================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            -------------------------

                                   FORM 10-Q/A
                                 Amendment No. 1
              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      For the Quarter Ended March 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_____

                               MIRANT CORPORATION
             (Exact name of registrant as specified in its charter)

                 Delaware                                58-2056305
--------------------------------------------------------------------------------
     (State or other Jurisdiction of        (I.R.S. Employer Identification No.)
      Incorporation or Organization)

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

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

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

                                   ----------

     The number of shares outstanding of the Registrant's Common Stock, par
value $0.01 per share, at October 30, 2002 was 402,923,915.








                       Mirant Corporation and Subsidiaries

                                      INDEX

                  For the Quarterly Period Ended March 31, 2002




                                                                                                              Page
                                                                                                             Number
                                                                                                            
DEFINITIONS                                                                                                     2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION                                                      4
                         PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements, Restated (Unaudited):
         Condensed Consolidated Statements of Income                                                            5
         Condensed Consolidated Balance Sheets                                                                  6
         Condensed Consolidated Statement of Stockholders' Equity                                               8
         Condensed Consolidated Statements of Cash Flows                                                        9
         Notes to the Condensed Consolidated Financial Statements                                              10
         Independent Accountants' Review Report                                                                46
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition                  47
Item 3. Quantitative and Qualitative Disclosures about Market Risk                                             71

Item 4. Controls and Procedures                                                                                74

                           PART II - OTHER INFORMATION
Item 1. Legal Proceedings                                                                                      77
Item 2. Changes in Securities and Use of Proceeds                                                    Inapplicable
Item 3. Defaults Upon Senior Securities                                                              Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders                                          Inapplicable
Item 5. Other Information                                                                            Inapplicable
Item 6. Exhibits and Reports on Form 8-K                                                                       77
Signatures
Certifications



                                       i







     This Quarterly Report on Form 10-Q/A is being filed as Amendment No. 1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, filed on May 13, 2002, to correct accounting errors primarily related to
its risk management and marketing operations. The Company has restated its
December 31, 2001 balance sheet, reducing retained earnings for after tax
charges totaling approximately $51 million, and reducing both energy risk
management and marketing assets and liabilities by $820 million to eliminate
intracompany transactions. The Company has also restated its previously reported
financial statements as of and for the three months ended March 31, 2002 by:

o    reducing its originally  reported  assets and  liabilities by $225 million;
     and

o    changing its previously reported results of operations for the three
     months ended March 31, 2002 from an originally reported net loss of $42
     million to a net loss of $6 million; and

o    increasing reported cash provided from operations by $46 million, and
     increasing cash provided by investing activities by $11 million.

     Additional changes have also been made to reflect the corresponding changes
that result from the above restatement adjustments and to update the document to
the time of filing.

                                       1






                                  DEFINITIONS

TERM                                             MEANING
                                              
----                                             -------
APB                                              Accounting Principles Board
Bewag                                            Bewag AG
BP                                               BP p.l.c.
CAISO                                            California Independent System Operator
CEMIG                                            Companhia Energetica de Minas Gerais
Cleco                                            Cleco Midstream Resources, LLC
the Company                                      Mirant Corporation and its subsidiaries
CPUC                                             California Public Utilities Commission
DWR                                              California Department of Water Resources
EITF                                             Emerging Issues Task Force
Enron                                            Enron Corporation and its affiliates
EPA                                              U. S. Environmental Protection Agency
FASB                                             Financial Accounting Standards Board
FERC                                             Federal Energy Regulatory Commission
Fitch                                            Fitch, Inc.
GAAP                                             Generally accepted accounting principles
Hyder                                            Hyder Limited
JPSCo                                            Jamaica Public Service Company Limited
Kogan Creek                                      MAP Australia (BVI) Limited
LIBOR                                            London Interbank Offering Rate
Mirant Americas                                  Mirant Americas, Inc.
Mirant Americas Energy Marketing                 Mirant Americas Energy Marketing, L. P.
Mirant Americas Energy Capital                   Mirant Americas Energy Capital, LP
Mirant Americas Generation                       Mirant Americas Generation, LLC
Mirant Asia-Pacific                              Mirant Asia-Pacific Ventures, Inc.
Mirant Canada Energy Marketing                   Mirant Canada Energy Marketing, Ltd.
Mirant                                           Mirant Corporation and its subsidiaries
Mirant Delta                                     Mirant Delta, LLC
Mirant Mid-Atlantic                              Mirant Mid-Atlantic, LLC and its subsidiaries
Mirant New England                               Mirant New England, LLC
Mirant New York                                  Mirant New York, Inc., Mirant New York
                                                   Investments, Inc., and subsidiaries
Mirant Potrero                                   Mirant Potrero, LLC
Moody's                                          Moody's Investors Service
MW                                               Megawatts
NPC                                              National Power Corporation
OCI                                              Other comprehensive income
OTC                                              Over-the-counter
Pacific Gas and Electric                         Pacific Gas and Electric Co.
PEPCO                                            Potomac Electric Power Company
Perryville                                       Perryville Energy Partners, LLC
PX                                               California Power Exchange Corporation
RMR                                              Reliability-Must-Run
SCE                                              Southern California Edison
SEC                                              Securities and Exchange Commission
SFAS                                             Statement of Financial Accounting Standards
Shajiao C                                        Guangdong Guanghope Power Company
                                                    Limited
SIPD                                             Shandong International Power Development
                                                    Company Limited
Southern                                         Southern Company
S&P                                              Standard & Poor's
                                       2


State Line                                       State Line Energy, L.L.C.
Vastar                                           Vastar Resources Inc.
WPD                                              Western Power Distribution group headed by
                                                    WPD 1953 Limited

                                       3




           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     The information presented in this quarterly report on Form 10-Q includes
forward-looking statements, in addition to historical information. These
statements involve known and unknown risks and relate to future events, Mirant's
future financial performance or projected business results. In some cases,
forward-looking statements by terminology may be identified by statements such
as "may," "will," "should," "expects," "plans," "anticipates," "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:

o    legislative and regulatory initiatives regarding deregulation, regulation
     or restructuring of the electric utility industry;
o    the extent and timing of the entry of additional competition in the markets
     of our subsidiaries and affiliates;
o    our pursuit of potential business strategies, including acquisitions or
     dispositions of assets or internal restructuring;
o    political, legal and economic conditions and developments and state,
     federal and other rate regulations in the United States and in foreign
     countries in which our subsidiaries and affiliates operate;
o    changes in or application of environmental and other laws and regulations
     to which we and our subsidiaries and affiliates are subject;
o    financial market conditions and the results of our financing or refinancing
     efforts;
o    changes in market conditions, including developments in energy and
     commodity supply, volume and pricing and interest rates;
o    weather and other natural phenomena;
o    developments in the California power markets, including, but not limited
     to, governmental intervention, deterioration in the financial condition of
     our counterparties, default on receivables due and adverse results in
     current or future litigation;
o    the direct or indirect effects on our business, including the availability
     of insurance, resulting from the terrorist actions on September 11, 2001 or
     any other terrorist actions or responses to such actions, including, but
     not limited to, acts of war;
o    the direct or indirect effects on our business resulting from the financial
     difficulties of competitors of Mirant, including, but not limited to, their
     effects on liquidity in the trading and power industry, and their effects
     on the capital markets views of the energy or trading industry and our
     ability to access the capital markets on the same favorable terms as in the
     past;
o    the direct or indirect effects on our business of a further lowering of our
     credit rating (or actions we may take in response to changing credit
     ratings criteria), including, increased collateral requirements to execute
     our business plan, demands for increased collateral by our current
     counterparties, refusal by our current or potential counterparties to enter
     into transactions with us and our inability to obtain credit or capital in
     amounts or on terms favorable to us;
o    the disposition of the pending litigation described in our Form 10-K/A
     filed on March 11, 2002, our Form 8-K filed on June 27, 2002 and this Form
     10-Q;
o    the direct or indirect effects of the accounting issues discussed in Notes
     A and K in the notes to the unaudited condensed consolidated financial
     statements included in this Form 10-Q and the additional issues arising
     from the weaknesses identified by the internal control and procedures
     review discussed in Item 4 of this Form 10-Q;
o    the direct or indirect ramifications of the results of the reaudit of our
     2000 and 2001 financial statements and the restatements that will be
     required as a result of these reaudits including potential effects on our
     financing arrangements and refinancing efforts;
o    the direct or indirect effects of informal inquiries by the U.S. Securities
     & Exchange Commission and the U.S. Department of Justice and the
     Commodities Futures Trading Commission regarding, among other things, the
     accounting issues described in the Company's July 30 and August 14, 2002
     press releases and energy trading issues;
o    the direct or indirect effects on our business of our or our subsidiaries'
     failure to timely file our or their Form 10-Q for the quarter ended June
     30, 2002; and
o    other factors discussed in this Form 10-Q and in our reports filed from
     time to time with the SEC (including our Form 10-K filed on March 11, 2002,
     as amended by Form 10-K/A, filed on March 11, 2002.

     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 contained herein.


                                       4

                       MIRANT CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



                                                                        


                                                               For the Three Months
                                                                 Ended March 31,
                                                                2002           2001
                                                              (Note A)
                                                             (Restated)
                                                           ------------- --------------
                                                                (in millions, except
                                                                   per share data)

Operating Revenues                                              $ 6,908        $ 8,168
                                                           ------------- --------------

Operating Expenses:
Cost of fuel, electricity and other products                      6,298          7,381
                                                           ------------- --------------
Gross Margin                                                        610            787
                                                           ------------- --------------
Other Operating Expenses:
  Depreciation and amortization                                      77             85
  Maintenance                                                        32             27
  Selling, general and administrative                               148            296
  Impairment loss                                                     -              4
  Restructuring charge (Note G)                                     562              -
  Other                                                             107             99
                                                           ------------- --------------
Total other operating expenses                                      926            511
                                                           ------------- --------------
Operating (Loss) Income                                            (316)           276
                                                           ------------- --------------
Other Income (Expense), net:
  Interest income                                                    17             52
  Interest expense                                                 (119)          (143)
  Gain on sales of assets, net (Note G)                             291              -
  Equity in income of affiliates                                     78             79
  Receivables recovery (Note A)                                      29             10
  Other, net                                                         (5)            (3)
                                                           ------------- --------------
Total other income (expense), net                                   291             (5)
                                                           ------------- --------------
(Loss) Income From Continuing Operations
  Before Income Taxes and Minority Interest                         (25)           271
(Benefit) Provision for Income Taxes                                (33)            88
Minority Interest                                                    16             14
                                                           ------------- --------------
(Loss) Income From Continuing Operations                             (8)           169
                                                           ------------- --------------
Income from Discontinued Operations, net
  of tax provision of $2 and $1
  in 2002 and 2001, respectively                                      2             11
                                                           ------------- --------------
Net (Loss) Income                                                  $ (6)         $ 180
                                                           ============= ==============

(Loss) Earnings Per Share:
  Basic                                                         $ (0.01)        $ 0.53
  Diluted:                                                      $ (0.01)        $ 0.52



