capacity and energy under a Power and Fuel Agreement to
Mirant Americas Energy Marketing at market prices. Under this agreement, Mirant
Americas Energy Marketing resells our energy products in the PJM spot and
forward markets and to other third parties. The Company is paid the amount
received by Mirant Americas Energy Marketing for such capacity and energy. As
was true with the ECSA, under the Power and Fuel Agreement, we have credit
exposure to Mirant Americas Energy

11

Marketing for essentially all of our revenues. We also operate approximately 806
MW of electric generating capacity for a third party under an operations and
maintenance agreement.

Under the terms of the ECSA, the Company supplied all of the capacity and
energy of its facilities to Mirant Americas Energy Marketing. For the period
from August 1, 2001 to December 31, 2001, Mirant Americas Energy Marketing
contracted to purchase 100% of the output of the Company's facilities. For 2002
and 2003, Mirant Americas Energy Marketing exercised options under the ECSA to
purchase 100% of the total output of the Company's facilities.

Spot and forward power prices in the PJM market have risen since Mirant
Americas Energy Marketing exercised its option to purchase capacity and energy
under the ECSA for 2003. The termination of the ECSA and the sale of energy and
capacity under the Power and Fuel Agreement is expected to result in additional
cash flows to Mirant Mid-Atlantic in 2003 based on projected power prices in the
PJM Market. In addition, while a portion of the amounts received for the sale of
energy and capacity under the ECSA are accounted for as capital contributions,
all amounts received under the Power and Fuel Agreement will be accounted for as
revenues.

Prior to entering into the ECSA effective August 1, 2001, the Company sold
its power to Mirant Americas Energy Marketing pursuant to a master sales
agreement. Under this agreement, the price the Company received was based on the
market price for energy in the PJM market at the time the energy was delivered.
The Company also sold power to Mirant Americas Energy Marketing under short-term
fixed price contracts.

Our affiliated companies, Mirant Potomac River and Mirant Peaker, also
entered into fixed rate power purchase agreements with Mirant Americas Energy
Marketing in August 2001 on the same terms and effective over the same period as
the ECSA outlined above. These agreements were also terminated effective May 1,
2003. These affiliates have also entered into new power sales, fuel supply and
services agreements on the same terms and for the same period as the Company's
Power and Fuel Agreement with Mirant Americas Energy Marketing. Through a
capital contribution agreement between Mirant and us, any excess cash available
from the operations of these affiliated companies is paid as a dividend to
Mirant, which in turn makes a capital contribution to us for the same amount.

We and our subsidiaries have entered into a number of service agreements
with subsidiaries of Mirant for the procurement of fuel, labor and
administrative services essential to operating our business. These agreements
are primarily with Mirant, Mirant Americas Energy Marketing and Mirant Services.
See below under "ECSA with Mirant Americas Energy Marketing," "Power Sale, Fuel
Supply and Services Agreement" and Note 5 to our financial statements for a
description of these agreements.

MIRANT RESTRUCTURING

Mirant has incurred substantial indebtedness on a consolidated basis to
finance its business. As of December 31, 2002, Mirant's total consolidated
indebtedness was $8.9 billion (approximately $4.4 billion of which was recourse
to Mirant). Mirant does not expect that its cash flows from operations will
cover all of its capital expenditures, interest payments and debts as they
mature. Mirant is working on a restructuring plan pursuant to which it will ask
certain of its and its subsidiaries' creditors to defer repayments of principal.
Those creditors include holders of approximately $4.5 billion of bank facilities
and capital markets debt of Mirant and approximately $800 million of bank and
capital markets debt of Mirant Americas Generation. In connection with any such
refinancing or extension, Mirant expects to offer security interests in
substantially all of its and its subsidiaries' unencumbered assets. In addition,
the lenders under the Mirant bank facilities have waived compliance with certain
covenants of those facilities through May 29, 2003. The terms of the waiver
provide for an additional extension, to July 14, 2003, with the prior written
consent of lenders representing a majority of the committed amount under each
facility. Upon expiration or termination of the waiver, the lenders under the
respective bank facilities would be able to restrict the issuance of additional
letters of credit and/or declare an event of default and, after the respective
cure or grace period, accelerate the indebtedness under such bank facilities. An
acceleration of indebtedness under the Mirant bank facilities would cross
accelerate approximately $910 million of Mirant
12

capital markets and other indebtedness. In the event that Mirant is unable to
restructure a substantial portion of its indebtedness and/or there is an
acceleration of Mirant debt, Mirant would likely be required to seek bankruptcy
court or other protection from its creditors. In the event that Mirant seeks
such protection, we believe it is likely that we would seek similar protection.

RESTATEMENT OF FINANCIAL STATEMENTS

This report contains restated consolidated financial statements of the
Company as of December 31, 2001 and for the year ended December 31, 2001 and the
period from July 12, 2000 (inception) to December 31, 2000 to reflect certain
errors the Company identified in its previously issued financial statements. The
errors relate to accounting for derivative financial instruments designated as
hedging instruments which did not qualify for hedge accounting treatment and an
adjustment to the valuation of assets acquired and liabilities assumed by Mirant
Americas Energy Marketing when applying purchase accounting to the PEPCO
acquisition.

The nature of the errors and the adjustments that the Company has made to
its financial statements for year ended December 31, 2001 and the period from
July 12, 2000 to December 31, 2000 are set forth in Note 3 of Notes to
Consolidated Financial Statements in Item 8 of this report.

The net impact of the adjustments include the following:

- A $110 million increase to member's interest and a corresponding increase
in goodwill, other intangible assets, net and other asset accounts as of
December 31, 2000; and

- An $8 million reduction to net income in 2001.

INTERIM FINANCIAL INFORMATION

The Company is in the process of restating its interim financial
information for each of the quarterly periods in 2001 and 2002. Upon completion
of the quarterly financial information, the Company expects to prepare and file
amended Form 10-Q's for each of the first three quarters in 2002.

RESTRUCTURING CHARGES

In 2002, Mirant adopted a restructuring plan in response to constrained
access to capital and changes in market conditions. This plan was designed to
restructure its worldwide operations, including those of the Company, by selling
certain generating facilities, canceling or suspending planned power plant
developments, closing business development offices and severing employees. The
severance costs and other employee termination-related charges associated with
the restructuring at the Company's locations were paid by Mirant Services and
billed to Mirant Mid-Atlantic. We recorded $5 million of restructuring charges
primarily related to severance costs during the year ended December 31, 2002.
Management cannot determine at this time the extent to which additional
restructuring by Mirant will impact the Company.

REVENUES

The majority of our revenues were derived from sales to our affiliate,
Mirant Americas Energy Marketing, of capacity and energy from the generating
facilities owned or leased by us. Mirant Americas Energy Marketing in turn sells
the energy under fixed price agreements or markets the energy in the spot and
forward markets in the PJM or other nearby competitive power markets. The market
for wholesale electric energy in the PJM is largely deregulated. With the
termination of the ECSA, our revenues and results of our operations will depend
upon prevailing market prices for energy and capacity in the PJM and other
nearby competitive markets to the extent that Mirant Americas Energy Marketing
has not entered into fixed price agreements to sell our energy and capacity.
Under our new agreement with Mirant Americas Energy Marketing effective May 1,
2003, the revenues we receive are based on the amounts received by Mirant
Americas Energy Marketing for our capacity and energy.

13

ECSA WITH MIRANT AMERICAS ENERGY MARKETING

During 2002, our fixed price agreement, the ECSA, with Mirant Americas
Energy Marketing represented approximately 96% of our operating revenues. The
majority of the remainder of our revenues represented fees earned for operating
approximately 806 MW of electric generating capacity for a third party under an
operations and maintenance agreement.

At the inception date of the ECSA, the pricing under the ECSA was favorable
to us and our affiliates when compared to estimated market rates in the PJM for
power to be delivered over the initial term of the agreement. The estimated
market rates were based on quoted market prices in the PJM, as adjusted upwards
by approximately 12% for what the Company believed, at the time, to be temporary
anomalies in the quoted market prices based on projected demand growth and other
factors expected to affect demand and supply in the PJM market through 2002. The
market had experienced unusual fluctuations in market prices because of low
prices for natural gas, which is generally the fuel used to set prices in the
PJM. The Company did not believe that natural gas prices would remain depressed
through the end of 2002.

At inception of the ECSA, the aggregate amount attributable to the
favorable pricing variance was approximately $167 million. The amount related
specifically to our owned or leased facilities of $120 million was accounted for
as both an addition to member's interest and an offsetting capital contribution
receivable pursuant to the ECSA in our financial statements. When we entered
into the agreement, we assumed that in 2002 Mirant Americas Energy Marketing
would elect to take the contracted minimum 75% of the capacity and output of the
Company's facilities provided for in the ECSA. In January 2002, Mirant Americas
Energy Marketing exercised its option to increase the committed capacity to 100%
of the total output of the Company's facilities. As a result, the Company
recorded an additional equity contribution of $53 million in the first quarter
of 2002 attributable to the favorable pricing terms of this additional 25% of
the capacity and output. This adjustment is also reflected in our financial
statements as both an addition to member's interest and an offsetting capital
contribution receivable pursuant to the ECSA.

The contractual amounts payable under the ECSA in excess of the amount of
revenue recognized were $139 million in 2002 and $33 million for the period from
August 1, 2001 to December 31, 2001. These amounts are generally received in the
month following the month the related revenue is recognized and are recorded as
a reduction of the capital contribution receivable pursuant to the ECSA when
received. During the year ended December 31, 2002 and the period from August 1,
2001 to December 31, 2001, the Company received $129 million and $29 million,
respectively, under the ECSA that was applied as a reduction to the capital
contribution receivable pursuant to the ECSA. The capital contribution
receivable pursuant to the ECSA was $136 million at December 31, 2002, of which
$15 million represents amounts received subsequent to December 31, 2002 related
to the revenue recognized prior to that date and $121 million relates to 2003.

The revenues recognized under the ECSA were not adjusted for subsequent
changes in market prices after the options were exercised. As a result, amounts
recognized as revenue under the ECSA did not necessarily reflect market prices
at the time the energy was delivered. Amounts recognized as revenue for capacity
and energy delivered under the ECSA exceeded the amounts based on current market
prices by approximately $179 million and $79 million for the year ended December
31, 2002 and for the period from August 1, 2001 to December 31, 2001,
respectively.

In November 2002, Mirant Americas Energy Marketing exercised its option
under the ECSA to purchase 100% of the Company's capacity and energy in 2003 at
contracted rates in the ECSA. The pricing under the ECSA was favorable to us
when compared to estimated market rates in the PJM for power to be delivered in
2003. As a result, the Company recorded $121 million as an addition to member's
interest and an offsetting capital contribution receivable pursuant to the ECSA
in the fourth quarter of 2002 attributable to the favorable pricing terms for
2003.

Effective May 1, 2003, we agreed to terminate the ECSA and sell all of our
capacity and energy under a power sale, fuel supply and service agreement
("Power and Fuel Agreement") to Mirant

14

Americas Energy Marketing at market prices, the terms of which are described
below under "-- Power Sale, Fuel Supply and Services Agreement." Under this
agreement Mirant Americas Energy Marketing resells our energy products in the
PJM spot and forward markets and to other third parties. The Company is paid the
amount received by Mirant Americas Energy Marketing for such capacity and
energy.

Over the term of the ECSA, PJM market prices have tended to be lower than
the prices received from Mirant Americas Energy Marketing under the ECSA.
However, as a result of higher spot prices in the PJM in the first quarter of
2003, had we received market prices for our energy, we would have received
approximately $71 million more in cash flows than we received under the ECSA.
For the remainder of 2003 as a whole, the forward price curves at March 31, 2003
indicate that cash flows received under the Power and Fuel Agreement are
expected to exceed those under the ECSA. Following the termination of the ECSA
effective May 1, 2003, the Company will reverse the remaining capital
contribution receivable pursuant to the ECSA that is attributable to periods
after April 30, 2003.

POWER SALE, FUEL SUPPLY AND SERVICES AGREEMENT

Effective May 1, 2003, the Company entered into the Power and Fuel
Agreement with Mirant Americas Energy Marketing. Our subsidiary, Mirant Chalk
Point, and our affiliates Mirant Peaker and Mirant Potomac River also entered
into power sale, fuel supply and services agreements on substantially similar
terms. Our Power and Fuel Agreement replaces our master power sales agreement,
including the ECSA, and our services and risk management agreements with Mirant
Americas Energy Marketing.

The Power and Fuel Agreement provides that Mirant Americas Energy Marketing
purchases all of the energy and capacity of our facilities and pays us the
amount received by Mirant Americas Energy Marketing for the resale of such
products, services or capacity. Mirant Americas Energy Marketing is responsible
for scheduling the output of our generating facilities.

Mirant Americas Energy Marketing provides all requirements fuel supply,
including fuel oil, gas and coal, for our generating facilities, except for fuel
supplied by third parties for the Morgantown facility. We pay Mirant Americas
Energy Marketing the market price for natural gas, including transportation,
used at any of our facilities. We pay Mirant Americas Energy Marketing a price
based on an index price plus a transportation charge for fuel oil used at the
Chalk Point facility. For all other fuel oil, we pay Mirant Americas Energy's
actual cost. We reimburse Mirant Americas Energy Marketing for coal, including
transportation, at Mirant Americas Energy Marketing's cost.

Upon our request, Mirant Americas Energy Marketing procures all emissions
credits necessary for the operation of our generating facilities and sells
excess credits. Mirant Americas Energy Marketing charges its actual cost of
acquiring the credits and remits the proceeds of any emission credit sales to
us.

Upon our request, Mirant Americas Energy Marketing procures or advises us
to procure business interruption insurance and forced outage insurance. The cost
of insurance is charged to us.

Mirant Americas Energy Marketing enters into third party bilateral
contracts, forward sales, and financial products (including futures, swaps and
option contracts) for us. The costs, including third party broker costs,
transaction fees, and gains and losses related to the bilateral contracts,
forward sales and financial products are charged to or paid to us.

We will pay Mirant Americas Energy Marketing a monthly service fee. Mirant
Americas Energy Marketing is not entitled to any bonus payments under the Power
and Fuel Agreement. The Power and Fuel Agreement expires December 31, 2003.

SEASONALITY

Our revenues are generally affected by seasonal changes in weather
conditions. Peak demand for electricity typically occurs during the summer
months, caused by the increased use of air-conditioning. Cooler than normal
temperatures during months that are normally warm may lead to reduced use of
air-conditioners, which would reduce the short-term demand for energy and result
in a reduction in wholesale

15

prices. Although the fixed price we received under the ECSA reduced the impact
of seasonality on the price we received for our energy from August 1, 2001 to
April 30, 2003, our revenues subsequent to April 30, 2003 are expected to be
generally affected by seasonal changes now that our revenues are based on market
prices.

EXPENSES

Our costs primarily consist of the ongoing maintenance and operation of the
generating facilities owned or leased by us, capital expenditures needed to
ensure their continued reliable, safe and environmentally compliant operation
and our obligation to make rental payments on our leased facilities. A
significant portion of our operating expenses result from transactions with
related parties, primarily Mirant Americas Energy Marketing, Mirant Americas,
Inc. ("Mirant Americas"), Mirant Services and Mirant.