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

                                        5



                       MIRANT CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



                                                                                                  
                                                                              (Note A)         (Note A)
                                                                             (Restated)       (Restated)
                                                                             At March 31,    At December 31,
ASSETS:                                                                          2002             2001
                                                                           ---------------  ----------------
                                                                                     (in millions)
Current Assets:
Cash and cash equivalents                                                           $ 987             $ 860
Receivables:
  Customer accounts, less provision for uncollectibles
    of $153 and $159 for 2002 and 2001, respectively                                1,822             1,957
  Other, less provision for uncollectibles
    of $21 and $32 for 2002 and 2001, respectively                                    532               774
  Notes receivable                                                                     64                24
Energy marketing and risk management assets (Note F)                                  927               911
Derivative hedging instruments (Notes C and F)                                        186               253
Deferred income taxes                                                                 395               405
Inventories                                                                           349               363
Assets held for sale (Note I)                                                         191               193
Other                                                                                 295               380
                                                                           ---------------  ----------------
  Total current assets                                                              5,748             6,120
                                                                           ---------------  ----------------

Property, Plant and Equipment:
Property, plant and equipment                                                       4,505             4,356
Less accumulated provision for depreciation and depletion                            (367)             (333)
                                                                           ---------------  ----------------
                                                                                    4,138             4,023
Leasehold interests, net of accumulated amortization
  of $317 and $297 for 2002 and 2001, respectively                                  1,731             1,751
Construction work in progress                                                       1,976             1,921
                                                                           ---------------  ----------------
  Total property, plant and equipment, net                                          7,845             7,695
                                                                           ---------------  ----------------
Noncurrent Assets:
Investments (Note G)                                                                1,078             2,247
Notes and other receivables, less provision for uncollectibles
  of $99 and $116 for 2002 and 2001, respectively                                     351               287
Energy marketing and risk management assets (Note F)                                  610               508
Goodwill, net of accumulated amortization
  of $293 and $275 for 2002 and 2001, respectively (Notes A and B)                  3,428             3,195
Other intangible assets, net of accumulated amortization
  of $50 and $70 for 2002 and 2001, respectively (Notes A and B)                      605               865
Derivative hedging instruments (Notes C and F)                                        128                95
Deferred income taxes                                                                 352               423
Other                                                                                 223               252
                                                                           ---------------  ----------------
  Total noncurrent assets                                                           6,775             7,872
                                                                           ---------------  ----------------
  Total assets                                                                   $ 20,368          $ 21,687
                                                                           ===============  ================







     The accompanying notes are an integral part of these condensed consolidated
balance sheets.

                                        6


                       MIRANT CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



                                                                                            

                                                                               (Note A)         (Note A)
                                                                              (Restated)       (Restated)
                                                                             At March 31,    At December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY:                                            2002             2001
                                                                           ---------------  ----------------
Current Liabilities:                                                        (in millions, except share data)
Short-term debt                                                                      $ 53              $ 55
Current portion of long-term debt (Note E):
  Sual and Pagbilao project loans                                                   1,118             1,201
  Mirant Asia-Pacific                                                                  14               792
  Mirant Holdings Beteiligungsgesellschaft (Note G)                                     -               566
  Other                                                                                38                45
Accounts payable and accrued liabilities                                            2,404             2,586
Taxes accrued                                                                          60               152
Energy marketing and risk management liabilities (Note F)                             971               862
Obligations under energy delivery and purchase commitments  (Note H)                  597               635
Derivative hedging instruments (Notes C and F)                                        152               232
Accrued restructuring charges                                                         267                 -
Liabilities held for sale (Note I)                                                     25                25
Other                                                                                 171               151
                                                                            --------------  ----------------
  Total current liabilities                                                         5,870             7,302
                                                                            --------------  ----------------
Noncurrent Liabilities:
Notes payable (Note E)                                                              3,989             3,751
Other long-term debt (Note E)                                                       2,027             2,068
Energy marketing and risk management liabilities (Note F)                             593               633
Deferred income taxes                                                                  84                76
Obligations under energy delivery and purchase commitments (Note H)                 1,285             1,376
Derivative hedging instruments (Notes C and F)                                         48                47
Other                                                                                 392               354
                                                                            --------------  ----------------
  Total noncurrent liabilities                                                      8,418             8,305
                                                                            --------------  ----------------

Minority Interest in Subsidiary Companies                                             271               281
Company Obligated Mandatorily Redeemable Securities of a
  Subsidiary Holding Solely Parent Company Debentures                                 345               345

Commitments and Contingent Matters (Notes H and K)

Stockholders' Equity:
Common stock, $.01 par value, per share                                                 4                 4
  Authorized -- 2,000,000,000 shares
  Issued  -- March 31, 2002:  401,495,567 shares;
          -- December 31, 2001:   400,880,937 shares
  Treasury  -- March 31, 2002:  100,000 shares
            -- December 31, 2001:  100,000 shares
Additional paid-in capital                                                          4,892             4,886
Retained earnings                                                                     672               678
Accumulated other comprehensive loss                                                 (102)             (112)
Treasury stock, at cost                                                                (2)               (2)
                                                                            --------------  ----------------
  Total stockholders' equity                                                        5,464             5,454
                                                                            --------------  ----------------

  Total liabilities and stockholders' equity                                     $ 20,368          $ 21,687
                                                                            ==============  ================



     The accompanying notes are an integral part of these condensed consolidated
balance sheets.


                                        7



                       MIRANT CORPORATION AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)



                                                                                                       

                                                                                      Accumulated
                                                       Additional                        Other
                                           Common       Paid-In        Retained      Comprehensive     Treasury      Comprehensive
                                           Stock        Capital        Earnings         (Loss)          Stock       (Loss) Income
                                        ------------- ------------- ------------- ----------------- -------------- ---------------
                                                                            (in millions)
Balance, December 31, 2001, as
   previously reported                           $ 4       $ 4,886         $ 729           $ (119)          $ (2)
Restatement adjustments (Note A)                   -             -           (51)               7              -
                                        ------------- ------------- ------------- ----------------- --------------
Balance, December 31, 2001, as
   restated                                        4         4,886           678             (112)            (2)
   Net loss                                        -             -            (6)               -              -            $ (6)
   Other comprehensive income                      -             -             -               10              -              10
      (Note C)
                                                                                                                    --------------
   Comprehensive income                                                                                                      $ 4
                                                                                                                    ==============
   Issuance of common stock                        -             6             -                -              -
                                        ------------- ------------- ------------- ----------------- --------------
Balance, March 31, 2002, as restated             $ 4       $ 4,892         $ 672           $ (102)          $ (2)
                                        ============= ============= ============= ================= ==============






















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

                                        8





                       MIRANT CORPORATION AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


                                                                            


                                                                  For the Three Months
                                                                     Ended March 31,
                                                                    2002         2001
                                                                (Note A)
                                                               (Restated)
                                                              ------------- ------------
                                                                    (in millions)
Cash Flows from Operating Activities:
Net (loss) income                                                     $ (6)       $ 180
                                                              ------------- ------------
Adjustments to reconcile net (loss) income to net cash
  provided by (used in) operating activities:
  Equity in income of affiliates                                       (78)         (76)
  Dividends received from equity investments                             6           16
  Depreciation and amortization                                         86           92
  Obligations under energy delivery and purchase commitments          (129)         (32)
  Energy marketing and risk management activities, net                 (48)        (273)
  Restructuring charge                                                 560            -
  Deferred income taxes                                                 91           86
  Gain on sales of assets                                             (291)           -
  Minority interest                                                     10           14
  Other, net                                                            13           19
  Changes in certain assets and liabilities, excluding effects
    from acquisitions:
    Receivables, net                                                   324          778
    Other current assets                                                80           68
    Other assets                                                        (5)         (12)
    Accounts payable                                                  (205)      (1,028)
    Taxes accrued                                                      (96)         137
    Other current liabilities                                           19          (31)
    Other liabilities                                                  (10)         (49)
                                                              ------------- ------------
      Total adjustments                                                327         (291)
                                                              ------------- ------------
      Net cash provided by (used in) operating activities              321         (111)
                                                              ------------- ------------
Cash Flows from Investing Activities:
Capital expenditures                                                  (499)        (260)
Cash paid for acquisitions                                             (22)        (201)
Issuance of notes receivable                                          (102)         (62)
Repayments on notes receivable                                          40           52
Disposal of Southern Company affiliates and other companies              -          (77)
Proceeds from the sale of investments, net                           1,636            -
Other                                                                  (18)           -
                                                              ------------- ------------
      Net cash provided by (used in) investing activities            1,035         (548)
                                                              ------------- ------------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt                             1,082           75
Repayment of long-term debt                                         (2,358)        (220)
Proceeds from issuance of common stock                                   6            -
Capital contributions from minority interests                            3            -
Payment of dividends to minority interests                              (2)          (1)
Issuance (repayment) of short-term debt, net                            (4)         884
Change in debt service reserve fund                                     44           52
                                                              ------------- ------------
      Net cash (used in) provided by financing activities           (1,229)         790
                                                              ------------- ------------
Effect of Exchange Rate Changes on Cash and
  Cash Equivalents                                                       -           18
                                                              ------------- ------------
Net Increase in Cash and Cash Equivalents                              127          149
Cash and Cash Equivalents, beginning of period                         860        1,049
                                                              ------------- ------------
Cash and Cash Equivalents, end of period                             $ 987      $ 1,198
                                                              ============= ============
Supplemental Cash Flow Disclosures:
Cash paid for interest, net of amounts capitalized                    $ 87        $ 170
(Refunds received) cash paid for income taxes                         $(90)       $  48
Business Acquisitions:
Fair value of assets acquired                                         $ 22        $ 552
Less cash paid                                                          22          201
                                                              ------------- ------------
Liabilities assumed                                                   $  -        $ 351
                                                              ============= ============

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

                                       9







                       MIRANT CORPORATION AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.       Accounting and Reporting Policies

Adjustments to Previously Issued Financial Statements. The Company has
identified accounting errors in its previously issued financial statements,
primarily related to its risk management and marketing operations and has
restated its December 31, 2001 balance sheet, reducing retained earnings for
after tax charges totaling approximately $51 million. The principal reasons and
effects of the adjustments on the accompanying 2001 balance sheet from amounts
previously reported are summarized below (in millions):

                                                     Increase (Decrease)
                                                      December 31, 2001
                                                      Retained Earnings
                                                    -----------------------
 Receivables - Other  (a).........................        $  (117)
 Current deferred income tax assets (b)...........             47
 Non-current deferred income tax liabilities (c)..             25
 Other, net.......................................             (6)
                                                           ----------
                                                            $ (51)
                                                           ==========

     (a) reflects the correction of the overstatement of a natural gas asset and
the correction of accrued revenues at December 31, 2001.

     (b) reflects the income tax benefits related to the corrections discussed
in (a) above.

     (c) reflects the correction of $42 million of excess income tax provisions
recorded in Asia, offset by $17 million of additional income tax expenses
related to WPD.

     The Company has also reduced both energy marketing and risk management
assets and liabilities in the accompanying 2001 consolidated balance sheets by
$820 million to eliminate intracompany transactions. These adjustments do not
have any effect on the Company's consolidated results of operations or cash
flows.

     The Company has engaged its independent auditors to reaudit the Company's
2000 and 2001 financial statements to address these and other accounting errors
that have been identified, which are expected to result in a restatement of its
statement of income for either or both of 2000 and 2001 and potentially for
interim periods in 2001 and 2002. In addition, the Company would have been
required to have its independent auditors reaudit the Company's 2000 and 2001
financial statements as a result of the Company's adoption of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," and the change
in reporting energy trading activities required by EITF Issue 02-3, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities," both
of which require significant modifications to the Company's previously issued
financial statements.

     The specific interim periods within previous years to which $70 million of
the charges (described in (a) and (b) above) relate have not been determined at
this time; accordingly, their effect has not been reflected in the accompanying
2001 interim condensed consolidated statement of income. The interim periods to
which the $70 million relates will be determined in connection with the reaudit.
Rather than correct the 2001 results of operations and cash flows to reflect a
portion of these accounting errors, the Company has presented the comparative
2001 amounts as previously reported until the review of accounting issues is
resolved and the reaudit is completed. The Company expects to correct the
financial statements, as needed, for each reporting period in 2000 or 2001.
Until the reaudit is completed, the Company does not believe it is appropriate
to revise the historical results for the interim periods. There may be
significant changes in previously reported amounts of operating revenues,
operating income, equity in income of affiliates, provision for income taxes,
net income and operating cash flows.
                                       10


     The Company has also restated its previously reported financial statements
as of and for the three months ended March 31, 2002. The Company has restated
its financial position by reducing its originally reported assets and
liabilities by $225 million, as shown below. The Company has restated its
previously reported results of operations for the three months ended March 31,
2002 to a net loss of $6 million from an originally reported net loss of $42
million. The Company has restated its previously reported first quarter 2002
statement of cash flows, increasing originally reported cash provided from
operations by $46 million to reflect cash receipts and disbursements in the
appropriate periods, and increasing cash provided by investing activities
by $11 million. These corrections have been reflected in the accompanying 2002
unaudited condensed consolidated financial statements.

     A summary comparison of the previously reported and restated March 31, 2002
unaudited condensed consolidated balance sheet follows (in millions):



                                                 March 31, 2002, as      March 31, 2002,
                                                 Previously Reported       as Restated
                                                ----------------------- -------------------
                                                                         
     Total current assets......................     $   5,889              $  5,748
     Noncurrent assets.........................        14,704                14,620
                                                     --------               -------
         Total assets..........................     $  20,593              $ 20,368
                                                     ========               =======
     Total current liabilities.................     $   5,999              $  5,870
      Other liabilities........................         9,127                 9,034
     Stockholders' equity......................         5,467                 5,464
                                                     --------               -------
          Total liabilities and stockholders'
               equity..........................     $  20,593               $20,368
                                                     ========               =======


     A summary comparison of previously reported and restated first quarter 2002
unaudited condensed consolidated statement of income follows (in millions):



                                            Three Months Ended March
                                             31, 2002, as Previously    Three Months Ended March 31,
                                                   Reported                   2002, as Restated
                                                                                
                                         ----------------------------- ------------------------------
     Operating revenues..............                 $    7,037                   $  6,908
     Operating expenses..............                      6,465                      6,298
                                                      ----------                   --------
     Gross margin....................                        572                        610
     Other...........................                       (614)                      (616)
                                                      -----------                  ---------
     Net loss.........................                $      (42)                  $     (6)
                                                      ===========                  =========


Basis of Accounting. These unaudited condensed consolidated financial statements
should be read in conjunction with Mirant's audited 2000 and 2001 consolidated
financial statements and the accompanying footnotes which are contained in the
Company's annual report on Form 10-K, as amended on Form 10-K/A, for the year
ended December 31, 2001. As previously discussed, the Company has engaged its
independent auditors to reaudit its 2000 and 2001 financial statements.

     The results for interim periods are not necessarily indicative of the
results for the entire year. Specifically, Mirant has sold its investments in
Bewag and WPD, which contributed substantial earnings to the Company's
historical results of operations in the first and fourth fiscal quarters.
Certain prior-year amounts have been reclassified to conform with current-year
financial statement presentation.

     Management believes that the accompanying unaudited condensed consolidated
financial statements as of March 31, 2002 and for the three months then ended
reflect adjustments, consisting of normal recurring items, necessary for a fair
presentation of results for those interim periods presented.

Accounting Changes. In July 2001, the FASB issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These
pronouncements significantly change the accounting for business combinations,
goodwill and intangible assets. SFAS No. 141 establishes that all business
combinations will be accounted for using the purchase method; use of the
pooling-of-interests method is no longer allowed. The statement further
clarifies the criteria to recognize intangible assets separately from goodwill.
The provisions of SFAS No. 141 are effective for all business combinations
                                       11


initiated after June 30, 2001 and for business combinations accounted for using
the purchase method for which the acquisition date was before July 1, 2001. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets and, generally, adopts a non-amortization and periodic
impairment-analysis approach to goodwill and indefinitely-lived intangibles.
SFAS No. 142 is effective for the Company's 2002 fiscal year or for business
combinations initiated after June 30, 2001. Mirant adopted these statements on
January 1, 2002.

     Upon initial application of SFAS No. 141, Mirant reassessed the
classification of its intangible assets and determined that trading rights
resulting from business combinations did not meet the new criteria for
recognition apart from goodwill. Effective January 1, 2002, trading rights
related to business combinations were reclassified to goodwill as required by
the Statement. The reclassification increased goodwill by $194 million, net of
accumulated amortization of $18 million.

     As a result of the adoption of SFAS No. 142, Mirant discontinued
amortization of goodwill effective January 1, 2002. During the three months
ended March 31, 2002, Mirant completed the transitional impairment test required
by SFAS No. 142 and did not record any impairments of goodwill. Net income and
earnings per share (basic and diluted) for the three months ended March 31, 2001
have been adjusted below to exclude amortization related to goodwill and trading
rights recognized in business combinations (in millions, except per share data).



                                                                               Earnings Per Share
                                                                               ------------------
                                                          Net Income         Basic           Diluted
                                                          ----------         -----           -------
                                                                                       
    As reported.....................................        $ 180           $ 0.53            $ 0.52
    Effect of goodwill and trading rights amortization         19             0.06              0.05
                                                            ------           -----            ------
    As adjusted.....................................        $ 199           $ 0.59            $ 0.57
                                                            =====           ======            ======


     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  SFAS  No.  143  addresses  financial  accounting  and
reporting  obligations  associated  with the  retirement of tangible  long-lived
assets and the associated asset retirement costs. The provisions of SFAS No. 143
are effective for the Company's 2003 fiscal year.  Mirant has not yet determined
the financial statement impact of this statement.

     In October 2001,  the FASB issued SFAS No. 144, which  supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  of," and APB Opinion  No. 30,  "Reporting  the Results of
Operations - Reporting  the Effects of Disposal of a Segment of a Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 amends  accounting and reporting  standards for the disposal of segments
of a  business  and  addresses  various  issues  related to the  accounting  for
impairments  or disposals of long-lived  assets.  Mirant adopted SFAS No. 144 on
January 1, 2002.  Prior to SFAS No. 144, the disposition of State Line would not
have been classified as a discontinued operation.  Because SFAS No. 144 expanded
the breadth of transactions subject to discontinued  operations  classification,
the  disposition of State Line is now required to be presented as a discontinued
operation (Note I).

     In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." 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 activity. The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. Mirant will adopt SFAS No. 146 on January
1, 2003 and does not believe that it will have a material impact on its
financial statements.
                                       12


     In June 2002, the EITF reached consensus on certain issues related to EITF
Issue 02-3. The Task Force reached a consensus that gains and losses on energy
trading contracts (accounted for pursuant to SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, and EITF Issue
98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities,") should be reported net in the statements of income. Upon
application of the consensus, comparative financial statements for prior periods
are required to be reclassified. The reclassification will not impact Mirant's
gross margin or net income, but rather will reduce equally, operating revenues
and cost of fuel, electricity and other products line items in the consolidated
statements of income.

     In October 2002, the Task Force reached the following consensus related to
EITF Issue 02-3:

o    EITF Issue 98-10 was rescinded. Accordingly, energy-related contracts that
     are not accounted for pursuant to SFAS No. 133, such as transportation
     contracts, storage contracts and tolling agreements, should be accounted
     for as executory contracts using the accrual method of accounting and not
     at fair value. Energy-related contracts that do meet the definition of a
     derivative pursuant to SFAS No. 133, should continue to be carried at fair
     value. Additionally, the Task Force observed that accounting for
     energy-related inventory at fair value by analogy to the consensus in EITF
     Issue 98-10 was no longer appropriate and that such inventory should be
     carried at the lower of cost or market in accordance with Accounting
     Research Bulletin ("ARB") No. 43, "Restatement and Revision of Accounting
     Research Bulletins," and not at fair value.

o    The  consensus  reached is required to be applied  prospectively  to energy
     trading  contracts entered into after October 25, 2002.  Additionally,  the
     consensus  should be  applied to all energy  trading  contracts  and energy
     related  inventory  that  existed on October 25, 2002 in periods  beginning
     after December 15, 2002.  Changes to the accounting for existing  contracts
     as a result of the  rescission  of EITF Issue 98-10 should be reported as a
     cumulative  effect of a change in accounting  principle in accordance  with
     APB 20. Changes in accounting for  energy-related  inventory should also be
     reported as a  cumulative  effect of a change in  accounting  principle  in
     accordance  with  APB  Opinion  No.  20,   "Accounting   Changes,"   unless
     information to calculate the impact of the change is not available. In that
     case, the carrying value of the  energy-related  inventory becomes the cost
     basis of the inventory at the effective date.

o    The Task Force also reached a consensus that its previous conclusion on
     reporting gains and losses on derivatives in the statements of income
     should be expanded to include all trading activities. That is, gains and
     losses on any derivative contracts within the scope of SFAS No. 133 that
     are held for trading purposes should be reported net in the statements of
     income. The original consensus on net reporting of gains and losses on
     energy trading contracts is required for financial statements for periods
     ending after July 15, 2002.

o    The Task Force agreed to rescind its previous consensus on EITF Issue 02-3
     that required additional disclosures for energy trading contracts and
     activities and asked the FASB to reconsider the disclosures required by
     SFAS No. 133.

      Mirant estimates that the implementation of the EITF consensus in respect
of netting all revenues and expenses on energy trading activities, would have
reduced revenues and cost of fuel, electricity and other products by
approximately $5 billion for the three months ended March 31, 2002 and
approximately $7 billion for the three months ended March 31, 2001.

     The Company has not yet determined the impact of ceasing use of the fair
value (or mark-to-market) method of accounting for non-derivative energy trading
contracts and energy-related inventory held for trading purposes. The Company
currently has certain storage and transportation agreements accounted for under
                                       13


the mark-to-market method of accounting under EITF 98-10, for which such
accounting will cease upon adoption of EITF 02-3. The Company does not have
long-term tolling agreements accounted for under the mark-to-market method of
accounting under EITF 98-10.

Concentration of Revenues and Credit Risk. For the three months ended March 31,
2002, revenues earned from a single customer did not exceed 10% of Mirant's
total operating revenues. As of March 31, 2002, no amounts owed from a single
customer represented more than 10% of Mirant's total credit exposure. The
Company's total credit exposure is computed as total accounts and notes
receivable, adjusted for energy marketing and risk management and derivative
hedging activities and netted against offsetting payables and posted collateral,
as appropriate. For the three months ended March 31, 2001, revenues earned from
Enron through energy marketing and risk management operations approximated 14%
of Mirant's total operating revenues.