Cost of fuel and emission credits for our generating facilities are our
largest expenses representing over 50% of our operating expenses. Most of our
fuel cost results from transactions with Mirant Americas Energy Marketing under
our fuel supply agreements, the cost of which is charged to us based upon actual
costs incurred by them. In addition, we obtain fuel under a long-term supply
contract with a third party.

We have other related party agreements for labor, and general and
administrative services. These services are essential to the operations of our
business and represent less than 15% of our operating expenses. Management
believes these costs are reasonable and substantially similar to costs we would
incur on a stand-alone basis.

Our other operating expenses are primarily for operating leases,
maintenance costs, depreciation and amortization of our long-lived assets and
certain general and administrative expenses, such as audit and legal fees.

RESULTS OF OPERATIONS

Our operating revenues and expenses from affiliates and non-affiliates
aggregated by classification are as follows (in millions):

2002 VERSUS 2001

Operating revenues. Our operating revenues for the year ended December 31,
2002, were $815 million, compared to $1,024 million for the same period in 2001.
This decrease of $209 million, or 20%, occurred in spite of a 10% increase in
megawatt-hours generated, from 15.4 million in 2001 to 16.9 million in 2002. The
decrease is primarily due to the termination of certain short-term fixed price
contracts with Mirant Americas Energy Marketing during a period of declining
prices. During the first seven months of 2001, the Company sold all of its
generation to Mirant Americas Energy Marketing at PJM spot prices. In order to
reduce exposure to spot market prices, the Company entered into additional,
short-term fixed price contracts, under which it received a fixed price from
Mirant Americas Energy Marketing for a defined volume of electricity. As the
Company had committed to sell all of its generation at spot market prices to
Mirant Americas Energy Marketing, it was required to purchase volumes of
electricity to cover the short-term fixed price sales contracts. Purchases of
these matching volumes of electricity were made at a combination of fixed prices
and spot prices. As a result of these transactions, the Company received a
portion of its revenue at fixed prices rather than spot prices. In August 2001,
the Company terminated these short-term fixed price contracts with Mirant
Americas Energy Marketing. In addition, revenues from non-affiliates under
operations and maintenance services to the Benning and Buzzard Point generating
facilities increased by $5 million, or 20%, due to higher charges for an
increase in fuel burned at these facilities.

Operating expenses. Operating expenses for the year ended December 31,
2002 were $655 million, compared to $870 million in 2001. The following factors
were primarily responsible for the decrease of $215 million in operating
expenses.

- Cost of fuel, electricity and other products for the year ended December
31, 2002 was $346 million, compared to $535 million in 2001. This
decrease of $189 million, or 35%, was primarily attributable to the
termination in August 2001 of fixed price contracts with Mirant Americas
Energy Marketing, as described above. In addition, a reduction in the
proportion of generation by less efficient cycling units reduced fuel
costs per megawatt hour in the year ended December 31, 2002, as compared
to the same period in 2001. These decreases were partially offset by the
cost of the additional fuel usage arising from higher generation volumes
in the year ended December 31, 2002, as compared to the same period in
2001.

- Depreciation and amortization expenses for the year ended December 31,
2002 were $46 million, compared to $77 million in 2001. The decrease of
$31 million was primarily a result of the elimination of goodwill
amortization from the implementation of Statement of Financial Accounting

17

Standards No. 142, "Goodwill and Other Intangible Assets." In 2001,
goodwill and trading rights amortization was $34 million.

- Maintenance expenses for the year ended December 31, 2002 were $45
million, compared to $53 million in 2001. This decrease of $8 million was
primarily due to cost savings measures including a reduction in planned
overhauls and to efficiency savings.

- Other operating expenses for the year ended December 31, 2002 were $82
million, compared to $70 million in 2001. This increase of $12 million
was primarily due to increased property taxes and higher insurance costs.
Property taxes were higher in 2001 as a result of the full-year effect of
the increase in assessed values from July 1, 2001, following the
acquisition of assets from PEPCO. The higher insurance costs reflect the
current insurance climate for the power sector.

Other income, net. Other income, net for the year ended December 31, 2002,
was $26 million, compared to $15 million in 2001. This increase of $11 million
was primarily due to the conversion of the note payable to Mirant Americas
Generation into equity in January 2002, which eliminated the interest expense
associated with this note payable for 2002.

2001 VERSUS 2000

Prior to December 19, 2000 we had no operating history. Prior to the
acquisition of our facilities from PEPCO, our facilities were fully integrated
with PEPCO's utility operations and all results of operations were consolidated
into PEPCO's financial statements. Due to the regulated nature of PEPCO's
utility operations and the differences inherent in the manner in which we
operate our generating facilities in the PJM market, historical financial
results prior to December 19, 2000 are not meaningful or indicative of our
ability to operate our assets or to generate revenues. As a result, we have not
included a discussion of a comparison of our results for 2001 to prior periods.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Historically, we have obtained cash from our operations, issuances of debt,
capital contributions from Mirant, and capital contributions pursuant to the
ECSA. These funds have been used to finance operations, service debt
obligations, fund acquisitions, finance capital expenditures and meet other cash
and liquidity needs. The cash flows received from Mirant Americas Energy
Marketing as a capital contribution pursuant to the ECSA have been recorded in
the accompanying consolidated statements of cash flows as a financing activity.

Our cash flows related to revenues recognized from our affiliates and
non-affiliates, and the related capital contribution received pursuant to the
ECSA generally were received in the month following recognition in the income
statement. Our cash payments related to services rendered by our affiliates and
non-affiliates generally are paid in the month following the month the services
are recorded as an expense.

Net cash provided by operating activities totaled $204 million in 2002, as
compared to $119 million in 2001. This increase of $85 million was due to an
increase in net income of $17 million, a decrease of $25 million in the amount
of lease rent paid and the timing of payments for affiliate receivables and fuel
stock, which increased cash flow by $45 million and $78 million, respectively.
These increases in cash flow were partially offset by a decrease in non-cash
charges of $59 million.

Net cash used in investing activities totaled $17 million in 2002, as
compared to $109 million in 2001. During 2002, our investment activities were
attributable to capital expenditures of $46 million and the net repayment of
notes receivable from affiliates of $29 million. In 2001, our investment
activities were attributed primarily to capital expenditures of $47 million and
the net issuance of notes receivable from affiliates of $29 million.

Net cash used in financing activities totaled $144 million in 2002, as
compared to $32 million in 2001. This change was primarily due to an increase in
dividends paid from $141 million in 2001 to $312 million

18

in 2002 and partially offset by an increase in the capital contribution received
pursuant to the ECSA from $29 million in 2001 to $129 million in 2002. Capital
contributions from Mirant increased from $25 million in 2001 to $39 million in
2002. In addition, we issued notes payable to affiliates of $55 million in 2001.

Our cash position, projected cash flows from operations and projected
capital contributions related to Mirant Peaker and Mirant Potomac River (see
below and Note 5 of "Notes to Consolidated Financial Statements") are expected
to provide sufficient liquidity for our operations, working capital needs and
capital expenditures for the next 12 months. However, as discussed above under
"Mirant Restructuring," if Mirant is required to seek bankruptcy court or other
protection from its creditors, we believe it is likely that we would seek
similar protection.

NOTES RECEIVABLE FROM AFFILIATES

In December 2000, Mirant Potomac River and Mirant Peaker, both wholly owned
subsidiaries of Mirant, borrowed approximately $223 million from the Company to
finance their acquisition of generation facilities from PEPCO (see Note 5 of
"Notes to Consolidated Financial Statements"). The notes receivable are
unsecured and are due on December 30, 2028 with 10% per annum interest payable
semiannually, in arrears, on June 30 and December 30. Any amount not paid when
due bears interest thereafter at 12% per annum. Up to $8 million per year may be
prepaid at the election of the borrower. Interest earned by the Company from
Mirant Potomac River and Mirant Peaker was $23 million for each of the years
ended December 31, 2002 and 2001 and $1 million for the period from July 12,
2000 (inception) through December 31, 2000.

During 2002, the Company participated in a separate cash management
agreement with Mirant (see Note 5 of "Notes to Consolidated Financial
Statements"), whereby any excess cash was transferred to Mirant pursuant to a
note agreement which was payable upon demand. During the fourth quarter of 2002,
this cash management agreement was terminated and all outstanding advances were
repaid.

CAPITAL CONTRIBUTION AGREEMENT WITH MIRANT

Under a capital contribution agreement, Mirant Potomac River and Mirant
Peaker make distributions to Mirant at least once per quarter, if funds are
available. Distributions are equal to cash available after taking into account
projected cash requirements, including mandatory debt service, prepayments
permitted under the Mirant Potomac River and Mirant Peaker notes, and
maintenance reserves, as reasonably determined by Mirant. Mirant will contribute
or cause these amounts to be contributed to the Company. For the years ended
December 31, 2002 and 2001, total capital contributions received by us under
this agreement totaled $39 million and $25 million, respectively.

If, as a result of its inability to restructure a substantial portion of
its indebtedness or otherwise, Mirant seeks bankruptcy court or other protection
from its creditors, then Mirant's ability to make such contributions or cause
such contributions to be made could be adversely affected.

RESTRICTIONS ON ADDITIONAL INDEBTEDNESS AND PAYMENT OF DIVIDENDS

Pass through certificates in the aggregate principal amount of $1.224
billion were issued in December 2000 in connection with the acquisition by the
owner lessors of the Morgantown and Dickerson generating facilities. We have
entered into long-term leases for these facilities. The pass through
certificates are not our direct obligations. However, because the operating
lease payments made by us for the Morgantown and Dickerson generating facilities
support the ultimate lessor notes for the facilities, the pass through
certificates restrict our ability to incur further indebtedness in certain
circumstances. If the form or purpose of indebtedness is not specifically
permitted by the lease agreement, additional indebtedness cannot be incurred
unless each of Moody's Investors Service ("Moody's") and Standard & Poors
("S&P") confirms the then current rating for the pass through certificates;
provided, however, that if the certificates are rated by either agency as below
investment grade, the additional indebtedness may not be incurred unless Mirant
Mid-Atlantic meets certain coverage ratios. As of April 25, 2003, all ratings

19

of the pass through certificates by Moody's and S&P, as well as Fitch, Inc.
("Fitch"), were non-investment grade.

The pass through certificates also restrict Mirant Mid-Atlantic's ability
to make certain payments. Among the limitations is a prohibition on dividend
payments to our parent unless certain coverage ratios are met. Specifically, in
order to make a dividend distribution the fixed charge coverage ratio under the
pass through certificates must exceed 1.7 to 1.0 for the most recently ended
four fiscal quarter period as well as for each of the next two periods of four
fiscal quarters (a total of eight quarters).

Spot and forward power prices in the PJM market have risen since Mirant
Americas Energy Marketing exercised its option to purchase capacity and energy
under the ECSA for 2003. The termination of the ECSA and the sale of energy and
capacity under the Power and Fuel Agreement is expected to result in additional
cash flows to Mirant Mid-Atlantic in 2003 based on projected power prices in the
PJM. In addition, while a portion of the amounts received for the sale of energy
and capacity under the ECSA are accounted for as capital contributions, all
amounts received under the Power and Fuel Agreement will be accounted for as
revenues. Thus, such amounts will be included as revenues in the calculation of
the fixed charge coverage ratio under the pass through certificates, in contrast
to the capital contribution component of the amounts received under the ECSA
which is excluded from such calculation. As of March 31, 2003, the fixed charge
coverage ratio under the pass through certificates, for the most recently ended
four fiscal quarters, is estimated to be approximately 1.6 to 1.0, less than the
1.7 to 1.0 required to make distributions under the terms of the pass through
certificates. Management does not expect to meet the distribution test until
delivery of financial statements for the fiscal quarter ended September 30,
2003, based on current projections. At that time management expects that we will
be able to make distributions, although there can be no assurance that such
expectation will prove correct. If the ECSA had not been terminated, based on
current projections of fuel and power prices, the fixed charge coverage ratio
was expected to remain below 1.7 to 1.0 through year end 2003.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

As of December 31, 2002 the Company has lease obligations and fuel and
transportation purchase commitments as follows (in millions):

- ---------------

(1) Substantially all of these obligations relate to the Morgantown and
Dickerson facilities (see Note 10 of "Notes to Consolidated Financial
Statements"). Upon an event of default by Mirant Mid-Atlantic, the lessors
are entitled to a termination value payment as defined in the agreements,
which, in general, decreases over time. At December 31, 2002, the
termination value was approximately $1.5 billion. Upon expiration of the
original lease term, the termination value will be $300 million.

(2) This commitment relates to the minimum fuel purchase and transportation
commitments at the Morgantown facility, which became effective in July 2002.

MORGANTOWN AND DICKERSON LEASES

In connection with our acquisition of PEPCO's generating assets, several
owner lessors each own undivided interests in the Dickerson and Morgantown
baseload generating assets. We have entered into long-term leases for each of
these undivided interests. The leases were part of a leveraged lease that raised
approximately $1.5 billion, which was used by the owner lessors to acquire the
undivided interests in the lease facilities and to pay the lease transaction
expenses.

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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 $1.224 billion.

Pass through certificates in the aggregate principal amount of $1.224
billion were issued on December 18, 2000. The pass through certificates are not
our direct obligations. 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 State Street Bank and Trust
Company of Connecticut, National Association, as pass through trustee, and us.

The property of the pass through trusts consists of lessor notes. The
lessor notes were issued in connection with eleven separate leveraged lease
transactions with respect to each lessor's undivided interest in either (i) the
Dickerson electric generating baseload units 1, 2 and 3 and related assets or
(ii) the Morgantown electric generating baseload units 1 and 2 and related
assets. 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 lessor notes issued by each owner lessor were issued in three series.
Each pass through trust purchased one series of the lessor notes issued by each
owner lessor so that all of the lessor notes held in each pass through trust
have an interest rate corresponding to the interest rate of the pass through
certificates, and a final maturity on or before the final expected distribution
date applicable to the certificates issued by that pass through trust. Principal
and interest paid on the lessor notes held in each pass through trust is
distributed by each pass through trust to its certificate holders on June 30 and
December 30 of each year.

Although neither the certificates nor the lessor notes are obligations of,
or guaranteed by us, the amount unconditionally payable by us under the leases
of the leased facilities will be at least sufficient to pay in full when due all
payments of principal, premium, if any, and interest on the lessor notes. Our
lease obligations are not obligations of, or guaranteed by, our indirect parent,
Mirant, or any of its other affiliates. However, Mirant has arranged a letter of
credit to provide for the rent payment reserve required in connection with this
lease transaction in the event we are unable to pay our lease payment
obligations.