Receivables Recovery. During the three months ended March 31, 2002, Mirant
received $29 million as final payment related to receivables that were assumed
in conjunction with the Mirant Asia-Pacific Limited business acquisition. During
the three months ended March 31, 2001, Mirant received $10 million related to
these receivables. At the time of the Mirant Asia-Pacific Limited business
acquisition, Mirant did not place value on the receivables due to the uncertain
credit standing of the party with whom the receivables were secured.

Capitalization of Interest Cost. Mirant capitalizes interest on projects during
the advanced stages of development and the construction period, in accordance
with SFAS No. 34, "Capitalization of Interest Cost," as amended by SFAS No. 58,
"Capitalization of Interest Cost in Financial Statements That Include
Investments Accounted for by the Equity Method." The Company determines which
debt instruments represent a reasonable measure of the cost of financing
construction assets in terms of interest cost incurred that otherwise could have
been avoided. These debt instruments and associated interest cost are included
in the calculation of the weighted average interest rate used for determining
the capitalization rate. Upon commencement of commercial operations of the plant
or project, capitalized interest, as a component of the total cost of the plant,
is amortized over the estimated useful life of the plant or the life of the
cooperation period of the various energy conversion agreements ("ECAs"). For the
three months ended March 31, 2002 and 2001, the Company incurred $157 million
and $150 million, respectively, in interest costs, of which $38 million and $7
million, respectively, were capitalized and included in construction work in
process. The remaining interest was expensed during the period.

     As part of Mirant's restructuring plan announced in March of 2002, Mirant
suspended construction on several projects and no longer capitalizes interest on
these projects.

B.       Goodwill and Other Intangible Assets

     During the three months ended March 31, 2002, no goodwill was acquired,
impaired or written off. Management currently believes there is no impairment of
goodwill; however, Mirant's announced asset sale program and the overall
conditions impacting the energy sector may materially impact the book value of
goodwill in future periods. As of March 31, 2002, the North America Group's
goodwill was $1.99 billion and the International Group's goodwill was $1.44
billion.

     Substantially all of Mirant's other intangible assets are subject to
amortization. Other intangible assets are being amortized on a straight-line
basis over the related useful lives, up to 40 years. Effective January 1, 2002,
trading rights related to business combinations were reclassified to goodwill.
The reclassification decreased other intangible assets by $227 million, net of
accumulated amortization of $18 million. These provisions of SFAS No. 141 do not
apply to asset acquisitions, therefore trading rights resulting from asset
acquisitions continue to be recognized apart from goodwill. During the three
months ended March 31, 2002, Mirant transferred $36 million, net of accumulated
                                       14


amortization of $4 million, in development rights to construction work in
process. Intangible asset amortization expense for the three months ended March
31, 2002 was approximately $7 million. The components of other intangible assets
as of March 31, 2002 and December 31, 2001 were as follows (in millions):



                                                  March 31, 2002                 December 31, 2001, as restated
                                          --------------------------------    -------------------------------------
                                           Gross Carrying    Accumulated       Gross Carrying      Accumulated
                                               Amount       Amortization           Amount          Amortization
                                                                                            
                                          ----------------- --------------    ----------------- -------------------
    Trading rights....................          $    207    $  (29)                 $    453          $ (45)
    Development rights...............                252        (7)                      292             (9)
    Emissions allowances.............                131        (5)                      131             (4)
    Other intangibles................                 65        (9)                       59            (12)
                                                ----------  --------               ---------          ------
     Total other intangible assets...           $    655    $  (50)                 $    935          $ (70)
                                                =========   ========                ========          ======


     Assuming no future acquisitions, dispositions or impairments of intangible
assets, amortization expense is estimated to be $25 million for the year ended
December 31, 2002 and for each of the following four years.

C.   Comprehensive Income (Loss)

     Comprehensive income (loss) includes unrealized gains and losses on certain
derivatives that qualify as cash flow hedges and hedges of net investments, as
well as the translation effects of foreign net investments. The effect of other
comprehensive income (loss) is set forth in the accompanying unaudited condensed
consolidated statements of stockholders' equity.

Components of accumulated other comprehensive loss consisted of the following
(in millions):

Balance, December 31, 2001, as restated.........................       $ (112)

Other comprehensive income for the period:
  Net change in fair value of derivative hedging instruments,  net
    of tax effect of $33........................................           49
  Reclassification to earnings, net of tax effect of $22 (Note F)         (32)
  Cumulative translation adjustment ............................           (2)
  Share of affiliates' OCI......................................           (5)
                                                                        -------
Other comprehensive income......................................           10
                                                                        -------
Balance, March 31, 2002, as restated...........................         $(102)
                                                                        =======

     The $102 million balance of accumulated other comprehensive loss at March
31, 2002 includes the impact of $93 million related to interest rate hedges and
interest rate swap breakage costs and $116 million of foreign currency
translation losses, offset by $107 million of gains on commodity price
management hedges.

     Mirant estimates that $27 million ($52 million of commodity hedge gains and
$25 million of interest related losses) of net derivative after-tax gains
included in OCI as of March 31, 2002 will be reclassified into earnings or
otherwise settled within the next twelve months as certain transactions relating
to commodity contracts, foreign denominated contracts and interest payments are
realized.

D.   Earnings (Loss) Per Share

     Mirant calculates basic earnings (loss) per share by dividing the income
(loss) available to common stockholders by the weighted average number of common
shares outstanding. The following table shows the computation of basic earnings
(loss) per share for the three months ended March 31, 2002 and 2001 (in
millions, except per share data). Diluted earnings (loss) per share gives effect
to stock options, as well as the assumed conversion of convertible trust
preferred securities and related after-tax interest expense addback to net
income of approximately $4 million for both the three months ended March 31,
2002 and 2001,

                                       15



respectively. Because of the loss during the quarter ended March 31, 2002, the
anti-dilution provisions of SFAS No. 128, "Earnings per Share," preclude stating
diluted loss per share above basic loss per share.

                                                          Three Months Ended
                                                               March 31,
                                                          Restated
                                                             2002        2001
                                                          --------       -----
(Loss) income from continuing operations...........           $(8)       $169
Discontinued operations............................             2          11
                                                          --------       -----
Net (loss) income                                             $(6)       $180
                                                          ========       =====
Basic
-----
Weighted average shares outstanding ...............         401.1       338.7
     (Loss) earnings per share from:
       Continuing operations.......................         $(0.02)      $0.50
       Discontinued operations.....................           0.01        0.03
                                                           --------     -------
       Net (loss) income...........................         $(0.01)      $0.53
                                                           ========     =======
Diluted
-------
Weighted average shares outstanding ..............                      338.7
Shares due to assumed exercise of stock
  options and equivalents .........................                       2.9
Shares due to assumed conversion of trust
  preferred securities............................                       12.5
                                                                        ------
Adjusted shares...................................                      354.1
                                                                        ======
      (Loss) earnings per share from:
       Continuing operations........                        $(0.02)     $0.49
       Discontinued operations......                          0.01       0.03
                                                           --------    -------
       Net (loss) income                                    $(0.01)     $0.52
                                                           ========    =======

E.   Debt

    At March 31, 2002, Mirant and its subsidiaries had revolving credit
facilities with various lending institutions totaling approximately $3.19
billion of commitments. At March 31, 2002, commitment amounts utilized under
such facilities (including drawn amounts and letters of credit) totaled $2.15
billion and were comprised of the following: commitments of $23 million drawn
under the facility expiring in 2002, commitments of $975 million drawn or
utilized under facilities expiring in 2003 (which included amounts outstanding
under Mirant Corporation's 364-Day Credit Facility with an initial termination
date of July 2002) and commitments of $1.15 billion drawn or utilized under the
facilities expiring in 2004 and beyond. Under its $1.125 billion 364-Day Credit
Facility, Mirant Corporation elected in July 2002 to convert all revolving
credit advances outstanding into a term loan maturing not later than the first
anniversary of the termination date. Except for the credit facility of Mirant
Canada Energy Marketing, an indirect wholly owned subsidiary of Mirant
Corporation, borrowings under these facilities are recorded as long-term debt in
the accompanying unaudited condensed consolidated balance sheets. The credit
facilities generally require payment of commitment fees based on the unused
portion of the commitments. The schedule below summarizes the revolving credit
facilities held by Mirant Corporation and its subsidiaries as of March 31, 2002
(in millions).


                                                                Drawn Amount
                                                 Facility     including Letters   Amount
 Company                                          Amount         of Credit        Available
                                                 ------------ ------------------- -------------
                                                                               
 Mirant Corporation *.......................        $2,700       $1,904                $796
 Mirant Americas Generation.................           300           73                 227
 Mirant Canada Energy Marketing.............            44           23                  21
 Mirant Americas Energy Capital.............           150          150                   -
                                                 ------------ ------------------- -------------
   Total....................................        $3,194       $2,150              $1,044
                                                 ============ =================== =============

*    The $1,904 million drawn amount  includes $929 million of letters of credit
     outstanding.

                                       16




     Each of Mirant's credit facilities contain various covenants including,
among other things, (i) limitations on (a) dividends, redemptions and
repurchases of capital stock, (b) the incurrence of indebtedness and liens and
(c) limitations on the sale of assets, and (ii) affirmative covenants to (a)
provide annual audited and quarterly unaudited financial statements prepared in
accordance with US GAAP and (b) comply with legal requirements in the conduct of
its business. In addition to other covenants and terms, each of Mirant's credit
facilities includes minimum debt service coverage and a maximum leverage
covenant. As of March 31, 2002, there were no events of default under such
credit facilities.

      In connection with its review of the previously disclosed accounting
issues, the Company identified various errors affecting the Company's historical
financial statements. The Company believes that the errors it has identified do
not constitute a breach of a covenant or an event of default under its credit
facilities. If the Company were in default, or the type or amount of any
adjustments arising from the announced reaudit of the Company's historical
financial statements were to result in an event of default under its credit
facilities, the lenders would have the right to accelerate the Company's
obligations under its credit facilities. Any such acceleration would trigger
cross-acceleration provisions in a substantial portion of the Company's other
consolidated indebtedness. In such event, the Company would be required to seek
waivers or other relief from its lenders and, absent such relief, approximately
$4.5 billion of the Company's consolidated debt would be classified as
short-term debt and could be accelerated. Further, in the event that its lenders
accelerated such indebtedness, the Company can provide no assurances that it
would be able to refinance such indebtedness in the existing credit markets and
would likely have to seek bankruptcy court or other protection from its
creditors.

    Mirant Canada Energy Marketing has extended its credit facility to June 30,
2003. The revolving credit facility of approximately $44 million (denominated as
70 million Canadian dollars) had outstanding borrowings of $23 million, at an
interest rate of 4.75% at March 31, 2002. The credit facility is guaranteed by
Mirant Corporation and is secured by a letter of credit in the amount of $46
million and security interests in the real and personal property of Mirant
Canada Energy Marketing.