NOX ALLOWANCES

Our generating facilities are subject to the northeast ozone transport
region NOx allowance cap and trade regulatory program. As part of that
regulatory program, the various state regulations allocate NOx emission
allowances to covered facilities, and if the allocated allowances are not
sufficient to cover actual NOx emissions, facilities must purchase NOx
allowances from other facilities. We presently purchase additional NOx
allowances in addition to our allocation to cover our emissions. Due to the NOx
SIP Call Rule promulgated by the EPA, we expect that the number of allowances
allocated to our plants will decrease in 2003 and that the market price may
increase in 2003 and in subsequent years for the NOx allowances we will need to
purchase. There can be no assurance that the additional cost we may incur will
be recoverable from the revenues we realize.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting policies described below are considered critical in
obtaining an understanding of Mirant Mid-Atlantic's consolidated financial
statements because their application requires significant estimates and
judgments by management in preparing these consolidated financial statements.
Management's estimates and judgments are inherently uncertain and may differ
significantly from actual results achieved. Management believes that the
following critical accounting policies and the underlying estimates and
judgments involve a higher degree of complexity than others. Management
discussed the development, selection and disclosure of these critical accounting
policies with the Company's Board of Managers.

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ACCOUNTING FOR DERIVATIVE INSTRUMENTS

Derivative financial instruments used for economic hedging and commodity
price risk management purposes that do not meet the hedge accounting criteria
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended ("SFAS No. 133"), are recorded at fair value as an
adjustment to revenue or cost of fuel, electricity and other products. The
commodity related derivatives we use are primarily valued through quoted market
prices and quantitative models. To the extent that quantitative models are used
to value the derivative instruments we are required to estimate future prices,
price correlation, interest rates and market volatility. In addition, these
estimates reflect the potential impact of liquidating our position in an orderly
manner over a reasonable period of time under present market conditions. The
amounts we report as revenue or cost of fuel, electricity and other products
change as these estimates are revised to reflect actual results, changes in
market conditions or other factors, many of which are beyond our control. As of
December 31, 2002, the fair value of our net derivative financial instrument
assets, which are marked to market, was approximately $20 million.

LONG-LIVED ASSETS

We evaluate our long-lived assets (property, plant and equipment) and
definite-lived intangibles for impairment whenever indicators of impairment
exist or when we commit to sell the asset. The accounting standards require that
if the sum of the undiscounted expected future cash flows from a long-lived
asset or definite-lived intangible is less than the carrying value of that
asset, an asset impairment charge must be recognized. The amount of the
impairment charge is calculated as the excess of the asset's carrying value over
its fair value, which generally represents the discounted future cash flows from
that asset or in the case of assets we expect to sell, at fair value less costs
to sell.

We believe that the accounting estimates related to the impairment testing
are critical accounting estimates because they are highly susceptible to change
from period to period because determining the forecasted future cash flows
related to the assets requires management to make assumptions about future
revenues, competition, operating costs and forward commodity prices over the
life of the assets. Our assumptions about future sales, costs and forward prices
require significant judgment because such factors have fluctuated in the past
and will continue to do so in the future.

In deriving our estimates of forecasted future cash flows, we use our
financial forecasts, which are developed based on forward price curves in the
near-term liquid period, up to 36 months, and long run marginal cost assumptions
for future periods in the plan.

GOODWILL AND INTANGIBLE ASSETS

In accordance with SFAS No. 142, we evaluate our goodwill and
indefinite-lived intangible assets for impairment at least annually and
periodically if indicators of impairment are present. SFAS No. 142 requires that
if the fair value of a reporting unit is less than its carrying value including
goodwill (Step I), an impairment charge for goodwill must be recognized. The
impairment charge is calculated as the difference between the implied fair value
of the reporting unit goodwill and its carrying value (Step II).

Upon adopting SFAS No. 142, Mirant Mid-Atlantic defined its reporting unit,
as required by the Statement, for purposes of testing goodwill for impairment.
Mirant Mid-Atlantic defined its reporting unit as the Company as a whole. The
reporting unit has specific management that is held responsible for
decision-making for a set of components representing the reporting unit. This
reporting unit reflects the way the Company manages its business.

Upon adoption of SFAS No. 142 on January 1, 2002 we reviewed our goodwill
for impairment at that date. We computed the fair value as the sum of the
discounted future cash flows applicable to our reportable segment's assets.
Based on that analysis, we determined that the fair value of our reportable
segment exceeded its carrying value including goodwill and accordingly concluded
that no impairment charge was required.

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In connection with our annual impairment assessment as of October 31, 2002,
we tested our reporting unit for impairment. The result of the impairment
analysis indicated that no impairment was necessary. At December 31, 2002 we had
$1.3 billion of goodwill on our consolidated balance sheet. We believe that the
accounting estimates related to determining the fair value of goodwill and any
resulting impairment are critical accounting estimates because they are highly
susceptible to change from period to period because determining the forecasted
future cash flows related to the assets requires management to make assumptions
about future revenues, operating costs and forward commodity prices over the
life of the assets. Our assumptions about future sales, costs and forward prices
require significant judgment because such factors have fluctuated in the past
and will continue to do so in the future. Due to the subjective nature of our
goodwill impairment analysis we have provided certain critical assumptions used
in our analysis for our reporting unit as follows:

- Forward prices of electricity and natural gas -- We used the forward
market curves that are used by Mirant for mark-to-market accounting and
that are regularly checked by Mirant's Risk Control group against broker
quotes and exchange closing prices. Typically, the liquidity of these
forward markets decreases significantly as maturity increases. Liquid
market data is generally available in the first 36-48 months for natural
gas prices and 24-36 months for power prices. Our forecast is a 10-year
estimate and for periods outside the liquid market we construct the
forward prices using data available from third parties and our market
knowledge. As such, our estimated future cash flows which contribute to
the determination of the fair value of our reporting unit are highly
sensitive to these price forecasts. For example, if our projected forward
gross margins were 8% lower over the forecasted period, the fair value of
our Step I analysis would have indicated that our reporting unit was less
than its carrying value including goodwill, indicating an impairment was
necessary.

- Asset sales -- Our financial plan assumes no asset sales.

- Terminal Value -- We assume a terminal value based on the ability to
continue plant operations and additional growth from plant expansion or
new construction after 2010. We employed a 4% terminal growth rate
assumption in the discounted cash flow analysis. This rate was determined
considering inflationary growth, historical and projected GDP growth,
electricity demand, and generation capacity growth. The sensitivity of
the fair value of our projected future cash flows is such that a 100
basis point change in the terminal value growth rate would adjust the
value of our projected future cash flows by approximately $580 million.

- Weighted average cost of capital -- The weighted average cost of capital
rate significantly impacts the fair value of our projected future cash
flows. We used a weighted average cost of capital of 9% in determining
the present value of our projected future cash flows. The rate was
determined based on a study of discount rates in the current market used
to value similar cash flow streams, specific capital fundamentals related
to Mirant Mid-Atlantic and comparable industry group data. The
sensitivity of the fair value of our projected future cash flows is such
that a 100 basis point move in the rate would adjust the fair value of
our projected future cash flows by approximately $860 million.

The combined subjectivity and sensitivity of our assumptions and estimates
used in our goodwill impairment analysis could result in a reasonable person
concluding differently on those critical assumptions and estimates resulting in
an impairment being indicated.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information presented in this Form 10-K includes forward-looking
statements in addition to historical information. These statements involve known
and unknown risks and relate to future events, our future financial performance
or our projected business results. In some cases, you can identify forward-
looking statements by terminology such as "may," "will," "should," "expects,"
"plans," "anticipates,"

23

"believes," "estimates," "predicts," "targets," "potential" or "continue" or the
negative of these terms or other comparable terminology.

Forward-looking statements are only predictions. Actual events or results
may differ materially from any forward-looking statement as a result of various
factors, which include: (1) legislative and regulatory initiatives regarding
deregulation, regulation or restructuring of the electric utility industry; (2)
the failure of our assets to perform as expected or the extent and timing of the
entry of additional competition in the markets of our subsidiaries and
affiliates; (3) our pursuit of potential business strategies, including the
disposition of assets, termination of construction of certain projects or
internal restructuring; (4) changes in state, federal and other regulations
(including rate and other regulations); (5) changes in or application of
environmental and other laws and regulations to which we and our subsidiaries
and affiliates are subject; (6) political, legal and economic conditions and
developments; (7) changes in market conditions, including developments in energy
and commodity supply, demand, volume and pricing; (8) weather and other natural
phenomena; (9) war, terrorist activities or the occurrence of a catastrophic
loss; (10) deterioration in the financial condition of our counterparties and
the resulting failure to pay amounts owed to us or perform obligations or
services due to us; (11) financial market conditions and the results of Mirant's
financial restructuring efforts, including its inability to obtain long-term
debt or working capital on terms that are not prohibitive and the effects that
would result on our liquidity and business; (12) the direct or indirect effects
on our business of a lowering of our credit rating or that of Mirant, Mirant
Americas Generation or Mirant Americas Energy Marketing (or actions taken by us
or our affiliates in response to changing credit ratings criteria), including,
increased collateral requirements to execute our business plan, demands for
increased collateral by our current counterparties, curtailment of certain
business operations in order to reduce the amount of required collateral,
refusal by our current or potential counterparties or customers to enter into
transactions with us and our inability to obtain credit or capital in amounts
needed or on terms favorable to us; (13) the disposition of the pending
litigation described in this Form 10-K; (14) the direct or indirect effects of
the "going concern" explanatory paragraph contained in our independent auditors'
report and (15) other factors, including the risks discussed elsewhere in this
Form 10-K.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance or achievements. We expressly disclaim a duty to update
any of the forward-looking statements.

FACTORS THAT COULD AFFECT FUTURE PERFORMANCE

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

IF MIRANT IS UNABLE TO SUCCESSFULLY RESTRUCTURE ITS DEBT IT WOULD MATERIALLY
AND ADVERSELY AFFECT ITS FINANCIAL CONDITION AND WOULD LIKELY CAUSE MIRANT TO
SEEK BANKRUPTCY COURT OR OTHER PROTECTION FROM ITS CREDITORS. IF MIRANT SEEKS
SUCH PROTECTION, WE BELIEVE IT IS LIKELY THAT WE WOULD SEEK SIMILAR
PROTECTION.

Mirant has incurred substantial indebtedness on a consolidated basis to
finance its business. As of December 31, 2002, Mirant's total consolidated
indebtedness was $8.9 billion (approximately $4.4 billion of which was recourse
to Mirant). Mirant does not expect that its cash flows from operations will
cover all of its capital expenditures, interest payments and debts as they
mature. Mirant is working on a restructuring plan pursuant to which it will ask
certain of its and its subsidiaries' creditors to defer repayments of principal.
Those creditors include holders of approximately $4.5 billion of bank facilities
and capital markets debt of Mirant and approximately $800 million of bank and
capital markets debt of Mirant Americas Generation. In connection with any such
restructuring or extension, Mirant expects to offer security interests in
substantially all of its and its subsidiaries' unencumbered assets. In addition,
the lenders under the Mirant bank facilities have waived compliance with certain
covenants of those facilities through May 29, 2003. The terms of the waiver
provide for an additional extension, to July 14, 2003, with
24

the prior written consent of lenders representing a majority of the committed
amount under each of the facilities. Upon expiration or termination of the
waiver, the lenders under the respective bank facilities would be able to
restrict the issuance of additional letters of credit and/or declare an event of
default and, after the respective cure or grace period, accelerate the
indebtedness under such bank facilities. An acceleration of indebtedness under
the Mirant bank facilities would cross accelerate approximately $910 million of
Mirant capital markets and other indebtedness. In the event that Mirant is
unable to restructure a substantial portion of its indebtedness and/or there is
an acceleration of Mirant debt, Mirant would likely be required to seek
bankruptcy court or other protection from its creditors. In the event that
Mirant seeks such protection, we believe it is likely that we would seek similar
protection.

IF MIRANT IS UNABLE TO RESTRUCTURE A SUBSTANTIAL PORTION OF ITS INDEBTEDNESS
OR OTHERWISE SEEKS BANKRUPTCY PROTECTION, THEN ITS ABILITY TO CONTRIBUTE
CAPITAL TO US UNDER THE CAPITAL CONTRIBUTION AGREEMENTS MAY BE IMPAIRED, WHICH
WOULD ADVERSELY AFFECT US.

Under a capital contribution agreement, Mirant Potomac River and Mirant
Peaker make distributions to Mirant at least once per quarter, if funds are
available. Distributions are equal to cash available after taking into account
projected cash requirements, including mandatory debt service, prepayments
permitted under the Mirant Potomac River and Mirant Peaker notes, and
maintenance reserves, as reasonably determined by Mirant. Mirant will contribute
or cause these amounts to be contributed to the Company. For the years ended
December 31, 2002 and 2001, total capital contributions received by us under
this agreement totaled $39 million and $25 million, respectively.

If, as a result of its inability to restructure a substantial portion of
its indebtedness or otherwise, Mirant seeks bankruptcy court or other protection
from its creditors, then Mirant's ability to make such contributions or cause
such contributions to be made could be adversely affected which would adversely
impact us.

OUR REVENUES AND RESULTS OF OPERATIONS DEPEND IN PART ON MARKET AND
COMPETITIVE FORCES THAT ARE BEYOND OUR CONTROL.

The market for wholesale electric energy and energy services in the PJM
market is largely deregulated. We are not guaranteed any rate of return on our
capital investments through mandated rates. To the extent that we have not sold
our energy and capacity under fixed price agreements, our revenues and results
of operations are likely to depend, in large part, upon prevailing market prices
for energy and capacity in the PJM market and other competitive markets. These
market prices may fluctuate substantially over relatively short periods of time.
Among the factors that will influence these prices, all of which are beyond our
control, are:

- prevailing market prices for fuel oil, coal and natural gas;

- the extent of additional supplies of electric energy and energy services
from our current competitors or new market entrants, including the
development of new generating facilities that may be able to produce
electricity at a lower cost than our generating facilities;

- the extended operation of nuclear generating plants in the PJM market
beyond their presently expected dates of decommissioning;

- prevailing regulations that affect the PJM market and other competitive
markets and regulations governing the independent system operators that
oversee these markets, including any price limitations and other
mechanisms to address some of the volatility or illiquidity in these
markets;

- weather conditions; and

- changes in the rate of growth in electricity usage as a result of such
factors as regional economic conditions and implementation of
conservation programs.

25

In addition, the independent system operators that oversee these markets
may impose price limitations and other mechanisms to address some of the
volatility in these markets. All of these factors could have an adverse impact
on our revenues and results of operations.

CHANGES IN COMMODITY PRICES MAY INCREASE THE COST OF PRODUCING POWER AND
DECREASE THE AMOUNT WE RECEIVE FROM SELLING POWER, RESULTING IN FINANCIAL
PERFORMANCE BELOW OUR EXPECTATIONS.

Our generation business is subject to changes in power prices and fuel
costs that may impact our financial results and financial position by increasing
the cost of producing power and decreasing the amount we receive from the sale
of power. In addition, actual power prices and fuel costs may differ from our
expectations. As a result, our financial results may not meet our expectations.

WE ARE RESPONSIBLE FOR PRICE RISK MANAGEMENT ACTIVITIES CONDUCTED BY MIRANT
AMERICAS ENERGY MARKETING FOR OUR FACILITIES.

Mirant Americas Energy Marketing engages in price risk management
activities related to our sales of electricity and purchases of fuel and we
receive the income and incur the losses from these activities. Mirant Americas
Energy Marketing may use forward contracts and derivative financial instruments,
such as futures contracts and options, to manage market risks and exposure to
fluctuating electricity, coal, oil and natural gas prices, and we bear the gains
and losses from these activities. We cannot assure you that these strategies
will be successful in managing our pricing risks, or that they will not result
in net losses to us as a result of future volatility in electricity and fuel
markets.

Commodity price variability results from many factors, including:

- weather;

- illiquid markets;

- transmission or transportation inefficiencies;

- availability of competitively priced alternative energy sources;

- demand for energy commodities;

- natural gas, crude oil and coal production;

- natural disasters, wars, embargoes and other catastrophic events; and

- federal, state and foreign energy and environmental regulation and
legislation.

Furthermore, the risk management procedures we have in place may not always
be followed or may not always operate as planned. As a result of these and other
factors, we cannot predict with precision the impact that these risk management
decisions may have on our businesses, operating results or financial position.

OUR ASSETS HAVE NOT BEEN OPERATED HISTORICALLY ON A COMPETITIVE BASIS AND WE
HAVE ONLY A LIMITED HISTORY OF OWNING OR OPERATING OUR ASSETS.

Substantially all of our business consists of operating the Mirant
Mid-Atlantic assets and the leased facilities. Although these assets had a
significant operating history prior to the time of their acquisition by us and
the owner lessors, they had all been operated as an integrated part of a
regulated utility and not on a competitive basis. Therefore, prior to their
recent acquisition by us and the owner lessors, the energy generated by these
assets had been sold by PEPCO based upon rates set by regulatory authorities
rather than market prices. In addition, we have only a limited history of owning
or operating our assets. As a result, we cannot assure you:

- that we will be successful in operating these assets in a competitive
environment in which energy rates will be set by market forces, or

26

- that these assets will perform as expected or that the revenues generated
by them will support the costs of operating them, the capital
expenditures needed to maintain them, our obligation to make rental
payments under the leases, or our ability to pay the principal amount of
and interest on our indebtedness.

In addition, the only historical financial data available about us is for
the period beginning July 12, 2000, when we were formed, and the operating
results reflected in this historical financial data only date back to December
19, 2000, when the transaction assets were acquired from PEPCO. A decrease in
revenues generated by our facilities or an increase in the costs of operating
our facilities could decrease or eliminate funds available to us to make
payments on the leases or our other obligations.

TERRORIST ATTACKS, FUTURE WAR OR RISK OF WAR MAY ADVERSELY IMPACT OUR RESULTS
OF OPERATIONS, OUR ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.

Uncertainty surrounding terrorist acts, retaliatory military strikes or a
sustained military campaign may impact our operations in unpredictable ways,
including changes in insurance markets, disruptions of fuel supplies and
markets, particularly oil, and the possibility that infrastructure facilities,
including electric generation, transmission and distribution facilities, could
be direct targets of, or indirect casualties of, an act of terror. War or risk
of war may also have an adverse effect on the economy. The terrorist attacks on
September 11, 2001 and the changes in the insurance markets attributable to the
terrorist attacks have made it difficult for us to obtain certain types of
insurance coverage. As a result, we have chosen to self-insure some of our
plants and facilities for acts of terrorism. A lower level of economic activity
could also result in a decline in energy consumption, which could adversely
affect our revenues or restrict our future growth. Instability in the financial
markets as a result of terrorism or war could also affect our ability to raise
capital.

OPERATION OF THE GENERATING FACILITIES INVOLVES RISKS THAT COULD NEGATIVELY
AFFECT OUR ABILITY TO MAKE LEASE PAYMENTS TO THE OWNER LESSORS, WHICH, IN TURN,
COULD NEGATIVELY AFFECT THE PASS THROUGH TRUSTEE'S ABILITY TO MAKE PAYMENTS DUE
UNDER THE CERTIFICATES.

The operation of our generating facilities involves various operating
risks, including:

- the output and efficiency levels at which those generating facilities
perform;

- interruptions in fuel supply;

- disruptions in the delivery of electricity;

- breakdown or failure of equipment (whether due to age or otherwise) or
processes;

- violation of permit requirements;

- shortages of equipment or spare parts;

- labor disputes;

- operator error;

- curtailment of operations due to transmission constraints;

- restrictions on emissions; and

- catastrophic events such as fires, explosions, floods, earthquakes or
other similar occurrences affecting power generating facilities.

27

MIRANT MAY BE UNABLE TO RETAIN PERSONNEL CAPABLE OF SUCCESSFULLY EXECUTING OUR
BUSINESS PLAN GIVEN THE UNCERTAIN BUSINESS CLIMATE FOR OUR SECTOR AND OUR
COMPANY.

If Mirant's financial position does not improve or if its financial
restructuring is unsuccessful, there is a risk that personnel who are integral
to the success of our business model will leave Mirant or the Company,
disrupting our ability to successfully achieve our short-and long-term goals.

To reduce this risk, Mirant has in place an equity-based compensation plan
and has also put in place retention agreements with key employees. These
measures are designed to provide incentives to these key employees to remain
with Mirant and the Company throughout this critical period. There can be no
assurance that these measures will be effective.

OUR CREDIT RATINGS HAVE BEEN REDUCED BY MOODY'S, FITCH AND S&P TO
NON-INVESTMENT GRADE; FURTHER REDUCTIONS COULD MATERIALLY ADVERSELY AFFECT OUR
FINANCIAL CONDITION.

As of April 25, 2003, the pass through certificates, which were reflected
as the senior secured rating of Mirant Mid-Atlantic, were rated "B2" with
Negative Outlook by Moody's, "B" on CreditWatch with negative implications by
S&P, and "BB" with a Rating Watch Negative by Fitch. While the foregoing
indicates the ratings from the various rating agencies, we note that these
ratings are not a recommendation to buy, sell or hold these securities and that
each rating should be evaluated independently of any other rating. There can be
no assurance that a rating will remain in effect for any given period of time or
that a rating will not be lowered or withdrawn entirely by a rating agency if,
in its judgment, circumstances in the future so warrant.

It is possible that significant additional downgrades by the various credit
ratings agencies could materially negatively impact our business. For example,
significant additional downgrades could increase negative sentiment and
reactions from our customers, regulators, investors or other credit rating
agencies, increase pressure on our liquidity and reduce our ability to raise
capital. These reactions, and others, could impair our ability to achieve our
business plan.

CHANGES IN TECHNOLOGY MAY SIGNIFICANTLY IMPACT OUR BUSINESS BY MAKING OUR POWER
PLANTS LESS COMPETITIVE.

A basic premise of our business is that generating power at central power
plants achieves economies of scale and produces electricity at a low price.
There are other technologies that can produce electricity, most notably fuel
cells, microturbines, windmills and photovoltaic (solar) cells. It is possible
that advances will reduce the cost of alternate methods of electric production
to a level that is equal to or below that of most central station electric
production. If this happens, the value of our power plants may be significantly
impaired.

WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.

Effective May 1, 2003, pursuant to the Power and Fuel Agreement with Mirant
Americas Energy Marketing, our revenues and results of operations depend upon
prevailing market prices for energy and capacity in the PJM market and other
competitive markets. These market prices may fluctuate substantially over short
periods of time. We are relying on Mirant Americas Energy Marketing to purchase
our output. We cannot assure you that Mirant Americas Energy Marketing will be
successful in marketing our output in accordance with our business plan.

MIRANT CONTROLS US AND ITS INTERESTS MAY COME INTO CONFLICT WITH THE INTERESTS
OF OUR SECURITY HOLDERS.

We are an indirect wholly owned subsidiary of Mirant, and as such, Mirant
controls us. In circumstances involving a conflict of interest between Mirant as
our indirect equity owner, on the one hand, and our certificate holders as
indirect creditors, on the other hand, we cannot assure you that Mirant would
not exercise its power to control us in a manner that would benefit Mirant to
the detriment of the certificate holders.

28

IF MIRANT AMERICAS ENERGY MARKETING DOES NOT RENEW AGREEMENTS TO PURCHASE OR
MARKET OUR POWER AND PROVIDE US SERVICES THAT ARE REQUIRED FOR OUR OPERATIONS,
OR IF MIRANT SERVICES DOES NOT RENEW ITS AGREEMENT TO PROVIDE US PERSONNEL AND
ADMINISTRATIVE SERVICES, WE MAY NOT BE ABLE TO REPLACE THOSE SERVICES ON AS
FAVORABLE TERMS.

Mirant Americas Energy Marketing's contracts with us to purchase capacity
and energy from our generating facilities and to provide fuel, fuel
transportation and other services expire at the end of 2003. Mirant Americas
Energy Marketing is not obligated to renew these contracts. Additionally, our
contract with Mirant Services to provide personnel and administrative services
expires at the end of 2003, but renews automatically unless terminated by either
party. Mirant Services is not obligated to renew its contracts with us. The
contracts with Mirant Americas Energy Marketing and Mirant Services are required
for our operations. If these contracts are terminated, we may not be able to
replace them on terms that are as favorable to us.

OUR FUTURE ACCESS TO CAPITAL COULD BE LIMITED, LIMITING OUR ABILITY TO FUND
FUTURE CAPITAL EXPENDITURES AND OTHER REQUIREMENTS.

We will need to make substantial expenditures in the future to, among other
things, maintain the performance of our generating facilities and comply with
environmental laws and regulations. Our direct and indirect parent companies are
not generally obligated to provide, and may decide not to provide, any funds to
us in the future. Our only other source of funding will be internally generated
cash flow from our operations and proceeds from the issuance of securities or
the incurrence of additional indebtedness, including working capital
indebtedness, in the future. The documents related to our lease of the leased
facilities limit our ability to issue securities and to incur indebtedness. We
may not be successful in obtaining sufficient additional capital in the future
to enable us to fund all of our future capital and other requirements.

WE ARE EXPOSED TO CREDIT RISK FROM MIRANT AMERICAS ENERGY MARKETING AND THIRD
PARTIES UNDER CONTRACTS AND IN MARKET TRANSACTIONS.

Effective May 1, 2003, pursuant to the Power and Fuel Agreement with Mirant
Americas Energy Marketing, the financial performance of our generating
facilities is dependent on the continued performance by Mirant Americas Energy
Marketing of its obligations under this agreements and, in particular, on its
credit. If Mirant Americas Energy Marketing fails to meet its contractual
obligations, we may be unable to repay obligations under our lease agreements.
As of December 31, 2002, Mirant Mid-Atlantic's exposure to Mirant Americas
Energy Marketing, Mirant Potomac River and Mirant Peaker was $180 million
(including $136 million shown as a capital contribution receivable from
affiliate pursuant to ECSA in the member's equity section of the accompanying
consolidated balance sheet), $152 million and $71 million, respectively,
representing substantially all of the Company's total credit exposure.

OUR OPERATIONS AND ACTIVITIES ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL
REGULATION AND PERMITTING REQUIREMENTS AND COULD BE ADVERSELY AFFECTED BY OUR
FUTURE INABILITY TO COMPLY WITH ENVIRONMENTAL LAWS AND REQUIREMENTS OR CHANGES
IN ENVIRONMENTAL LAWS AND REQUIREMENTS.

Our business is subject to extensive environmental regulation by federal,
state and local authorities, which requires continuous compliance with
conditions established by our operating permits. To comply with these legal
requirements, we must spend significant sums on environmental monitoring,
pollution control equipment and emission fees. We may also be exposed to
compliance risks from new projects, as well as from plants we have acquired.
Although we have budgeted for significant expenditures to comply with these
requirements, we may incur significant additional costs if actual expenditures
are greater than budgeted amounts. If we fail to comply with these requirements,
we could be subject to civil or criminal liability and the imposition of liens
or fines. With the trend toward stricter standards, greater regulation and more
extensive permitting requirements, we expect our environmental expenditures to
be substantial in the future. Our business, operations and financial condition
could be adversely affected by this trend.

29

We may not be able to obtain or maintain from time to time all required
environmental regulatory approvals. If there is a delay in obtaining any
required environmental regulatory approvals or if we fail to obtain and comply
with any required environmental regulatory approvals, the operation of our
generating facilities or the sale of electricity to third parties could be
prevented or become subject to additional costs.

Except for environmental liability relating to an oil release from the
Piney Point oil pipeline which occurred in April 2000, and for which PEPCO has
agreed to indemnify Mirant and its subsidiaries, including us, we are generally
responsible for all on-site liabilities associated with the environmental
condition of our generating facilities, regardless of when such liabilities
arose and whether they are known or unknown.

OUR BUSINESS IS SUBJECT TO COMPLEX GOVERNMENT REGULATIONS AND CHANGES IN THESE
REGULATIONS OR IN THEIR IMPLEMENTATION MAY AFFECT THE COSTS OF OPERATING OUR
FACILITIES OR OUR ABILITY TO OPERATE OUR FACILITIES, WHICH MAY NEGATIVELY
IMPACT OUR RESULTS OF OPERATIONS.

Currently, our facilities are exempt wholesale generators that sell
electricity exclusively into the wholesale market. Generally, our exempt
wholesale generators are subject to regulation by the FERC regarding rate
matters and state public utility commissions regarding non-rate matters. The
majority of our generation from exempt wholesale generators is sold at market
prices under market rate authority exercised by the FERC, although the FERC has
the authority to impose "cost of service" rate regulation or other market power
mitigation measures if it determines that market pricing is not in the public
interest. A loss of our market-based rate authority would prohibit electricity
sales at market rates and would require all sales to be cost-based. A loss of
our market-based rate authority could severely impair our execution of our
business plan and could have a materially negative impact on our business.

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

The United States Congress is considering legislation that would repeal the
Public Utilities Regulatory Policies Act of 1978, as amended ("PURPA") entirely,
or at least eliminate the future obligation of utilities to purchase power from
qualifying facilities, and also repeal the Public Utilities Holding Company Act
of 1935, as amended ("PUHCA"). In the event of a PUHCA repeal, competition from
independent power generators and from utilities with generation, transmission
and distribution assets would likely increase.

Repeal of PURPA or PUHCA may or may not be part of comprehensive
legislation to restructure the electric utility industry, allow retail
competition and deregulate most electric rates. We cannot predict the effect of
this type of legislation, although we anticipate that any legislation would
result in increased competition. If we were unable to compete in an increasingly
competitive environment, our business and results of operation may suffer.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks associated with changes in commodity
prices.

COMMODITY PRICE RISK

In connection with our power generating business, we enter into a variety
of short and long-term agreements through Mirant Americas Energy Marketing to
acquire the fuel for generating electricity, as well as to sell the electricity
produced. A portion of our fuel is also purchased in the spot market and a
30

portion of the electricity we produce is sold in the spot market. As a result,
our financial performance varies depending on changes in the prices of these
commodities.

The financial performance of our power generating business is influenced by
the difference between the cost of converting source fuel, such as natural gas
or coal, into electricity, and the revenue we receive from the sale of that
electricity. The difference between the cost of a specific fuel used to generate
one megawatt hour of electricity and the market value of the electricity
generated is commonly referred to as a "spark spread". The operating margins
that we realize are equal to the difference between the spark spread and the
cost of operating the plants that produce the electricity sold.