     In February 2002, Mirant, Mirant Americas Energy Marketing, Perryville and
the lenders under its credit facility entered into the following transactions:
(i) an indirect, wholly owned subsidiary of Mirant Corporation made a
subordinated loan of $48 million to Perryville, (ii) Mirant Corporation agreed
to guarantee the obligations of Mirant Americas Energy Marketing under the
tolling agreement, (iii) Perryville (with the consent of its lenders) and Mirant
Americas Energy Marketing lowered the ratings threshold in the tolling agreement
with respect to Mirant Corporation, relating to the ratings below which Mirant
Americas Energy Marketing agreed to post a letter of credit or other credit
support, and (iv) the parties agreed to certain additional terms in support of
the syndication of the credit facility. In June 2002, Mirant completed the sale
of its 50% ownership interest in Perryville to Cleco, which holds the remaining
50% ownership interest in Perryville. Cleco assumed Mirant's $13 million future
equity commitment to Perryville and paid approximately $55 million in cash to
Mirant as repayment of its subordinated loan, invested capital to date and other
miscellaneous costs. In connection with the existing project financing, Mirant
agreed to make a $25 million subordinated loan to the project. In addition,
Mirant retains certain obligations as a project sponsor, some of which are
subject to indemnification by Cleco. Effective August 23, 2002, Mirant Americas
Energy Marketing and Perryville, with the consent of the project lenders,
restructured the tolling agreement between the parties to remove the requirement
to post a letter of credit or other credit support in the event of a downgrade
from S&P or Moody's. In connection with the restructuring, Mirant Americas made
a $100 million subordinated loan to Perryville, the proceeds of which were used
to repay the existing $25 million subordinated loan owed to a Mirant subsidiary
and to repay $75 million of senior debt of the project. In addition, Mirant
Americas guaranteed the obligations of Mirant Americas Energy Marketing under
the tolling agreement up to the amount of the subordinated loan. The obligations
of Mirant Americas Energy Marketing under the tolling agreement continue to be
guaranteed by Mirant Corporation.
                                       17


     In March 2002, Mirant Americas Energy Capital transferred the borrowing
base assets under its credit facility to a special purpose vehicle and granted
security interests in such assets. The special purpose vehicle is consolidated
with Mirant.

    As part of its strategic restructuring, Mirant negotiated certain deferrals
under its equipment purchase facility. Because the term of the deferred
fabrication period for certain turbines exceeds the agreed fabrication period as
permitted within the equipment procurement facilities, the Company will not have
the option to enter into a lease arrangement for this equipment, thereby forcing
Mirant to exercise its purchase option. Consequently, Mirant has included a $35
million liability for these turbines in "Other long-term debt" on its unaudited
condensed consolidated balance sheet.

     In February 2002, Mirant completed the sale of its 44.8% indirect interest
in Bewag for approximately $1.63 billion. Mirant received approximately $1.06
billion in net proceeds after repayment of approximately $550 million in related
debt. The net proceeds were used for general corporate purposes, capital
expenditures and repayment of certain drawn balances on revolving credit
facilities.

     On January 23, 2002, Mirant Asia-Pacific, an indirect, wholly owned
subsidiary of Mirant Corporation, borrowed $192 million under a new credit
facility to repay, in part, its prior $792 million credit facility. The
repayment of the balance of the prior credit facility was funded by Mirant
Corporation. In March 2002, Mirant Asia-Pacific secured a second tranche of $62
million which has been used to repay part of the funding from Mirant
Corporation. The new credit facility contains various business and financial
covenants including, among other things, (i) limitations on dividends and
distributions, including a prohibition on dividends if Mirant ceases to be rated
investment grade by at least two of Fitch, S&P and Moody's, (ii) mandatory
prepayments upon the occurrence of certain events, including certain asset sales
and certain breaches of the Sual and the Pagbilao energy conversion agreements,
(iii) limitations on the ability to make investments and to sell assets, (iv)
limitations on transactions with affiliates of Mirant and (v) maintenance of
minimum debt service coverage ratios. As a result of the recent downgrades by
Fitch and S&P, Mirant Asia-Pacific is prohibited under the terms of its credit
facility from making distributions to Mirant Corporation.

     Each of the lenders under the Sual and Pagbilao facilities has executed
temporary waivers of default with respect to the obligations to provide specific
levels of insurance coverage which extend to the insurance renewal date of
November 1, 2002. Effective as of October 24 and 28, 2002 for the Sual and
Pagbilao facilities, respectively, each of the lenders has agreed to amend the
insurance provisions of the loan agreements. The amendments state that, in the
event Sual and Pagbilao do not obtain the levels of insurance specified in the
loan agreements, Sual and Pagbilao will not be held in breach of the agreements
provided they obtain all of the insurance coverage that is reasonably available
and commercially feasible in the insurance market for similarly situated
facilities, as certified by the lenders' insurance advisor. To avoid breaching
the agreements, the coverage obtained must further be in amounts above threshold
levels defined in the amendments. The Company believes that with these
amendments (and the levels of minimum thresholds defined in the amendments) it
will be able to obtain insurance coverage in the future that will allow it to
remain in continued compliance with the loan agreements. The insurance coverage
obtained for the November 1, 2002 renewal satisfies the amended terms of the
loan agreements.

F.   Financial Instruments

Energy Marketing and Risk Management Activities

     Mirant provides energy marketing and risk management services to its
customers in the North American markets. These services are provided through a
variety of exchange-traded and OTC energy and energy-related contracts, such as
forward contracts, futures contracts, option contracts and financial swap
agreements.
                                       18


     These contractual commitments are presented as energy marketing and risk
management assets and liabilities in the accompanying unaudited condensed
consolidated balance sheets and are accounted for using the mark-to-market
method of accounting in accordance with SFAS No. 133 and EITF No. 98-10.
Accordingly, they are reflected at fair value in the accompanying unaudited
condensed consolidated balance sheets. The net changes in their market values
are recognized in income in the period of change. Attention is drawn to
"Accounting Changes" in Note A -- Accounting and Reporting Policies where the
EITF reached consensus on certain issues related to EITF Issue 02-3 under EITF
Issues No. 98-10 and No. 00-17, "Measuring the Fair Value of Energy-Related
Contracts in Applying Issue No. 98-10." EITF Issues No. 98-10 and No. 00-17
address various aspects of the accounting for contracts involved in energy
trading and risk management activities (See Note A).

     The Company, through its energy marketing and risk management operations
engages in risk management activities with counterparties. All such transactions
and related expenses are recorded on a trade-date basis. Financial instruments
and contractual commitments related to these activities are accounted for using
the mark-to-market method of accounting. Under the mark-to-market method of
accounting, financial instruments and contractual commitments are recorded at
fair value in the accompanying unaudited condensed consolidated balance sheets.
The determination of fair value considers various factors, including closing
exchange or over-the-counter market price quotations, time value and volatility
factors underlying options and contractual commitments.

     During the first quarter of 2002, Mirant substantially exited its European
trading and marketing business. The volumetric weighted average maturity, or
weighted average tenor of the North American portfolio, at March 31, 2002 was
2.7 years. The net notional amount, or net open position, of the energy
marketing and risk management assets and liabilities at March 31, 2002 was
approximately 1 million equivalent megawatt-hours. The notional amount is
indicative only of the volume of activity and not of the amount exchanged by the
parties to the financial instruments. Consequently, these amounts are not a
measure of market risk.

    Certain financial instruments that Mirant uses to manage risk exposure to
energy prices for its North American generation portfolio do not meet the hedge
criteria under SFAS No. 133 and therefore, the fair values of these instruments
are included in energy marketing and risk management assets and liabilities in
the accompanying unaudited condensed consolidated balance sheets.

    The fair values and average values of Mirant's energy marketing and risk
management assets and liabilities as of March 31, 2002, net of credit reserves,
are included in the following table (in millions). The average values are based
on a monthly average for 2002.



                                            Energy Marketing and Risk    Energy Marketing and Risk
                                                Management Assets          Management Liabilities
                                          ----------------------------- ---------------------------
                                                            Value at                     Value at
                                             Average        March 31,       Average      March 31,
                                              Value           2002           Value         2002
                                                                                
                                          --------------- -------------- -------------- ------------
Energy commodity instruments:
Electricity............................        $566            $504           $481          $ 424
Natural gas............................         968           1,004          1,122          1,112
Crude oil..............................           7               3              8              3
Other..................................          46              26             48             25
                                           --------------- -------------- -------------- ------------
  Total................................      $1,587          $1,537         $1,659          1,564
                                           =============== ============== ============== ============


     In October 2001, the Company entered into a prepaid gas transaction with a
counterparty and a simultaneous natural gas swap with a third-party independent
to the prepaid gas transaction. The prepaid gas transaction resulted in the
receipt of payments in 2001 in exchange for financial settlements to be made
over a future three-year period. Approximately 10% of the contract notional
quantity will settle in 2002 and 2003, respectively, and the remaining 80% will
                                       19


settle in 2004 based on fixed notional quantities of gas defined in the
agreement at natural gas index prices on the date of each settlement. The
natural gas swap served to fix the price of the gas to be settled under the
prepaid gas agreement. At the date the transaction was consummated, the notional
fixed future natural gas settlements totaled approximately $250 million and the
fair value of such gas settlements was approximately $225 million. Since this
transaction results in fixed payments through 2004 and no market price risk to
the Company, its impact has been disclosed separately above.

Derivative Hedging Instruments

     Mirant uses derivative instruments to manage exposures arising from changes
in interest rates, commodity prices and foreign currency exchange rates.
Mirant's objectives for holding derivatives are to minimize these risks using
the most effective methods to eliminate or reduce the impacts of these
exposures.

     Derivative gains and losses arising from cash flow hedges that are included
in OCI are reclassified into earnings in the same period as the settlement of
the underlying transaction. During the three months ended March 31, 2002, $65
million of pre-tax derivative net gains were reclassified to operating income,
and $11 million of pre-tax derivative net losses were reclassified to interest
expense, as follows (in millions):

             Reclassified to operating income.......          $65
             Reclassified to interest expense.......          (11)
             Tax provision..........................           22
                                                              ----
             Net reclassification to earnings (Note C)        $32
                                                              ====

     The derivative gains and losses reclassified to earnings were partly offset
by realized gains and losses arising from the settlement of the underlying
physical transactions being hedged. Under SFAS No. 133, transactions may meet
the requirements for hedge treatment but may be less than 100% effective. For
example, a derivative instrument specifying one commodity delivery location may
be used to hedge a risk at a different commodity delivery location. The price
differential between the two locations is considered the ineffective portion of
the hedge. Any changes in the fair value of the ineffective portion must be
recorded currently in earnings. During the three months ended March 31, 2002, $8
million of pre-tax losses arising from hedge ineffectiveness were recognized in
other expense. The maximum term over which Mirant is hedging exposures to the
variability of cash flows is through 2012.

   Interest Rate Hedging

     Mirant's policy is to manage interest expense using a combination of fixed-
and variable-rate debt. To manage this mix in a cost-efficient manner, Mirant
enters into interest rate swaps in which it agrees to exchange, at specified
intervals, the difference between fixed- and variable-interest amounts
calculated by reference to agreed-upon notional principal amounts. These swaps
are designated to hedge underlying debt obligations. For qualifying hedges, the
changes in the fair value of gains and losses of the swaps are deferred in OCI,
net of tax, and the interest rate differential is reclassified from OCI to
interest expense as an adjustment over the life of the swaps. Gains and losses
resulting from the termination of qualifying hedges prior to their stated
maturities are recognized ratably over the original remaining life of the
hedging instrument, provided the underlying hedged transactions are still
probable. Otherwise, the gains and losses will be recorded currently in
earnings.

   Commodity Price Hedging

     Mirant enters into commodity financial instruments and other contracts in
order to hedge its exposure to market prices for electricity expected to be
produced by its generation assets. These contracts are primarily physical
forward sales but may also include options and other financial instruments.
Mirant also uses commodity financial instruments and other contracts to hedge
its exposure to market prices for natural gas, coal and other fuels expected to
be utilized by its generation assets. These contracts primarily include futures,
options, and swaps. Where these contracts are derivatives and are designated as
                                       20


cash flow hedges, the gains and losses are deferred in OCI and are then
recognized in earnings in the same period as the settlement of the underlying
physical transaction.

     At March 31, 2002, Mirant had a net commodity derivative hedging asset of
approximately $150 million. The fair value of its commodity derivative hedging
instruments is determined using various factors, including closing exchange or
over-the-counter market price quotations, time value and volatility factors
underlying options and contractual commitments.

     At March 31, 2002, these contracts relate to periods through 2010. The net
notional amount, or net open position, of the derivative hedging instruments at
March 31, 2002 was 6 million equivalent megawatt-hours. The notional amount is
indicative only of the volume of activity and not of the amount exchanged by the
parties to the financial instruments. Consequently, this amount is not a measure
of market risk.

     Power sales agreements 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 hedging instruments in the accompanying unaudited
condensed consolidated balance sheets.

    Foreign Currency Hedging

     From time to time, Mirant uses cross-currency swaps and currency forwards
to hedge its net investments in certain foreign subsidiaries. Gains or losses on
these derivatives designated as hedges of net investments are reflected in OCI,
net of tax, and net of the translation effects.

     Mirant also utilizes currency forwards intended to offset the effect of
exchange rate fluctuations on forecasted transactions arising from contracts
denominated in a foreign currency. From time to time, Mirant utilizes
cross-currency swaps that offset the effect of exchange rate fluctuations on
foreign currency denominated debt and fixes the interest rate exposure. Certain
other assets are exposed to foreign currency risk. Mirant designates currency
forwards as hedging instruments used to hedge the impact of the variability in
exchange rates on accounts receivable denominated in certain foreign currencies.
When these hedging strategies qualify as cash flow hedges, the gains and losses
on the derivatives are deferred in OCI, net of tax, until the forecasted
transaction affects earnings. The reclassification is then made from OCI to
earnings to the same revenue or expense category as the hedged transaction.

   Interest Rate and Currency Derivatives

     The interest rates noted in the following table represent the range of
fixed interest rates that Mirant pays on the related interest rate swaps. On
virtually all of these interest rate swaps, Mirant receives floating interest
rate payments at LIBOR. The currency derivatives mitigate Mirant's exposure
arising from certain foreign currency transactions, such as cross-border sales
and foreign equity investments.





                             Year of Maturity                          Number of        Notional       Unrealized
           Type               or Termination     Interest Rates     Counterparties       Amount        (Loss) Gain
                                                                                           
--------------------------- -------------------- ---------------- -------------------- ------------ ------------------
                                                                                               (in millions)
Interest rate swaps....          2003-2012         3.85%-7.12%             4                 $624       $(34)


Currency forwards......          2002-2004             --                  3              (1)CAD117       (1)
                                   2003                --                  1            (pound)58          -
                                 2002-2003             --                  2                 (2)$14        -
                                                                                                        ------
                                                                                                        $(35)
                                                                                                        ======

(pound) - Denotes British pounds sterling
CAD - Denotes Canadian dollar
                                       21


(1) CAD contracts with a notional amount of CAD106 million are included in fair
value of energy marketing and risk management liabilities because hedge
accounting criteria are not met.
(2) USD based contracts are utilized by a foreign subsidiary to hedge U.S.
dollar denominated sales contracts.


     The unrealized gain/loss for interest rate swaps is determined based on the
estimated amount that Mirant would receive or pay to terminate the swap
agreement at the reporting date based on third-party quotations. The unrealized
gain/loss for currency forwards is determined based on current foreign exchange
rates.

G.   Business Developments

     Asset Sales

     In February 2002, Mirant completed the sale of its 44.8% indirect interest
in Bewag for approximately $1.63 billion. Mirant received approximately $1.06
billion in net proceeds after repayment of approximately $550 million in related
debt. The after-tax gain on the sale of Mirant's investment in Bewag was $167
million. The net proceeds were used for general corporate purposes, capital
expenditures and repayment of certain drawn balances on revolving credit
facilities.

     In February 2002, Mirant announced that it had entered into an agreement to
sell its State Line generating facility for approximately $181 million plus an
adjustment for working capital. The sale closed in June of 2002. The asset was
sold at approximately book value.

      In March 2002, Mirant announced that it had entered into an agreement to
sell its 50% ownership interest in Perryville to Cleco, who holds the remaining
50% ownership interest in Perryville. Perryville began to commercially operate a
150 MW, natural gas-fired, simple-cycle unit in Louisiana in July 2001 and is
constructing a 562 MW natural gas-fired combined-cycle unit that is expected to
be completed in 2002.

     In June 2002, Mirant completed the sale of its 50% ownership interest in
Perryville to Cleco. Cleco assumed Mirant's $13 million future equity commitment
to Perryville and paid approximately $55 million in cash to Mirant as repayment
of its subordinated loan, invested capital to date and other miscellaneous
costs. The investment was sold at approximately book value based on the value of
the investment at the date of sale. At such time, in connection with the
existing project financing, Mirant agreed to make a $25 million subordinated
loan to the project. In addition, Mirant retains certain obligations as a
project sponsor, some of which are subject to indemnification by Cleco. The
obligations retained by Mirant and not subject to indemnity relate primarily to
the existing 20-year tolling agreement with Mirant Americas Energy Marketing as
described in Note H. Effective August 23, 2002, Mirant Americas Energy Marketing
and Perryville, with the consent of the project lenders, restructured the
tolling agreement between the parties to remove the requirement to post a letter
of credit or other credit support in the event of a downgrade from S&P or
Moody's. In connection with the restructuring, Mirant Americas made a $100
million subordinated loan to Perryville, the proceeds of which were used to
repay the existing $25 million subordinated loan owed to a Mirant subsidiary and
to repay $75 million of senior debt of the project. In addition, Mirant Americas
guaranteed the obligations of Mirant Americas Energy Marketing under the tolling
agreement up to the amount of the subordinated loan. The obligations of Mirant
Americas Energy Marketing under the tolling agreement are guaranteed by Mirant
Corporation.

   Restructuring Charge

     As a result of changing market conditions including constrained access to
capital markets attributable primarily to the Enron bankruptcy and Moody's
December 2001 downgrade of Mirant's credit rating, Mirant adopted a plan to
restructure its operations by exiting certain business operations (including its
European trading and marketing business), canceling and suspending planned power
plant developments, closing business development offices and severing employees.
During the first quarter of 2002, Mirant recorded pre-tax restructuring charges
of $562 million.
                                       22


     During the three months ended March 31, 2002 Mirant recorded the following
components of the restructuring charge:

o    $285 million related to write-downs of capital previously invested, either
     directly into construction or in progress payments on equipment.

o    $246  million  related  to costs to cancel  equipment  orders  and  service
     agreements per contract terms.

o    $31 million  related to  severance  of 500  employees  worldwide  and other
     employee termination-related charges.

     Mirant  anticipates that it will record  additional  pre-tax  restructuring
charges of approximately $115 million in future periods, primarily over the next
three quarters.  These costs are associated with the  cancellation of additional
power plant developments,  additional employee severance and related costs to be
incurred in the near future.

H. Commitments and Contingent Matters

Litigation and Other Contingencies

     With respect to each of the following matters, the Company cannot currently
determine the outcome of the proceedings or the amounts of any potential losses
from such proceedings. Refer to Note K - Subsequent Events for recent litigation
and other contingencies occurring after March 31, 2002.

Western Power Markets Investigations: Several governmental entities have
launched investigations into the western power markets, including activities by
Mirant and several of its wholly owned subsidiaries. Those governmental entities
include the FERC, the U.S. Department of Justice, the CPUC, the California
Senate, the California State Auditor, California's Electricity Oversight Board,
the General Accounting Office of the U.S. Congress, the San Joaquin District
Attorney and the Attorney General's offices of Washington, Oregon and
California. These investigations, some of which are civil and some criminal,
have resulted in the issuance of civil investigative demands, subpoenas,
document requests, requests for admission, and interrogatories directed to
several of Mirant's entities. In addition, the CPUC has had personnel onsite on
a periodic basis at Mirant's California generating facilities since December
2000. Each of these civil investigative demands, subpoenas, document requests,
requests for admission, and interrogatories, as well as the plant visits, could
impose significant compliance costs on Mirant or its subsidiaries. Despite the
various measures taken to protect the confidentiality of sensitive information
provided to these agencies, there remains a risk of governmental disclosure of
the confidential, proprietary and trade secret information obtained by these
agencies throughout this process.

     In September 2002, the CPUC issued a report that purported to show that on
days in the fall of 2000 through the spring of 2001 during which the CAISO had
to declare a system emergency requiring interruption of interruptible load or
imposition of rolling blackouts, Mirant and the other four out of state
purchasers of generation in California had generating capacity that either was
not operated or was out of service due to an outage and that could have avoided
the problem if operated. The report identified two specific days on which Mirant
allegedly had capacity available that was not used or that was on outage and
that if operated could have avoided the system emergency. Mirant has publicly
responded to the report pointing out a number of material inaccuracies and
errors that it believes cause the CPUC's conclusions to be wrong with respect to
Mirant.

California Attorney General Litigation: On March 11, 2002, the California
Attorney General filed a civil suit against Mirant and several of its wholly
owned subsidiaries in San Francisco Superior Court. The lawsuit alleges that
between 1998 and 2001 the companies effectively double-sold their capacity by
selling both ancillary services and energy from the same generating units, such
that if called upon, the companies would have been unable to perform their
contingent obligations under the ancillary services contracts. The California
Attorney General claims that this alleged behavior violated both the tariff of
the CAISO and, more importantly, the California Unfair Competition Act. The suit
                                       23


seeks both restitution and penalties in unspecified amounts. Mirant removed this
suit to United States District Court for the Northern District of California.
This suit has been consolidated for joint administration with the California
Attorney General suits filed on April 9, 2002, and April 15, 2002. Mirant has
filed a motion seeking dismissal of the claims.

     On March 20, 2002, the California Attorney General filed a complaint with
the FERC against certain power marketers and their affiliates, including Mirant
and several of its wholly owned subsidiaries, alleging that market-based sales
of energy made by such generators were in violation of the Federal Power Act
because such transactions were not appropriately filed with the FERC. The
complaint requests, among other things, refunds for any prior short-term sales
of energy that are found to not be just and reasonable along with interest on
any such refunded amounts. On May 31, 2002, the FERC issued an order dismissing
the California Attorney General's complaint , and the FERC denied the California
Attorney General's request for rehearing on September 23, 2002. The California
Attorney General has appealed that dismissal to the United States Court of
Appeals for the Ninth Circuit.

     On April 9, 2002, the California Attorney General filed a second civil suit
against Mirant and several of its wholly owned subsidiaries in San Francisco
Superior Court. The lawsuit alleges that the companies violated the California
Unfair Competition Act by failing to properly file their rates, prices, and
charges with the Federal Energy Regulatory Commission as required by the Federal
Power Act, and by charging unjust and unreasonable prices in violation of the
Federal Power Act. The complaint seeks unspecified penalties, costs and attorney
fees. Mirant removed this suit to United States District Court for the Northern
District of California. This suit has been consolidated for joint administration
with the California Attorney General suits filed on March 11, 2002 and April 15,
2002. Mirant has filed a motion seeking dismissal of the claims.