Spark spreads are dependent on a variety of factors that influence the cost
of fuel and the sales price of the electricity generated over the longer term,
including additional plant capacity in the regions in which we operate, plant
outages, weather and general economic conditions. As a result of these
influences, the cost of fuel and electricity prices do not always move in the
same direction, which results in spark spreads widening or narrowing. We attempt
to maximize the spark spreads we realize and mitigate our exposure to price
volatility for fuel purchases and electricity sales in the spot market by
securing fuel under short and long-term fixed price contracts, selling
electricity under short and long-term fixed price contracts or utilizing
derivative instruments to hedge the cost of fuel or the sales price of the
electricity we produce.

Prior to the end of April 2003, all of our energy and capacity was sold at
fixed prices under the ECSA. Under our new Power and Fuel Agreement with Mirant
Americas Energy Marketing, effective May 1, 2003, we sell all of the energy we
produce to Mirant Americas Energy Marketing based on market prices. A
significant portion of our anticipated fuel requirements are covered by
long-term, fixed price contracts. We currently estimate that 90% of our coal and
synthetic fuel requirements for 2003, representing the majority of our fuel
costs for the year, are covered by long-term fixed price contracts.

From time to time, the Company enters into derivative financial instruments
to manage the market risks associated with the fuel utilized or the electricity
produced by our power plants that are not covered by long-term, fixed price
contracts. We enter into a variety of contractual agreements, such as forward
purchase and sale agreements, and futures, swaps, and option contracts. Futures
and certain option contracts are traded on a national exchange and swaps and
forward contracts are traded in over-the-counter financial markets. These
contractual agreements have varying terms and durations, or tenors, which range
from a few days to a number of years, depending on the instrument.

All derivative financial instruments are recorded in our balance sheet at
fair value. Unless designated as cash flow hedges in accordance with SFAS No.
133, changes in the fair value of these derivative instruments are reflected in
earnings currently, as unrealized gains or losses on derivative instruments. For
derivative financial instruments that qualify and are designated as cash flow
hedges, the effective portion of changes in the fair value of the derivative is
recorded in OCI until the related hedged item impacts earnings. Settlements of
amounts receivable or payable under all derivative financial instruments
utilized to manage the price risk of electricity sold or the fuel purchased are
recorded as an adjustment of revenue or the cost of fuel purchased, as
applicable.

In connection with the restatement of the Company's financial statements,
it was determined that all of the derivative financial instruments previously
designated as cash flow hedges under SFAS No. 133 do not qualify for hedge
accounting treatment. Accordingly, all realized and unrealized gains and losses
associated with all derivative transactions we entered into during the periods
presented are recognized in earnings in the period incurred.

VALUE AT RISK

We use a systematic approach to managing risks associated with our
derivative financial instruments. For those transactions that are not designated
for cash flow hedge accounting under SFAS No. 133, we use a Value-at-Risk (VaR)
model to summarize in dollar terms the market price risk we have and the
potential loss in value of the Company's portfolio due to adverse market
movement over a defined time horizon within a specified confidence interval. For
those transactions that are designated for cash flow

31

hedge accounting, we manage the market risks associated with these derivative
financial instruments in conjunction with the underlying asset positions they
are designed to hedge.

All of our positions, except those that are designated for cash flow hedge
accounting, combined with the similar positions of all of the other subsidiaries
of Mirant, are managed based on VaR limits that have been established by the
Board of Directors of Mirant. VaR is a statistical measure that is dependent
upon a number of assumptions and approximations. The Company uses recent
historical price volatility to predict how the value of the portfolio will move
in the future. Given its reliance on historical data, VaR is effective in
estimating risk exposures in markets in which there are not sudden fundamental
changes or shifts in market conditions. If future pricing patterns are not
similar to historical patterns VaR could overstate or understate actual market
risks. As a result, even though the portfolio is within the established VaR
limit, actual gains or losses can exceed the reported VaR by a significant
amount.

We assume a 95% confidence interval and holding periods that vary by
commodity to calculate our VaR exposure. By using a 95% confidence interval, we
are accepting a 5% probability that the actual market risk in the portfolio is
greater than what is indicated by the VaR calculation. The holding period
assumption relates to our estimate of how long it would take to liquidate our
commodity positions (i.e., how long our positions are subjected to market price
risk before mitigating the position). To determine our holding period by
commodity we analyze the relative liquidity of different commodity positions
across different time horizons and locations by assuming different holding
periods. For very liquid commodity positions, such as natural gas for delivery
within one year, we use a five-day holding period, whereas for a less liquid
commodity position, such as physical coal, we employ a sixty business day
holding period. As a result, the VaR that we measure, monitor and report on a
daily basis is larger than what would be obtained using a one-day holding period
for all positions, commodities and commitments.

Another important assumption in VaR is the effect of multiple commodities
on risk. Our VaR calculation benefits from diversity; a variety of commodity
positions that individually present large potential risk, when combined, present
less risk. Our VaR calculation also takes into account very complex correlations
between commodities, regions and time to determine the portfolio VaR.

The VaR calculation methodology we use is a variance covariance statistical
modeling technique. Although VaR is a common technique utilized in the industry
to measure and manage market risk, there is no uniform industry method of
calculating VaR, and therefore different assumptions or estimates could produce
significantly different VaR results for the same portfolio.

The VaR, using the Company's assumed holding periods and a 95% confidence
interval, was $1 million as of both December 31, 2002 and December 31, 2001.
Assuming one-day holding periods for all positions and commitments in our
portfolio based on a 95% confidence interval, our portfolio VaR was $0.4 million
at December 31, 2002, compared to $0.4 million at December 31, 2001. During the
year ended December 31, 2002, the actual daily loss on a fair value basis
exceeded the corresponding one-day VaR calculation eleven times, which falls
within our 95% confidence interval. During the second quarter of 2002, Mirant
Americas Energy Marketing implemented a new trading system to administer its
natural gas transactions. As a result, the natural gas component of Mirant
Americas Energy Marketing's total VaR calculation was held constant for a period
of approximately 45 days. Mirant Americas Energy Marketing believes this was a
reasonable estimate of our average VaR calculations for 2002 and we would not
have had additional instances of exceeding our VaR limits if the natural gas
portion of the total VaR calculation would not have been held constant.

The VaR data presented does not include the derivative financial
instruments that were initially designated as hedges under SFAS No. 133. We have
subsequently determined that these transactions did not qualify for hedge
accounting treatment. It is not practical to recalculate the VaR data presented
above to include the effects of these derivative financial instruments.

32

The following is a summary of the units, equivalent megawatt-hours, average
duration and estimated fair values, by commodity, of the derivative financial
instruments that were previously designated as cash flow hedges.

- ---------------

* Less than 1 million.

The following table represents the estimated cash flows of these derivative
financial instruments (based on market prices at December 31, 2002) by tenor (in
millions):

- ---------------

* Less than $1 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to our executive
officers as of January 1, 2003.

35

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

ITEM 11. EXECUTIVE COMPENSATION

We are a limited liability company that is managed by a sole member, Mirant
Americas Generation. All members of Mirant America's Generation's board of
managers are officers of Mirant or its subsidiaries, and they do not receive any
additional compensation for their services as managers. Mirant Services, a
direct subsidiary of Mirant, directly pays the salaries of our officers listed
in Item 10. A portion of those salaries are effectively reimbursed to Mirant by
us through an administrative services agreement with Mirant Services.
Consequently, we have no compensation committee and no direct employment
agreements.

All members of our management are eligible to participate in employee
benefit plans and arrangements sponsored by Mirant for its similarly situated
employees. This includes its pension plan, savings plan, long-term incentive
compensation plan, annual incentive compensation plan, health and welfare plans
and other plans that may be established in the future.

All of our equity is held by our direct parent, Mirant Americas Generation.
Therefore, our equity is not publicly traded and there is no basis to compare
the price performance of our equity to the price performance of an index or peer
group.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Mirant Mid-Atlantic is a wholly owned subsidiary of Mirant Americas
Generation; therefore, none of our managers or officers holds any equity
interests in Mirant Mid-Atlantic.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our relationships with affiliates and related transactions are described in
Note 5 to our consolidated financial statements and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Power Sale,
Fuel Supply and Services Agreement".

ITEM 14. CONTROLS AND PROCEDURES

During an interim review of the second quarter, Mirant's independent
auditors assessed Mirant's internal controls of its North American commodity
trading and risk management operations. Mirant received detailed process
improvement recommendations during October 2002 from its independent auditors
which address internal control deficiencies in existence at June 30, 2002, the
most significant of which relate to Mirant's North American commodity trading
and risk management operation systems and processes. There has been no
indication that control deficiencies previously present in Mirant's North
American commodity trading and risk management operations directly impacted the
Company or its financial statements.

Mirant assigned the highest priority to the correction of these internal
control deficiencies and has made significant progress. Short-term improvements
were achieved by December 31, 2002. Longer-term initiatives, many of which are
tied to systems implementations and integration projects, are expected to be
completed throughout the second and third quarters of 2003. Until these system
projects are complete, Mirant has instituted additional manual processes and
management oversight as an interim solution to the control concerns. Mirant's
management has discussed its action plan with the Audit Committee and its
independent auditors and has provided periodic updates on progress made. As of
the date of this filing, Mirant is satisfied that the systems of internal
controls are now adequate and that the material weakness disclosed in the second
quarter has been resolved.

Within the 90-day period immediately preceding the filing of this report,
an evaluation was carried out under the supervision and with the participation
of the Company's management, including its Chief Executive Officer and its Chief
Financial Officer, of the effectiveness of the design and operation of its

36

disclosure controls and procedures (as defined by Rules 13a-14(c) and 15d-14(c)
under the Exchange Act). Based upon that evaluation, the Chief Executive Officer
and its Chief Financial Officer concluded that there were no significant
deficiencies or material weaknesses in the Company's disclosure controls and
procedures and that the design and operation of these disclosure controls and
procedures were effective.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

(a)(3) Exhibit Index

- ---------------

* Asterisk indicates exhibits incorporated by reference.

(b) Reports on Form 8-K

During the quarter ended December 31, 2002, the Company did not file a
Current Report on Form 8-K.

41

INDEX TO FINANCIAL STATEMENTS

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

F-1

INDEPENDENT AUDITORS' REPORT

The Member
Mirant Mid-Atlantic, LLC:

We have audited the consolidated balance sheets of Mirant Mid-Atlantic, LLC
(a wholly owned indirect subsidiary of Mirant Corporation) and subsidiaries (the
"Company") as of December 31, 2002 and 2001, and the related consolidated
statements of income, member's equity, and cash flows for the years ended
December 31, 2002 and 2001 and for the period from July 12, 2000 (inception)
through December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mirant
Mid-Atlantic, LLC and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for the years ended December
31, 2002 and 2001 and for the period from July 12, 2000 (inception) through
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1 to the accompanying consolidated financial statements, the
Company's ultimate parent, Mirant Corporation, has a loss from continuing
operations of $2.3 billion for the year ended December 31, 2002 and has sold
significant assets during 2002 in order to generate additional liquidity.
Furthermore, Mirant Corporation has $1.7 billion in scheduled debt maturities
during 2003, and does not project that it will have sufficient liquidity to
repay its debt maturities as they come due. Therefore, Mirant Corporation
anticipates that it will be required to refinance significant debt obligations
during 2003 in order to maintain continuing operations. These conditions at
Mirant Corporation could have a material impact on any or all of its
subsidiaries, and thus raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the accompanying consolidated financial
statements, the Company changed its method of accounting for goodwill and other
intangible assets, and the impairment of long-lived assets in 2002 and changed
its method of accounting for derivative instruments and hedging activities in
2001.

As discussed in Note 3 to the accompanying consolidated financial
statements, the Company has restated the consolidated balance sheet as of
December 31, 2001, and the related consolidated statements of income, member's
equity, and cash flows for the year then ended and the period from July 12, 2000
(inception) through December 31, 2000, which consolidated financial statements
were previously audited by other independent auditors who have ceased
operations.

/s/ KPMG LLP

Atlanta, Georgia
April 29, 2003

F-2

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THE PERIOD FROM JULY 12, 2000 (INCEPTION) TO DECEMBER 31, 2000
(IN MILLIONS)

See accompanying notes to consolidated financial statements.
F-3

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(IN MILLIONS)

See accompanying notes to consolidated financial statements.
F-4

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JULY 12, 2000 (INCEPTION) TO DECEMBER 31, 2000
(IN MILLIONS)

See accompanying notes to consolidated financial statements.
F-5

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND THE
PERIOD FROM JULY 12, 2000 (INCEPTION) TO DECEMBER 31, 2000
(IN MILLIONS)

See accompanying notes to consolidated financial statements.
F-6

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000

1. BACKGROUND AND DESCRIPTION OF BUSINESS

OVERVIEW

Mirant Mid-Atlantic, LLC (the "Company" or "Mirant Mid-Atlantic") was
formed as a Delaware limited liability company on July 12, 2000. Mirant
Mid-Atlantic is a direct wholly owned subsidiary of Mirant Americas Generation,
an indirect wholly owned subsidiary of Mirant Corporation ("Mirant"). The
Company began operations on December 19, 2000 in conjunction with its
acquisition of generating facilities and other related assets from Potomac
Electric Power Company ("PEPCO") (See Note 4). Mirant previously assigned its
rights and obligations under its acquisition agreement to us, our subsidiaries
and certain of our affiliates.

The Company is an independent power provider that earns revenue primarily
by producing and selling electricity under fixed price contracts and on the spot
market. The Company uses derivative financial instruments, such as commodity
forwards, futures, options and swaps to manage its exposure to fluctuations in
electric energy and fuel prices. Mirant Mid-Atlantic and its affiliates, Mirant
Potomac River and Mirant Peaker, own or lease approximately 5,256 MW of electric
generation capacity in the Washington D.C. area, all of which we operate. These
generating facilities serve the PJM Interconnection Market ("PJM") market. The
PJM independent system operator operates the largest centrally dispatched
control area in the United States, which covers all or parts of Pennsylvania,
New Jersey, Maryland, Delaware, Virginia and the District of Columbia.

The Company's consolidated financial statements include its wholly owned
subsidiaries as follows:

- Mirant Chalk Point, LLC ("Mirant Chalk Point");

- Mirant D.C. O&M, LLC ("Mirant D.C. O&M");

- Mirant Piney Point, LLC ("Mirant Piney Point"); and

- Mirant MD Ash Management, LLC ("Mirant MD Ash Management").

From August 1, 2001 to December 31, 2002, the Company supplied all of the
capacity and energy of its facilities to Mirant Americas Energy Marketing under
the terms of the Energy and Capacity Sales Agreement ("ECSA"). For the period
from August 1, 2001 to December 31, 2001, Mirant Americas Energy Marketing
contracted to purchase 100% of the output of the Company's facilities. For 2002
and 2003, Mirant Americas Energy Marketing exercised its option to purchase 100%
of the output of the Company's facilities. For the period from January 1, 2004
to June 30, 2004 extendable to through December 31, 2004, Mirant Americas Energy
Marketing had the option to purchase up to 100% (in increments of 25%) of the
output of the Company's facilities, with no minimum commitment. Further details
of the ECSA are discussed in Note 5.