     On April 15, 2002, the California Attorney General filed a third civil
lawsuit against Mirant and several of its wholly owned subsidiaries in the U.S.
District Court for the Northern District of California. The lawsuit alleges that
Mirant's acquisition and possession of its Potrero and Delta power plants has
substantially lessened, and will continue to substantially lessen, competition
in violation of the Clayton Act and the California Unfair Competition Act. The
lawsuit seeks equitable remedies in the form of divestiture of the plants and
injunctive relief, as well as monetary damages in unspecified amounts to include
disgorgement of profits, restitution, treble damages, statutory civil penalties
and attorney fees. This suit has been consolidated for joint administration with
the California Attorney General suits filed on March 11, 2002 and April 9, 2002.
Mirant has filed a motion seeking dismissal of the claims.

 Defaults by SCE and Pacific Gas and Electric, and the Bankruptcies of Pacific
Gas and Electric and the PX: On January 16 and 17, 2001, the credit and debt
ratings of SCE and Pacific Gas and Electric were lowered by Moody's and S&P to
"junk" status. On January 16, 2001, SCE suspended indefinitely certain payment
obligations to the PX and to the CAISO. Pacific Gas and Electric similarly
suspended payments. The failure of SCE and Pacific Gas and Electric to make
these payments prevented the PX and CAISO from making payments to Mirant. As of
March 31, 2002, the total amount owed to Mirant by the CAISO and the PX as a
result of these defaults was $355 million. During 2000 and 2001, Mirant took
provisions in relation to these and other uncertainties arising from the
California power markets of $295 million pre-tax.

     On March 9, 2001, as a result of the nonpayments of SCE and Pacific Gas and
Electric, the PX ceased operation and filed for bankruptcy protection. Mirant
Americas Energy Marketing was appointed as a member of the official Participants
Committee in the PX bankruptcy proceeding. The PX's ability to repay its debt is
directly dependent on the extent to which it receives payment from Pacific Gas
and Electric and SCE and on the outcome of its litigation with the California
State government.

     On April 6, 2001, Pacific Gas and Electric filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California in San Francisco. It is not known at this time
what effect the bankruptcy filing will have on the ultimate recovery of amounts
owed to Mirant. On September 20, 2001, Pacific Gas and Electric filed a proposed
plan of reorganization. Subsequently the CPUC proposed a competing plan.
                                       24


Although the plans differ in material respects, each contemplates payment of one
hundred percent of all approved claims. Regardless of which plan gets approved,
Mirant does not expect any payment to be made to it for power sold by it into
the PX or CAISO markets and repurchased by Pacific Gas and Electric until the
FERC issues a final ruling in the Western Power Markets Price Mitigation and
Refund Proceedings. On March 1, 2002, SCE paid approximately $870 million to the
PX in satisfaction of all claims of or through the PX and the CAISO through
approximately January 18, 2001. The PX is not expected to make any payment to
Mirant until the bankruptcy judge so orders, and the judge is not expected to
rule until after the FERC issues a final ruling in the refund proceeding. Mirant
cannot now determine the timing of such payment or the extent to which such
payment would satisfy its claims.

RMR Agreements: Mirant's subsidiaries acquired generation assets from Pacific
Gas and Electric in April 1999, subject to RMR agreements. These agreements
allow the CAISO, under certain conditions, to require certain of Mirant's
subsidiaries to run the acquired generation assets in order to support the
reliability of the California electric transmission system. Under the RMR
agreements, Mirant recovers a portion of the annual fixed revenue requirement
(the "Annual Requirement") of the generation assets through fixed charges to the
CAISO, and Mirant depends on revenues from sales of the output of the units at
market prices to recover the remainder. The portion of the Annual Requirement
that can be recovered through fixed charges to the CAISO is subject to the
FERC's review and approval both as to the percentage and the amount of the
Annual Requirement to which the percentage is applied.

    Mirant assumed the RMR agreements from Pacific Gas and Electric prior to the
outcome of a FERC proceeding initiated in October 1997 (the "Fixed Portion
Proceeding"). The Fixed Portion Proceeding will determine the percentage to be
paid to Mirant by the CAISO under the RMR agreements of a $159 million Annual
Requirement that was in effect through December 31, 2001, as well as any future
Annual Requirement in effect through the final disposition of the Fixed Portion
Proceeding. This $159 million Annual Requirement was negotiated as part of a
prior settlement of a FERC rate proceeding. In the Fixed Portion Proceeding,
Mirant contended that the amount paid by the CAISO should reflect an allocation
based on the CAISO's right to call on the units (as defined by the RMR
agreements) and the CAISO's actual calls, which would have resulted in the CAISO
paying approximately $120 million, or 75% of the settled Annual Requirement in
effect through December 31, 2001. Mirant currently collects 50% of the Annual
Requirement from the CAISO, which charges are subject to refund once the FERC
determines the percentage of the Annual Requirement that should be recovered by
Mirant from the CAISO. The decision in the Fixed Portion Proceeding will affect
the amount the CAISO will pay to Mirant for the period from June 1, 1999 through
the final disposition of the Fixed Portion Proceeding, including any appeals. On
June 7, 2000, the administrative law judge ("ALJ") in the Fixed Portion
Proceeding issued an initial decision providing for the CAISO to pay
approximately 3% of the Annual Requirement to Mirant. On July 7, 2000, Mirant
appealed the ALJ's decision and the matter is pending at the FERC.

     In the Fall of 2001, Mirant filed with the FERC to increase the Annual
Requirement for the generating assets subject to the RMR agreements from the
$159 million amount that had been in effect to $199 million. That increase took
effect January 1, 2002, subject to refund of any amount that the FERC may
determine in a proceeding (the "Annual Requirement Proceeding") separate from
the Fixed Portion Proceeding to be in excess of just and reasonable rates. The
CAISO and Pacific Gas and Electric, which buys from the CAISO the electricity
sold to the CAISO by Mirant under the RMR agreements, have contested the
increase in the Annual Requirement at the FERC. The parties have reached a
settlement agreement in principle regarding the increase in the Annual
Requirement. Once all the details of the settlement agreement have been
finalized, the agreement will be filed with the FERC for its approval. If
finalized and approved by the FERC, the settlement agreement in principle would
result in refunds being made by Mirant of a portion of the Annual Requirement
currently being collected by Mirant. Mirant expects that the amount of such
refunds would not vary materially from the amounts currently being reserved by
Mirant with respect to the Annual Requirement issue. The percentage that
ultimately results from the Fixed Portion Proceeding, discussed above, will be
applied to the Annual Requirement for 2002 in the Annual Requirement Proceeding.
                                       25


     Mirant has also exercised its right under the RMR agreements to recover
100% of the Annual Requirement specific to the Potrero plant through fixed
charges to the CAISO beginning January 1, 2002. The Annual Requirement of the
Potrero plant constitutes $35 million of the total $199 million Annual
Requirement currently in effect for 2002, subject to refund as subsequently
determined in the Annual Requirement Proceeding. As part of their challenge to
the increase in the Annual Requirement in the Annual Requirement Proceeding,
discussed above, the CAISO and Pacific Gas and Electric have contested the
increase in the Annual Requirement for the Potrero plant. This issue is also
part of the settlement agreement in principle that has been reached by the
parties.

     If Mirant is unsuccessful in its appeal of the ALJ's decision in the Fixed
Portion Proceeding, it will be required to refund certain amounts of the Annual
Requirement paid by the CAISO for the period from June 1, 1999 through the final
disposition of the appeal. If the challenges filed by the CAISO and Pacific Gas
and Electric in the Annual Requirement Proceeding to the increases in the Annual
Requirement for the generating assets are successful or if the settlement
agreement in principle is finalized and approved by the FERC, Mirant will be
required to refund certain additional amounts of the Annual Requirement paid by
the CAISO for the period from January 1, 2002 until the final determination of
the appropriate Annual Requirement for those generating assets or until final
approval of the settlement agreement in principle. Mirant estimates that the
amount of these refunds from both the Fixed Portion Proceeding and the Annual
Requirement Proceeding, as of March 31, 2002, would have been approximately $240
million. This amount does not include interest that may be payable in the event
of a refund. If resolution of the Fixed Portion Proceeding and Annual
Requirement Proceeding results in refunds of that magnitude, no effect on net
income for the periods under review would result as adequate reserves have been
recorded. If Mirant is unsuccessful in its appeal of the ALJ's initial decision
in the Fixed Portion Proceeding, Mirant plans to pursue other options available
under the RMR agreements to mitigate the impact of the ALJ's decision upon its
future operations.

Western Power Markets Price Mitigation and Refund Proceedings: On June 19, 2001,
the FERC issued an order that provides for price mitigation in all hours in
which power reserves fall below 7%. During these emergency hours, the FERC will
use a formula based on the marginal costs of the highest cost generator called
on to run to determine the overall market clearing price. This price mitigation
includes all spot market sales in markets throughout the Western System
Coordinating Council. This price mitigation was implemented on June 20, 2001 and
was in effect until July 11, 2002, at which time the formula was replaced by a
hard cap of $91.87/MWh, which was in place until October 30, 2002. The FERC
requires that all public and non-public utilities which own or control
non-hydroelectric generation in California must offer power in the CAISO's spot
markets, to the extent the output is not scheduled for delivery in the hour.

     On July 25, 2001, the FERC issued an order requiring hearings to determine
the amount of any refunds and amounts owed for sales made to the CAISO/PX from
October 2, 2000 through June 20, 2001. The administrative law judge has
concluded evidentiary hearings in this proceeding, and the parties are awaiting
the issuance of an initial decision by that administrative law judge. In
addition, parties have appealed the FERC's June 19, 2001 and July 25, 2001
orders to the United States Court of Appeals for the Ninth Circuit, seeking
review of various issues, including expanding the potential refund date to
include periods prior to October 2, 2000. Any such expansion of the refund
period could significantly increase Mirant's refund exposure in this proceeding.
In response to an order by the Ninth Circuit allowing the California parties to
include additional evidence in the record regarding purported market
manipulation, on September 6, 2002, the California parties filed a motion for
additional discovery in the refund case on the issue of purported market
manipulation. That motion is pending with the FERC.

    In the July 25, 2001 order, the FERC also ordered that a preliminary
evidentiary proceeding be held to develop a factual record on whether there have
been unjust and unreasonable charges for spot market bilateral sales in the
Pacific Northwest from December 25, 2000 through June 20, 2001. In the
proceeding, the DWR filed to recover certain refunds from parties, including one
of Mirant's subsidiaries, for bilateral sales of electricity to the DWR at the
                                       26


California/Oregon border, claiming that such sales took place in the Pacific
Northwest. The refunds sought from Mirant and of its subsidiaries totaled
approximately $90 million. A FERC ALJ concluded a preliminary evidentiary
hearing related to possible refunds for power sales in the Pacific Northwest. In
a preliminary ruling issued September 24, 2001, the ALJ indicated that she would
order no refunds because the complainants had failed to prove any exercise of
market power or that any prices were unjust or unreasonable. The FERC may accept
or reject this preliminary ruling and the FERC's decision may itself be
appealed. On May 13, 2002 and May 24, 2002, the City of Tacoma, Washington and
the City of Seattle, Washington, respectively, filed to reopen the evidentiary
record in this proceeding as a result of the contents of three internal Enron
Power Marketing, Inc. memoranda that had been obtained and publicly released by
the FERC as part of its continuing investigation. The Company cannot predict the
outcome of these proceedings. If the Company was required to refund such
amounts, its subsidiaries would be required to refund amounts previously
received pursuant to sales made on their behalf during the refund periods. In
addition, its subsidiaries would be owed amounts for purchases made on their
behalf from other sellers in the Pacific Northwest.