In November 2002, Mirant Americas Energy Marketing exercised its option to
purchase 100% of the output of the Company's facilities. Effective May 1, 2003,
the Company agreed to cancel the ECSA and sell all of its capacity and energy to
Mirant Americas Energy Marketing under a power sales, fuel supply and services
agreement (the "Power and Fuel Agreement") at market prices.

Mirant Americas Energy Marketing is a party to transition power agreements
with PEPCO under which PEPCO has an option to purchase energy with respect to
PEPCO's load requirements at fixed rates.

The Company has entered into a number of service agreements with other
subsidiaries of Mirant for sales of its electric power, procurement of fuel,
labor and administrative services essential to operating its

F-7

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

business. These related parties are primarily Mirant, Mirant Americas Energy
Marketing and Mirant Services, LLC ("Mirant Services"). The arrangements with
these companies are discussed in Note 5.

MIRANT RESTRUCTURING PLAN

The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company's ultimate parent, Mirant, has a loss
from continuing operations of $2.3 billion for the year ended December 31, 2002
and has sold significant assets during 2002 in order to generate additional
liquidity. Furthermore, Mirant has $1.7 billion in scheduled debt maturities
during 2003, and does not project it will have sufficient liquidity to repay
such debt maturities as they come due. Therefore, Mirant anticipates that it
will be required to restructure significant debt obligations during 2003 in
order to maintain continuing operations. These conditions raise substantial
doubt that Mirant will be able to continue as a going concern.

Mirant is working on a restructuring plan pursuant to which it will ask
certain of its creditors to defer repayments of principal. There can be no
assurance that Mirant will be able to restructure its indebtedness or that its
liquidity and capital resources will be sufficient to maintain its normal
operations. If Mirant is not successful in its restructuring efforts, it would
likely be required to seek bankruptcy court or other protection from its
creditors. Mirant's actions could have an impact on any or all of its
subsidiaries and thus raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

2. ACCOUNTING AND REPORTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements of Mirant Mid-Atlantic are presented
in conformity with accounting principles generally accepted in the United
States. The financial statements include the accounts of Mirant Mid-Atlantic and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform to the current year financial statement
presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Significant estimates used in the preparation of these financial statements
include estimates of the fair value the Company used in assessing its recorded
goodwill for impairment, estimates of future cash flows to be generated from the
Company's long-lived assets used in assessing those assets for impairment and
estimates of the fair value of derivative financial instruments.

CASH AND CASH EQUIVALENTS

Mirant Mid-Atlantic considers all short-term investments with an original
maturity of three months or less to be cash equivalents. Prior to October 21,
2002, the Company participated in Mirant's cash

F-8

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management program whereby any excess funds were transferred to Mirant in
exchange for a note, which was due on demand. Amounts advanced to Mirant at
December 31, 2001 under this program are classified as notes receivable from
affiliates.

FUEL STOCK AND MATERIALS AND SUPPLIES

Fuel stock and materials and supplies are recorded at the lower of cost or
market. Cost is computed on an average cost basis. Fuel stock is removed from
the inventory account as it is used in production. Materials and supplies are
removed from the account when they are used for repairs, maintenance or capital
projects.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for derivative financial instruments at fair value as
required by Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended
("SFAS No. 133").

The fair values of forward contracts, swap agreements, options and caps and
floors in a net receivable position, as well as options held, are reported as
derivative financial instrument assets in the accompanying consolidated balance
sheets. Similarly, derivative financial instruments and contractual commitments
in a net payable position, as well as options written, are reported as
derivative financial instrument liabilities in the accompanying consolidated
balance sheets. Derivative financial instruments are reported net by
counterparty, provided a master netting agreement exists.

For derivative financial instruments that qualify and are designated as
hedges of future cash flows, changes in the fair value of the derivatives are
recorded in OCI until the related hedged items affect earnings. Any ineffective
portion of the change in the fair value of contracts designated as cash flow
hedges is reported in earnings currently. The Company may also enter into
derivative instruments that qualify as fair value hedges. For derivatives that
qualify and are designated as fair value hedges, changes in the fair value of
the derivative and changes in the fair value of the related asset or liability
are recorded in earnings currently. Certain of the financial instruments that
the Company enters into to manage market risks, either are not designated as
hedges or do not qualify for hedge accounting because the expected changes in
their fair value do not adequately correlate to changes in the fair value or the
cash flow of the exposure being hedged. Changes in the fair value of these
derivative instruments are reflected in earnings currently, as unrealized gains
or losses on derivative financial instruments. Unrealized gains or losses as
well as settlements of amounts receivable or payable under all derivative
financial instruments utilized to manage the price risk of energy sold or fuel
purchased are recorded as an adjustment of revenue or the cost of fuel
purchased, as applicable.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost, or at fair value if
acquired in a purchase business combination, which includes materials, labor,
the associated payroll-related and overhead costs and the interest cost of
financing construction. The cost of routine maintenance and repairs, such as
inspections and corrosion removal, and the replacement of minor items of
property are charged to expense as incurred. Certain expenditures incurred
during a major maintenance outage of a generating plant are capitalized,
including the replacement of major component parts and labor and overhead
incurred to install the parts. Depreciation of the recorded cost of depreciable
property, plant and equipment is provided by using composite rates. Upon the
retirement or sale of property, plant and equipment, the cost of such assets and
the related accumulated depreciation are removed from the balance sheet. No gain
or loss is recognized

F-9

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for ordinary retirements in the normal course of business since the composite
depreciation rates used by Mirant Mid-Atlantic take into account the effect of
interim retirements.

IMPAIRMENT OF LONG-LIVED ASSETS

Mirant Mid-Atlantic evaluates long-lived assets, such as property, plant,
and equipment, and purchased intangible assets subject to amortization, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds the fair value of
the asset.

Prior to the adoption of SFAS No. 144, the Company accounted for the
impairment of long-lived assets in accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of."

GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of the cost over the fair value of the net
assets of businesses acquired. The Company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), as of January 1,
2002. Goodwill and intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not amortized, but instead
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable
useful lives be amortized over their respective useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144.

SFAS No. 142 requires that a goodwill impairment evaluation be performed
upon adoption of the standard, annually, and between annual tests upon the
occurrence of certain events. Upon adoption of SFAS No. 142, the Company was
required to identify its reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities, including existing
goodwill and intangible assets, to those reporting units as of January 1, 2002.
The Company determined that its operations constituted a single reporting unit.
In performing the impairment evaluation, the Company estimates the fair value of
the reporting unit and compares it to the carrying amount of that reporting
unit. To the extent the carrying amount of the reporting unit exceeds the fair
value of that reporting unit, the Company is required to perform the second step
of the impairment test. In this step, the Company compares the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting
unit goodwill. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141, "Business
Combinations" ("SFAS No. 141"). The residual fair value after this allocation is
the implied fair value of the reporting unit goodwill. Upon the adoption of SFAS
No. 142, the fair value of the Company's reporting unit exceeded the carrying
amount of the reporting unit in the transition test and no impairment charge was
recognized.

Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over the expected period to be benefited, 40 years, and
assessed for recoverability by determining whether the goodwill balance could be
recovered based on undiscounted future operating cash flows. The amount of
goodwill impairment, if any, was measured based on discounted future operating
cash flows.

F-10

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Mirant Mid-Atlantic recognizes specifically identifiable intangible assets
when specific rights or contracts are acquired. Intangible assets are amortized
on a straight-line basis over the lesser of their contractual or estimated
useful lives, ranging from 23 to 40 years. The cost of certain rights acquired,
such as operating permits, are included in property, plant and equipment in the
accompanying consolidated balance sheets as they are considered an integral part
of the tangible assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires the disclosure of the fair value of all financial instruments that are
not otherwise recorded at fair value in the financial statements. At December
31, 2002 and 2001, financial instruments recorded at contractual amounts that
approximate market or fair value include cash and cash equivalents, accounts and
current notes receivable, accounts payable and short term debt. The market
values of such items are not materially sensitive to shifts in market interest
rates because of the short term to maturity of these instruments and/or their
variable interest rates. As of December 31, 2002, the Company's long-term notes
receivables from affiliates had a carrying value of $223 million. The fair value
of Mirant Mid-Atlantic's long-term notes receivable from affiliates is not
readily determinable because of their intercompany nature.

REVENUE RECOGNITION

Revenues from sales of electricity power generation are recognized when the
service is provided based on the contractual terms of agreements with customers.

RENT EXPENSE

Rent expense related to the Company's operating leases is recognized on a
straight-line basis over the terms of the leases. Rent expense for generation
facilities is reported separately as generation facilities rent expense in the
accompanying consolidated statements of income. Payments made under the terms of
the lease agreement in excess of the amount of lease expense recognized are
recorded as prepaid rent in the accompanying consolidated balance sheets.
Prepaid rent attributable to periods beyond one year is included in non-current
prepaid rent.

INCOME TAXES

The Company was formed as an LLC on July 12, 2000 and was treated as a
partnership for income tax purposes. The Company's members were solely liable
for the federal and state taxes resulting from the Company's operations. In
October 2002, the Company was converted to a branch for income tax purposes. As
a result, Mirant Americas, Inc. ("Mirant Americas") has sole direct liability
for the majority of the federal and state income taxes resulting from the
Company's operations. Those state taxes for which the Company is liable have
been included in the accompanying consolidated statements of income.

NEW ACCOUNTING STANDARDS

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial
accounting and reporting obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 is
effective for the Company's 2003 fiscal year. Mirant Mid-Atlantic will adopt
this statement effective January 1, 2003. The impact of the adoption of SFAS No.
143 is not expected to have a material effect on the Company's financial
position, results of operations or cash flows.

F-11

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
requires companies to recognize certain costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activities. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN No. 45"). This interpretation
requires certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize a liability for the fair value
of the obligation undertaken in issuing certain guarantees. The initial
recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in this interpretation are
effective for financial statements of interim or annual periods after December
15, 2002. Management does not believe the adoption of FIN No. 45 in 2003 will
have a material impact on its financial position, results of operations or cash
flows.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 ("FIN No. 46"). FIN
No. 46 addresses the consolidation by business enterprises of variable interest
entities, as defined in the interpretation. FIN No. 46 expands existing
accounting guidance regarding when a company should include in its financial
statements the assets, liabilities and activities of another entity. The
consolidation requirements of FIN No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
variable interest entity created before February 1, 2003 in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003.
The application of this Interpretation is not expected to have a material effect
on the Company's financial position, results of operations or cash flows.

3. RESTATEMENTS AND RECLASSIFICATIONS

The consolidated financial statements of the Company as of December 31,
2001 and for the year ended December 31, 2001 and the period from July 12, 2000
(inception) to December 31, 2000 have been restated to reflect certain errors
the Company identified in its previously issued financial statements. The errors
relate to accounting for derivative financial instruments designated as hedging
instruments which did not qualify for hedge accounting treatment and an
adjustment to the valuation of assets acquired and liabilities assumed by Mirant
Americas Energy Marketing when applying purchase accounting to the PEPCO
acquisition (see Note 4).

The nature of the errors and the adjustments that the Company has made to
its financial statements for years ended December 31, 2001 and the period from
July 12, 2000 to December 31, 2000 are set forth below.

The net impact of the adjustments include the following:

- A $110 million increase to member's interest and a corresponding increase
in goodwill, other intangible assets, net and other asset accounts as of
December 31, 2000 due to purchase accounting adjustments related to the
obligations assumed by affiliates in the PEPCO transaction;

- A $2 million reduction of net income in 2001 due to additional goodwill
amortization, as a result of the adjustments to goodwill;
F-12

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- A $4 million reduction of net income in 2001 due to the effects of
purchase accounting adjustments to inventory; and

- A $2 million reduction of net income in 2001 to reflect the current
recognition of changes in the fair value of derivative financial
instruments. These derivative financial instruments were previously
accounted for as hedges.

RECLASSIFICATIONS

The Company has changed its classification, on the accompanying
consolidated statements of income, of realized and unrealized gains and losses
related to derivative financial instruments. Under the new classification, gains
and losses, both realized and unrealized, for electricity related derivative
financial instruments are included in operating revenues. Gains and losses, both
realized and unrealized, for fuel related derivative financial instruments are
included in cost of fuel, electricity and other products. Prior year amounts
have been reclassified to conform to the current year presentation. These
reclassifications reduced revenues and cost of fuel, electricity and other
products by corresponding amounts but did not impact the Company's gross margin
or net income. The Company has also recorded reclassifications to balances of
the current portion of prepaid rent, goodwill and intangible assets and other
assets and liabilities in the December 31, 2001 balance sheet.

In addition, the consolidated statement of cash flows for 2001 has been
reclassified. Amounts of $29 million received under the ECSA attributable to the
capital contribution have been reclassified on the accompanying consolidated
statements of cash flows as a financing activity, rather than an operating
activity. Amounts of $31 million paid to PEPCO for fuel and other working
capital adjustments related to the acquisition have been reclassified as an
investing activity. Previously the payment had been classified as an operating
activity. Cash flows from operating activities as previously reported was $117
million and is $119 million as restated. Cash flows used in investing activities
as previously reported was $78 million and is $109 million as restated. Cash
flows used in financing activities as previously reported was $61 million and is
$32 million as restated.

Operating revenues decreased by $30 million due to reclassifications of
gains and losses on derivative financial instruments discussed above. Cost of
fuel, electricity and other products, excluding depreciation, decreased by $24
million due to reclassification of derivative gains and losses, offset by a $6
million reclass of labor costs. Maintenance, selling, general and
administrative, and other operating expenses reflect reclassification for
various labor costs.

F-13

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RESTATEMENTS OF CONSOLIDATED FINANCIAL STATEMENTS

Management has identified certain errors, which necessitated a restatement
of the Company's 2001 consolidated financial statements.

The following table and discussion summarizes the effects of the
adjustments to reflect the reclassifications and the restatement adjustments on
the consolidated statements of operations for 2001 (in millions).

Cost of fuel, electricity and other products increased by $6 million as a
result of $4 million of increased fuel burn expense that results from the
adjustment to fuel inventory at the date of the PEPCO acquisition, and $2
million to reflect the fair value of certain commodity financial instruments
previously accounted for as cash flow hedges under SFAS No. 133.

Depreciation and amortization expense increased by $2 million as a result
of the changes in the amount of goodwill recorded in the acquisition of PEPCO.
This increase in the goodwill balance is primarily due to an adjustment to the
valuation of certain purchase power agreement obligations assumed by Mirant
Americas Energy Marketing.

The following table and discussion summarizes the effects of the
restatement adjustments on the consolidated balance sheet as of December 31,
2001, which includes the prior period adjustment to the purchase accounting for
PEPCO (in millions).

F-14

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-15

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the statement of cash flows for the year ended
December 31, 2001 as previously reported and restated (in millions).

4. ACQUISITION OF PEPCO ASSETS

On December 19, 2000, the Company and its affiliates, together with
third-party lessors in a leveraged lease transaction, purchased PEPCO's
generating facilities in Maryland and Virginia, consisting of four electric
generating stations, Morgantown, Chalk Point, Dickerson and Potomac River, with
a combined generating capacity of 5,256 MW. The Company and its affiliates paid
an aggregate of $1.255 billion in cash and transaction expenses for the
generating facilities and related assets, except for the baseload facilities at
Morgantown and Dickerson, which were purchased by the third-party lessors for
$1.5 billion in

F-16

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cash. The Company simultaneously entered into agreements with the lessors to
lease the Morgantown (1,244 MW) and Dickerson (546 MW) baseload facilities for
terms of 33.75 years and 28.5 years, respectively (see Note 10). These leases
have been accounted for as operating leases.

Mirant Potomac River and Mirant Peaker, other subsidiaries of Mirant,
purchased the 482 MW Potomac River facility and the 438 MW Chalk Point peaking
facility for $370 million. The Company advanced Mirant Potomac River and Mirant
Peaker an aggregate of $223 million to finance their acquisition of these
facilities, and entered into a contribution agreement with Mirant in connection
with the advances (see Note 5). The remaining $147 million was funded by Mirant
and treated as a capital contribution to Mirant Potomac River and Mirant Peaker.
Mirant Peaker also assumed the obligations related to a lease for the 84 MW
combustion turbine owned by SMECO at the Chalk Point facility. This lease has
been accounted for as a capital lease by Mirant Peaker.

The Company acquired the baseload and cycling units at the Chalk Point
facility (1,907 MW), the peaking units at the Morgantown facility (248 MW), and
the peaking units at the Dickerson facility (307 MW). In addition to these
generating facilities, the Company acquired three coal ash storage facilities, a
51.5 mile oil pipeline serving the Chalk Point and Morgantown facilities, an
engineering and maintenance service facility, and other related assets.

As part of the acquisition, Mirant Americas Energy Marketing, L.P. ("Mirant
Americas Energy Marketing") entered into two transition power agreements
("TPAs") to provide power to PEPCO, and assumed PEPCO's obligations under
existing power purchase agreements ("PPAs") with third parties, representing
obligations with an estimated fair value of approximately $1.7 billion and $0.7
billion, respectively, at the date of the acquisition.

As part of the acquisition, Mirant Services also assumed obligations for
pension benefits, other post employment benefits and vacation accruals
associated with the 950 former PEPCO personnel that became employees of Mirant
Services, aggregating $107 million at the date of the acquisition.

The acquisition was accounted for under the purchase method of accounting.
The acquisition was recorded by the Company and its affiliates as follows (in
millions):

The impact of the liabilities assumed by Mirant Americas Energy Marketing,
the liabilities assumed by Mirant Services, and the deferred tax assets
resulting from the acquisition which were recorded at other Mirant affiliates,
have been recorded as adjustments to member's equity. The goodwill recorded in
the acquisition has been allocated entirely to the Company since it owns or
leases substantially all of the

F-17

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

facilities, and because it benefits from the capital contribution agreement with
Mirant regarding Mirant Peaker and Mirant Potomac River (see Note 5).

5. RELATED PARTY ARRANGEMENTS AND TRANSACTIONS

POWER SALES AGREEMENT WITH MIRANT AMERICAS ENERGY MARKETING

From August 1, 2001 to December 31, 2002, the Company supplied all of the
capacity and energy of its facilities to Mirant Americas Energy Marketing under
the terms of the Energy and Capacity Sales Agreement ("ECSA"). For the period
from August 1, 2001 to December 31, 2001, Mirant Americas Energy Marketing
contracted to purchase 100% of the output of the Company's facilities. For 2002
and 2003, Mirant Americas Energy Marketing exercised its option to purchase 100%
of the output of the Company's facilities. For the period from January 1, 2004
to June 30, 2004 extendable to through December 31, 2004, Mirant Americas Energy
Marketing had the option to purchase up to 100% (in increments of 25%) of the
output of the Company's facilities, with no minimum commitment. Mirant Americas
Energy Marketing is a party to transition power agreements with PEPCO under
which PEPCO has an option to purchase energy with respect to PEPCO's load
requirements at fixed rates.

In November 2002, Mirant Americas Energy Marketing exercised its option to
purchase 100% of the output of the Company's facilities. The Company
subsequently agreed to terminate the ECSA effective May 1, 2003 and sell all of
its capacity and energy to Mirant Americas Energy Marketing under a new power
sales, fuel supply and services agreement (the "Power and Fuel Agreement") at
market prices.

Prior to entering into the ECSA effective August 1, 2001, the Company sold
its power to Mirant Americas Energy Marketing pursuant to a master sales
agreement. Under this agreement, the price the Company received was based on the
market price for energy in the PJM market at the time the energy was delivered.
The Company also sold power to Mirant Americas Energy Marketing under short-term
fixed price contracts. The short-term fixed price contracts were terminated in
connection with the ECSA.

The Company's affiliated companies, Mirant Potomac River and Mirant Peaker,
also entered into fixed rate power purchase agreements with Mirant Americas
Energy Marketing in August 2001 on the same terms and effective over the same
period as the agreement outlined above. Mirant Potomac River and Mirant Peaker
also subsequently terminated these agreements effective May 1, 2003. These
affiliates have also entered into new power sales, fuel supply and services
agreements on the same terms and for the same period as the Company's Power and
Fuel Agreement with Mirant Americas Energy Marketing. Through the capital
contribution agreement between the Company and Mirant, excess cash available
from the operations of these affiliated companies is paid as a dividend to
Mirant, which in turn makes a capital contribution to the Company for the same
amount.

At the inception date of the ECSA, the pricing under the ECSA was favorable
to the Company and its affiliates when compared to estimated market rates in the
PJM for power to be delivered over the initial term of the agreement. The
estimated market rates were based on quoted market prices in the PJM, as
adjusted upwards by approximately 12% for what the Company believed, at the
time, to be temporary anomalies in the quoted market prices based on projected
demand growth and other factors expected to affect demand and supply in the PJM
market through 2002. The market had experienced unusual fluctuations in market
prices because of low prices for natural gas which is generally the fuel used to
set prices in the PJM. The Company did not believe that natural gas prices would
remain depressed through the end of 2002.

At inception of the ECSA, the aggregate value to the Company and its
affiliates attributable to the favorable pricing variance was approximately $167
million. The amount related specifically to the Company's owned or leased
facilities of $120 million was accounted for as both an addition to member's

F-18

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest and an offsetting capital contribution receivable pursuant to the ECSA
in its financial statements. At inception, the Company had assumed that in 2002
Mirant Americas Energy Marketing would elect to take the contracted minimum 75%
of the capacity and output of the Company's facilities and that in 2003 and 2004
Mirant Americas Energy Marketing would not elect to purchase output from the
Company's facilities, since the contract provided for no minimum commitment for
these years.

In January 2002, Mirant Americas Energy Marketing exercised its option to
increase its committed capacity to 100% of the total output of the Company's
facilities for 2002. Therefore, the Company recorded an additional equity
contribution of $53 million in the first quarter of 2002 to reflect the
favorable pricing terms related to the additional 25% capacity and energy that
Mirant Americas Energy Marketing committed to take in 2002. This adjustment
amount was based on estimated market rates in the PJM. This adjustment is also
reflected as both an addition to member's interest and an offsetting capital
contribution receivable pursuant to the ECSA.

In November 2002, Mirant Americas Energy Marketing exercised its option to
purchase 100% of the output of the Company's facilities for 2003. Accordingly,
an adjustment of $121 million to member's equity and an offsetting capital
contribution receivable pursuant to the ECSA was recorded in the fourth quarter
of 2002 to reflect the favorable pricing terms of this agreement. This
adjustment amount was also based on estimated market rates in the PJM as
adjusted upwards by approximately 9% for management's consideration of the value
available to a purchaser of the Company's capacity and energy, incremental to
the quoted spot market prices. This incremental value is comprised mainly of the
option available to Mirant Americas Energy Marketing to extend its commitment to
2004, the capabilities associated with load management and with power and fuel
trading and the value of fixed transmission rights.

The contractual amounts payable under the ECSA in excess of the amount of
revenue recognized due to the favorable pricing terms of the ECSA were $139
million and $33 million for the year ended December 31, 2002 and for the period
from August 1, 2001 to December 31, 2001, respectively. These amounts are
generally received in the month following the month the related revenue is
recognized and are recorded as a reduction in the capital contribution
receivable pursuant to the ECSA when received. During the year ended December
31, 2002 and for the period from August 1, 2001 to December 31, 2001, the
Company received $129 million and $29 million, respectively, under the ECSA that
was applied as a reduction to the capital contribution receivable pursuant to
the ECSA. The capital contribution receivable pursuant to the ECSA was $136
million at December 31, 2002, of which $15 million represents amounts received
subsequent to December 31, 2002 related to the revenue recognized prior to that
date and $121 million relates to the favorable pricing variance for 2003.

The favorable pricing variance accounted for as a capital contribution
receivable was not adjusted for subsequent changes in energy prices. As a
result, amounts recognized as revenue under the ECSA did not necessarily reflect
market prices at the time the energy was delivered. Amounts recognized as
revenue for capacity and energy delivered under the ECSA exceeded the amounts
based on current market prices by approximately $179 million and $79 million for
the year ended December 31, 2002 and for the period from August 1, 2001 to
December 31, 2001, respectively.

Effective May 1, 2003, the Company agreed to terminate the ECSA and sell
all of its capacity and energy under the Power and Fuel Agreement to Mirant
Americas Energy Marketing at market prices. Under this agreement, Mirant
Americas Energy Marketing resells the Company's energy products in the PJM spot
and forward markets and to other third parties. The Company is paid the amount
received by Mirant Americas Energy Marketing for such capacity and energy.

F-19

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SERVICES AND ADMINISTRATION ARRANGEMENTS

The Company and its subsidiaries utilize the services of Mirant, Mirant
Services and Mirant Americas Energy Marketing. The significant arrangements with
these affiliated companies are described below. Management believes that the
amounts allocated or charged to the Company are reasonable and are substantially
similar to costs it would have incurred on a stand-alone basis. The following
table summarizes the amounts incurred under the arrangements that are recorded
in the accompanying consolidated statements of income as selling, general and
administrative expenses -- affiliates (in millions):

Management, Personnel and Services Agreement with Mirant Services

Mirant Services provides the Company with various management, personnel and
other services. The Company reimburses Mirant Services for amounts equal to
Mirant Services' direct costs of providing such services.

The total costs incurred under the Management, Personnel and Services
Agreement with Mirant Services have been included in the accompanying
consolidated statements of income for the years ended December 31, 2002, 2001
and 2000 as follows (in millions):

Services Agreements with Mirant Americas Energy Marketing

The Company, through its subsidiaries, is a party to separate services
agreements with Mirant Americas Energy Marketing. Mirant Americas Energy
Marketing is responsible for marketing and scheduling all of the capacity from
the Company's facilities. Mirant Americas Energy Marketing has no minimum
purchase requirements under these agreements, except for a commitment with the
Company under its ECSA which has been terminated effective May 1, 2003.

During the years ended December 31, 2002 and 2001, the Company incurred
approximately $6 million and $6 million, respectively, in costs under the power
sales, fuel supply and services agreements it has with Mirant Americas Energy
Marketing. These costs are included in selling, general and administrative
expenses -- affiliates in the accompanying consolidated statements of income.

Effective July 1, 2002, the Company and Mirant Americas Energy Marketing
amended the services and risk management agreement with Mirant Americas Energy
Marketing with regard to the provision of the residual fuel oil requirements at
the Company's Chalk Point facility. The revised agreement is an all-
requirements contract with pricing based on the daily Platts New York Harbor
mean index for residual

F-20

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fuel oil plus a delivery charge. Pursuant to the revised agreement, Mirant
Americas Energy Marketing will also manage the fuel oil storage associated with
these facilities. In connection with this agreement, the Company sold fuel oil
inventory at its book value of approximately $15 million to Mirant Americas
Energy Marketing.

The services and risk management agreements will be terminated as of May 1,
2003 and Mirant Americas Energy Marketing will provide these services pursuant
to the Power and Fuel Agreement.

Administration Arrangements with Mirant Services

Beginning in May 2002, Mirant Services implemented a fixed administration
charge to various subsidiaries of Mirant, including the Company, which serves to
reimburse Mirant Services for various indirect administrative services performed
on the subsidiaries' behalf, including information technology services,
regulatory support, consulting, legal and accounting and financial services. The
fixed charge was approximately $1.4 million per month over the initial term of
the agreement. Through the eight months ended December 31, 2002, the Company
incurred approximately $11 million in costs under this arrangement, which are
included in selling, general and administrative expenses -- affiliates in the
accompanying consolidated statements of income. The agreement was automatically
extended through December 31, 2003 and the fixed charge was increased to $1.6
million per month. Prior to May 2002, similar administrative services were
charged by Mirant Services and Mirant Mid-Atlantic Services to the Company based
on incremental costs directly attributable to the Company as part of the
management, personnel and services agreement described above.

RESTRUCTURING CHARGES

In 2002 Mirant adopted a restructuring plan in response to constrained
access to capital markets that resulted from Moody's December 2001 downgrade of
Mirant's credit rating, the Enron bankruptcy, and other changes in market
conditions. This plan was designed to restructure operations by exiting certain
business operations, canceling and suspending planned power plant developments,
closing business development offices and severing employees. During the year
ended December 31, 2002, the Company recorded restructuring charges of $5
million for severance costs and other charges, which are included in other
operating expenses -- affiliates in the accompanying consolidated statements of
income. The severance costs and other employee termination-related charges
associated with the restructuring at Mirant Mid-Atlantic locations were paid by
Mirant Services and billed to Mirant Mid-Atlantic.

NOTES RECEIVABLE FROM AND NOTES PAYABLE TO AFFILIATES

Mirant Peaker and Mirant Potomac River borrowed funds in December 2000 from
the Company in order to finance their respective acquisitions of generation
facilities. At December 31, 2002 and 2001, unsecured noncurrent notes receivable
from these two affiliates consisted of the following (in millions):

Principal is due on maturity with interest due semiannually, in arrears, on
June 30 and December 30. Any amount not paid when due bears interest thereafter
at 12% per annum. Mirant Potomac River and Mirant Peaker may prepay up to $5
million and $3 million per year, respectively. Interest earned by the Company
from Mirant Potomac River and Mirant Peaker was $23 million for each of the
years ended December 31, 2002 and 2001 and $1 million for the period from July
12, 2000 (inception) through December 31, 2000.

F-21

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the capital contribution agreement with Mirant (see below), the owner
lessors, the holders of the lessor notes, and the indenture trustee of the
Company's lease arrangements have the ability to enforce the payment terms of
the notes receivable.

During 2001, the Company entered into a separate cash management agreement
with Mirant, whereby any excess cash was transferred to Mirant pursuant to a
note agreement which was payable upon demand with interest payable monthly.
These advances, which at December 31, 2001 totaled approximately $29 million,
are reflected in current notes receivable from affiliates in the accompanying
consolidated balance sheet. During the fourth quarter of 2002, this cash
management agreement was terminated and all outstanding advances were repaid.

Included in current notes payable to affiliates at December 31, 2001 are
approximately $130 million in advances from Mirant Americas Generation. These
advances were due on demand, accrued interest at 9.5% with interest due monthly,
and were unsecured. During 2002, Mirant Americas Generation made noncash capital
contributions to the Company of the $130 million of notes payable.

CAPITAL CONTRIBUTION AGREEMENT WITH MIRANT

The purchases of the Potomac River generating facility and the Chalk Point
combustion turbines by Mirant Potomac River and Mirant Peaker, respectively,
which are both wholly owned subsidiaries of Mirant, were funded by a capital
contribution from Mirant and loans from the Company as evidenced by notes. Under
a capital contribution agreement, Mirant Potomac River and Mirant Peaker make
distributions to Mirant at least once per quarter, if funds are available.
Distributions are equal to all cash available after taking into account
projected cash requirements, including mandatory debt service, prepayments
permitted under the Mirant Potomac River and the Mirant Peaker notes, and
maintenance reserves, as reasonably determined by Mirant. Mirant will contribute
or cause these amounts to be contributed to the Company. For the years ended
December 31, 2002 and 2001, total capital contributions received by the Company
under this agreement totaled $39 million and $25 million, respectively.

If, as a result of its inability to restructure a substantial portion of
its indebtedness or otherwise, Mirant seeks bankruptcy court or other protection
from its creditors, then Mirant's ability to make such contributions or cause
such contributions to be made could be adversely affected.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at December 31,
2002 and 2001 (in millions):

F-22

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation of the recorded cost of depreciable property, plant and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets ranging from 5 to 42 years. The Company received emission
allowances in the acquisition of the PEPCO assets for both sulfur dioxide
("SO(2)") and nitrogen oxide ("NOx") emissions and the right to future
allowances. These allowances are related to owned facilities, included under
production assets above and depreciated over the average life of the related
assets, ranging from 8 to 40 years.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

Following is a summary of the changes in goodwill for the years ended
December 31, 2002 and 2001, (in millions):

2001
Goodwill, beginning of year as restated................... $1,401
Purchase accounting adjustments........................... (127)
Amortization expense...................................... (32)
------
Goodwill, end of year as restated......................... $1,242
======
2002
Goodwill, beginning of year............................... $1,242
Adoption of SFAS No. 141.................................. 56
------
Goodwill, end of year..................................... $1,298
======

In connection with the adoption of SFAS No. 141 effective January 1, 2002,
Mirant Mid-Atlantic reclassified to goodwill a portion of its intangible assets
relating to trading rights acquired in business combinations. The
reclassification increased goodwill by $95 million, net of accumulated
amortization of $3 million. Since Mirant Mid-Atlantic is not a taxable entity in
most jurisdictions, most deferred income taxes related to book/tax differences
of the assets and liabilities of Mirant Mid-Atlantic are recorded by Mirant
Americas. A deferred tax liability was not recognized by Mirant Americas as part
of the purchase accounting for the non-deductible goodwill attributed to the
Company. A deferred tax liability was recognized for the book/tax basis
difference related to the trading rights attributed to the Company. The
reclassification of trading rights to goodwill in connection with the adoption
of SFAS No. 142 resulted in the reversal of the deferred tax liability
previously recorded by Mirant Americas attributable to the trading rights. The
reduction in the deferred tax liability at Mirant Americas resulted in a
corresponding reduction in the amount of goodwill attributed to Mirant
Mid-Atlantic.

Upon the adoption of SFAS No. 142, the Company discontinued amortization of
goodwill effective January 1, 2002. Net income for 2001 and 2000 has been
adjusted to exclude amortization related to goodwill and trading rights
recognized in business combinations (in millions, except per share data).

F-23

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the fourth quarter of 2002, the Company performed its annual goodwill
impairment evaluation as required by SFAS No. 142. No impairment charge to
goodwill was recorded as the fair value of the reporting unit exceeded the
carrying value.

INTANGIBLE ASSETS

Following is a summary of intangible assets as of December 31, 2002 and
2001 (in millions):

All of Mirant Mid-Atlantic's intangible assets are subject to amortization
and are being amortized on a straight-line basis over their estimated useful
lives, ranging from 23 to 40 years. Amortization expense for the years ended
December 31, 2002, 2001 and 2000 was approximately $6 million, $8 million and
less than $1 million, respectively. Assuming no future acquisitions,
dispositions or impairments of intangible assets, amortization expense is
estimated to be approximately $5 million for each of the following five years.

Development rights represent the right to expand capacity at certain
acquired generation facilities. The existing infrastructure, including storage
facilities, transmission interconnections, and fuel delivery systems, and
contractual rights acquired by the Company provide the opportunity to expand or
repower certain generation facilities. This ability to expand or repower is
estimated to be at significant cost savings compared to greenfield construction.

The Company received emission allowances related to leased facilities in
the acquisition of the PEPCO assets (Note 4) for both SO(2) and NOx emissions
and the right to future allowances.

8. DERIVATIVE FINANCIAL INSTRUMENTS

PRICE RISK MANAGEMENT ACTIVITIES

Through Mirant Americas Energy Marketing, Mirant Mid-Atlantic enters into
commodity forward physical transactions as well as derivative financial
instruments to manage market risk and exposure to market prices for electricity
and natural gas, oil and other fuels utilized by its generation assets. The
physical transactions include forward contracts for physical sales and purchases
of electricity and natural gas. The derivative financial instruments primarily
include forwards, futures, options and swaps, and may include instruments whose
underlying commodity is highly correlated to the electricity produced or to the
fuels utilized by the Company's generation facilities, although the underlying
fuel commodity itself is not a component fuel used to produce electricity.

Power sales agreements, such as the ECSA, and other contracts that are used
to mitigate exposure to commodity prices but which either do not meet the
definition of a derivative or are excluded under certain exceptions under SFAS
No. 133 are not included in derivative financial instruments in the accompanying
consolidated balance sheets.

F-24

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As discussed in Note 3, the Company subsequently determined that all
derivative financial instruments previously accounted for as cash flow hedges
under SFAS No. 133 do not qualify for cash flow hedge accounting. Accordingly,
all realized and unrealized gains or losses associated with these derivative
transactions have been recognized in earnings in the period incurred.

At December 31, 2002, our derivative financial instruments have terms
extending through 2007. The net notional amount, or net long (short) position,
of all our derivative financial instruments was approximately 3 million
equivalent megawatt-hours. The following table presents a summary of the units,
equivalent megawatt-hours and duration by commodity of our derivative financial
instruments as of December 31, 2002.

- ---------------

* Less than $1 million.

9. INCOME TAXES

Details of the income tax provision for the years ended December 31, 2002
and 2001 are as follows (in millions):

A reconciliation of the Company's federal statutory income tax rate to the
effective income tax rate for the years ended December 31, 2002, 2001, and 2000
is as follows:

F-25

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows (in
millions):

PRO-FORMA INCOME TAX DISCLOSURES

With the exception of the state tax liability reflected above, the Company
is not subject to a provision for income taxes. In connection with the transfer
of all its membership interests to Mirant Americas Generation, LLC, our
immediate parent, in October 2002, the Company became a single member limited
liability corporation for income tax purposes. As such, it is treated as though
it was a branch or division of Mirant Americas Generation's parent, Mirant
Americas, Inc., for income tax purposes, and not as a separate taxpayer. Mirant
Americas, Inc. is directly responsible for income taxes related to the Company's
operations. The following reflects a pro-forma disclosure of the income tax
provision which would occur if the Company were to be allocated income taxes
attributable to its operations. This disclosure is presented solely for 2002.

Pro forma income tax expense attributable to net income before tax would
consist of the following for the year ended December 31, 2002 (in millions):

Current provision:
Federal................................................... $ 92
State..................................................... 20
Deferred provision:
Federal................................................... 138
State..................................................... 30
----
TOTAL INCOME TAX PROVISION.................................. $280
====

The following table presents the pro-forma reconciliation of the Company's
federal statutory income tax rate to the effective income tax rate:

F-26

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the pro forma deferred tax assets and liabilities would be as
follows (in millions):

10. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Operating Leases

In conjunction with the purchase of the PEPCO assets, the Company has
leased the Morgantown and the Dickerson baseload units and associated property
for terms of 33.75 and 28.5 years respectively. The Company is accounting for
these leases as operating leases. Rent expenses associated with the Dickerson
and Morgantown operating leases totaled approximately $96 million for each of
the years ended December 31, 2002 and 2001 and are recorded as generation
facilities rent expense in the accompanying consolidated statements of income.
Because of the variability in the scheduled payment amounts over the lease term,
the Company records rental expense for those leases on a straight-line basis. As
of December 31, 2002 and 2001, the Company has paid approximately $205 million
and $131 million, respectively, of actual operating lease payments in accordance
with the lease agreements in excess of rent expense recognized, and has reported
these amounts as prepaid rent in the accompanying consolidated balance sheets.

As of December 31, 2002, the total notional minimum lease payments for the
remaining term of the leases was approximately $2.7 billion. The lease
agreements contain covenants that restrict the Company's ability to, among other
things, make dividend distributions, incur indebtedness, or sublease the
facilities. Mirant Mid-Atlantic is not permitted to make any dividend
distributions unless, at the time of such distribution, each of the following
conditions is satisfied:

- Mirant Mid-Atlantic's fixed charge coverage ratio for the most recently
ended four full fiscal quarters equals at least:

(1) 1.7 to 1.0; or

(2) 1.6 to 1.0, 1.45 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

F-27

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- the projected fixed charge coverage ratio (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 to 1.0; or

(2) 1.6 to 1.0, 1.45 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

- no significant lease default or event of default has occurred and is
continuing.

In accordance with the terms of the lease, Mirant Mid-Atlantic calculates
the projected fixed charge coverage ratio based on projections prepared in good
faith based upon assumptions consistent in all material respects with the
relevant contracts and agreements, historical operations, and Mirant Mid-
Atlantic's good faith projections of future revenues and projections of
operating and maintenance expenses in 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.

These leases are part of a leveraged lease transaction. Three series of
certificates were issued and sold pursuant to a Rule 144A offering. These
certificates are interests in pass through trusts that hold the lessor notes
issued by the owner lessors. The Company pays rent to an indenture trustee, who
in turn makes payments of principal and interest to the pass through trusts and
any remaining balance to the owner lessors for the benefit of the owner
participants. According to the registration rights agreement dated December 18,
2000, the Company must maintain its status as a reporting company under the
Exchange Act.

The Company has an option to renew the lease for a period that would cover
up to 75% of the economic useful life of the facility, as measured near the end
of the lease term. However, the extended term of the lease will always be less
than 75% of the revised economic useful life of the facility.

Upon an event of default by the Company, the lessors are entitled to a
termination value payment as defined in the agreements, which, in general,
decreases over time. At December 31, 2002, the termination value was
approximately $1.5 billion. Upon expiration of the original lease term, the
termination value will be $300 million.

The Company has additional commitments under operating leases with various
terms and expiration dates. Expenses associated with these additional operating
leases totaled approximately $3 million for years ended December 31, 2002 and
2001 and less than $1 million for the period from July 12, 2000 to December 31,
2000. The aggregate minimum lease payments for the remaining life of these
leases as of December 31, 2002 was approximately $33 million.

Fuel Purchase Agreement

In April 2002, Mirant Mid-Atlantic entered into a long-term fuel purchase
agreement. The fuel supplier will convert coal feedstock received at the
Company's Morgantown facility into a synthetic fuel. Under the terms of the
agreement, Mirant Mid-Atlantic is required to purchase a minimum of 2.4 million
tons of fuel per annum through December 2007. Minimum purchase commitments
became effective upon the commencement of the synthetic fuel plant operation at
the Morgantown facility in July 2002. The purchase price of the fuel varies with
the delivered cost of the coal feedstock. Expenses associated with this
agreement totaled approximately $51 million for year ended December 31, 2002.
Based on current
F-28

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

coal prices, it is expected that as of December 31, 2002, total estimated
minimum commitments under this agreement were $509 million. In July 2002, the
Company sold its coal inventory at the Morgantown facility to the synthetic fuel
supplier for approximately $10 million, which approximated its book value.

Mirant Mid-Atlantic has the following annual amounts committed for fuel
purchase and transportation commitments and operating lease commitments (in
millions):

LITIGATION

ENVIRONMENTAL LIABILITIES

In January 2001, the Environmental Protection Agency ("EPA") requested
information from the Company concerning the air permitting and air emission
control implications under the EPA's new source review regulations promulgated
under the Clean Air Act of past repair and maintenance activities at its Chalk
Point, Dickerson, and Morgantown plants in Maryland related to operation of
those plants prior to their acquisition by the Company.

If violations are determined to have occurred at these plants, the previous
owner would be responsible for fines and penalties arising from such violations
occurring prior to their acquisition by the Company. If a violation is
determined to have occurred after Mirant Mid-Atlantic acquired the plants or, if
occurring prior to such acquisition, is determined to constitute a continuing
violation, the Company would be subject to fines and penalties by the state or
federal government for the period subsequent to its acquisition of the plants,
the costs of which could be material. In the event violations are determined to
have occurred, the Company may be responsible for the costs of acquiring and
installing emission control equipment, the costs of which may be material. Such
costs would generally be capitalized and amortized as a component of property,
plant and equipment.

ASBESTOS CASES

As a part of the PEPCO purchase, Mirant Mid-Atlantic agreed to indemnify
PEPCO for certain liabilities arising in lawsuits filed after December 19, 2000,
even if they relate to incidents occurring prior to that date, with certain
qualifications. Since the acquisition, PEPCO has notified Mirant Mid-Atlantic of
approximately 50 asbestos cases, distributed among three Maryland jurisdictions
(Prince George's County, Baltimore City and Baltimore County), as to which it
claims a right of indemnity. Based on information and relevant circumstances
known at this time, Mirant Mid-Atlantic does not believe these suits will have a
material adverse effect on its financial position, results of operations or cash
flows.

F-29

MIRANT MID-ATLANTIC, LLC AND SUBSIDIARIES
(WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER LEGAL MATTERS

The Company 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.

F-30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 29th day of
April, 2003.

MIRANT MID-ATLANTIC, LLC

By: /s/ RICHARD J. PERSHING
------------------------------------
Richard J. Pershing
Chief Executive Officer
(Principal Executive Officer)

MIRANT MID-ATLANTIC, LLC

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 29, 2003 by the following persons on
behalf of the registrant and in the capacities indicated.

CERTIFICATIONS

I, Richard J. Pershing, certify that:

1. I have reviewed this annual report on Form 10-K of Mirant Mid-Atlantic,
LLC;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ RICHARD J. PERSHING
------------------------------------
Richard J. Pershing
Chief Executive Officer
(Principal Executive Officer)

Date: April 29, 2003

I, J. William Holden III, certify that:

1. I have reviewed this annual report on Form 10-K of Mirant Mid-Atlantic,
LLC;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ J. WILLIAM HOLDEN III
------------------------------------
J. William Holden III
Sr. Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)

Date: April 29, 2003

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT

No annual report or proxy materials has been sent to securities holders and
no such report or proxy material is to be furnished to securities holders
subsequent to the filing of the annual report on this Form 10-K.