     Additionally, on February 13, 2002, the FERC directed its staff to
undertake a fact-finding investigation into whether any entity manipulated
short-term prices in electric energy or natural gas markets in the West or
otherwise exercised undue influence over wholesale prices in the West, for the
period January 1, 2000 forward. Information from this investigation could be
used in any existing or future complaints before the FERC involving long-term
power sales contracts relevant to the matters being investigated, including the
California refund proceeding. On August 13, 2002, the FERC Staff issued an
initial report regarding its preliminary findings. The report recommended that
the FERC initiate separate proceedings to further investigate specific instances
of inappropriate conduct by several companies, none of which are affiliated with
Mirant. In addition, the report recommended that the natural gas indices used
for purposes of calculating potential refunds in the California refund case be
replaced with indices at a different location plus a transportation component.

     On August 13, 2002, the FERC in the California refund proceeding requested
comments from parties on whether the gas indices in the existing formula for
calculating refunds should be replaced with different gas indices (plus
transportation costs) as recommended by the FERC Staff in its report. If the
FERC adopts the Staff's recommended gas formula for purposes of calculating
refunds, it would increase Mirant's refund exposure in the California refund
case.

     Lastly, the initial report of the FERC staff described its investigation of
the effect on spot electric prices in the West of trading strategies employed by
Enron subsidiaries and other entities but could not quantify the exact economic
impact. The FERC staff will continue to investigate whether the questionable
trading strategies had an indirect effect on other products sold in the West,
such as long-term contracts. The staff report also recommended imposition of
certain limitations on entities with market-based rate authority designed to
prohibit trading strategies based on the submission of false information or the
omission of material information to the FERC, independent system operators, or
other market participants. The staff report is a preliminary report, and the
staff continues to investigate a variety of matters. The Company cannot predict
the impact of the initial staff report on any FERC action that might be taken in
this investigation docket or any other ongoing proceeding at the FERC.

     Subsequent to the issuance of the FERC Staff's report, three companies that
sell natural gas at wholesale have announced that certain of their employees did
not correctly report transactional information to the trade press that publish
natural gas spot price data. Mirant cannot at this time predict what effect, if
any, such misreporting of information to the trade press will have upon the use
of spot price data published by the trade press in the ongoing proceeding before
FERC or upon other transactions to which Mirant is a party that utilize such
published spot price data as part of the price terms. The FERC Staff has
requested information from various market participants, including Mirant,
regarding the reporting of transactional information to the trade press.
                                       27


     On July 17, 2002, the FERC issued an order adopting new market design rules
("Market Design 2002") applicable to the California wholesale power markets as
well as price caps and other requirements that are applicable to all West-wide
wholesale power markets. Key elements of the Market Design 2002 that were
supposed to be in place on October 1, 2002 included an increase in the amount
sellers of electricity at wholesale may bid to the CAISO from $91.87/MWh to
$250/MWh on bids into the California real-time energy and ancillary services
markets, and a FERC imposed maximum price of $250/MWh for all spot market sales
in the western markets. The FERC delayed implementation of the increase in the
price cap until October 30, 2002. Sellers are still required to offer all
available uncommitted capacity for sale in the region. The FERC also put in
place, effective October 31, 2002, procedures in the CAISO market that will
mitigate prices whenever a supplier bids greater than established thresholds.

DWR Power Purchases: On January 17, 2001, the Governor of California issued an
emergency proclamation giving the DWR authority to enter into arrangements to
purchase power in order to mitigate the effects of electrical shortages in the
state. The DWR began purchasing power under that authority the next day. On
February 1, 2001, the Governor of California signed Assembly Bill No. 1X
authorizing the DWR to purchase power in the wholesale markets to supply retail
consumers in California on a long-term basis. The Bill became effective
immediately upon its execution by the Governor. The Bill did not, however,
address the payment of amounts owed for power previously supplied to the CAISO
or PX for purchase by SCE and Pacific Gas and Electric. The CAISO and PX have
not paid the full amounts owed to Mirant's subsidiaries for power delivered to
the CAISO and PX in prior months and are expected to pay less than the full
amount owed on further obligations coming due in the future for power provided
to the CAISO for sales that were not arranged by the DWR. The ability of the DWR
to make future payments is subject to the DWR having a continued source of
funding, whether from legislative or other emergency appropriations, from a bond
issuance or from amounts collected from SCE and Pacific Gas and Electric for
deliveries to their customers. On May 22, 2001, Mirant entered into a 19-month
agreement with the DWR to provide the State of California with approximately 500
MW of electricity during peak hours through December 31, 2002.

     On February 25, 2002, the CPUC and the California Electricity Oversight
Board ("EOB") filed separate complaints at the FERC against certain sellers of
energy under long-term agreements with the California DWR, including the
contract entered into by Mirant with the DWR dated May 22, 2001, alleging that
the terms of these contracts are unjust and unreasonable and that the contracts
should be abrogated or the prices under the contracts should be reduced. In
particular, the EOB claims that the contracts should be voidable at the option
of the State of California. The complaints allege that the DWR was forced to
enter into these long-term contracts due to dysfunctions in the California
market and the alleged market power of the sellers.

     Two lawsuits have also been filed that seek relief for contracts between
the California DWR and certain marketers of electricity, including the May 22,
2001 contract between DWR and Mirant, that allegedly contain unfair terms. The
plaintiffs allege that the terms of the contracts are unjust and unreasonable
and that the DWR was forced to enter into these long-term contracts due to
dysfunctions in the California market and alleged market power of the sellers.
Plaintiffs seek, among other things, a declaration that the contracts are void
and unenforceable, enjoinment of the enforcement and performance of those
contracts and restitution for funds allegedly obtained wrongfully under the
contracts. The captions of each of the cases follow:



CAPTION                             DATE FILED           COURT OF ORIGINAL FILING
-------                             ----------           ------------------------
                                                        

McClintock, et al.  v. Vikram       May 1, 2002          Superior Court of California - Los Angeles County
Budraja, et al.

Millar, et al.  v. Allegheny        May 13, 2002         Superior Court of California - San Francisco County
Energy Supply Company, LLC, et al.


     The Millar suit has been removed by the defendants to the United States
District Court for the Northern District of California. On October 11, 2002, the
                                       28


federal judicial panel on multidistrict litigation ordered the Millar suit to be
transferred to the United States District Court for the Southern District of
California and consolidated for purposes of pretrial proceedings with the six
rate payer suits already pending before that court described below in
"California Rate Payer Litigation." The McClintock suit has been stayed pending
a resolution of a separate action challenging the long term contracts that were
entered into by the DWR, which suit does not include Mirant or any of its
subsidiaries as parties.

California Rate Payer Litigation: A total of sixteen lawsuits have been filed
asserting claims under California law based on allegations that certain owners
of electric generation facilities in California and energy marketers, including
Mirant, Mirant Americas Energy Marketing, Mirant Delta and Mirant Potrero,
engaged in various unlawful and anti-competitive acts that served to manipulate
wholesale power markets and inflate wholesale electricity prices in California.
One of the suits, the Hansen suit, has been voluntarily dismissed, and the other
fifteen suits remain pending.

     Six of those suits were filed between November 27, 2000 and May 2, 2001 in
various California Superior Courts. Three of these suits seek class action
status, while two of the suits are brought on behalf of all citizens of
California. One lawsuit alleges that, as a result of the defendants' conduct,
customers paid approximately $4 billion more for electricity than they otherwise
would have and seeks an award of treble damages as well as other injunctive and
equitable relief. One lawsuit also names certain of Mirant's officers
individually as defendants and alleges that the state had to spend more than $6
billion purchasing electricity and that if an injunction is not issued, the
state will be required to spend more than $150 million per day purchasing
electricity. The other suits likewise seek treble damages and equitable relief.
One such suit names Mirant Corporation itself as a defendant. A listing of these
six cases is as follows:



   CAPTION                             DATE FILED           COURT OF ORIGINAL FILING
   -------                             ----------           -------------------------
                                                             

   People of the State of California   January 18, 2001     Superior Court of California - San Francisco County
   v. Dynegy, et al.

   Gordon v. Reliant Energy, Inc.,     November 27, 2000    Superior Court of California - San Diego County
   et al.

   Hendricks v. Dynegy Power           November 29, 2000    Superior Court of California - San Diego County
   Marketing, Inc., et al.

   Sweetwater Authority, et al. v.     January 16, 2001     Superior Court of California - San Diego County
   Dynegy, Inc., et al.

   Pier 23 Restaurant v. PG&E Energy   January 24, 2001     Superior Court of California - San Francisco County
   Trading, et al.

   Bustamante, et al. v. Dynegy,       May 2, 2001          Superior Court of California - Los Angeles County
   Inc., et al.


     These six suits were coordinated for purposes of pretrial proceedings
before the Superior Court for San Diego County. In the Spring of 2002, two of
the defendants filed crossclaims against other market participants who were not
parties to the actions. Some of those crossclaim defendants then removed the six
coordinated cases to the United States District Court for the Southern District
of California. The plaintiffs have filed motions seeking to have the actions
remanded to the California state court, and the defendants have filed motions
seeking to have the claims dismissed.

     Seven additional rate payer lawsuits were filed between April 23, 2002 and
May 24, 2002 alleging that certain owners of electric generation facilities in
California, as well as certain energy marketers, including Mirant and several of
its subsidiaries, engaged in various unlawful and fraudulent business acts that
served to manipulate wholesale markets and inflate wholesale electricity prices
in California. The suits are related to events in the California wholesale
electricity market occurring over the last three years. Each of the complaints
alleges violation of California's Unfair Competition Act. The RDJ Farms
                                       29


complaint also alleges violation of California's anti-trust statute. Each of the
plaintiffs seeks class action status for their respective case. The actions
seek, among other things, restitution, compensatory and general damages, and to
enjoin the defendants from engaging in illegal conduct. The captions of each of
these seven cases follow:



 CAPTION                             DATE FILED           COURT OF ORIGINAL FILING
 -------                             ----------           -------------------------
                                                           

 T&E Pastorino Nursery, et al. v.    April 23, 2002       Superior Court of California - San Mateo County
 Duke Energy Trading and
 Marketing, LLC, et al.

 RDJ Farms, Inc., et al.  v.         May 10, 2002         Superior Court of California - San Joaquin County
 Allegheny Energy Supply Company,
 LLC, et al.

 Century Theatres, Inc., et al.      May 14, 2002         Superior Court of California - San Francisco County
 v. Allegheny Energy Supply
 Company, LLC, et al.

 El Super Burrito, Inc., et al.      May 15, 2002         Superior Court of California - San Mateo County
 v. Allegheny Energy Supply
 Company, LLC, et al.

 Leo's Day and Night Pharmacy, et    May 21, 2002         Superior Court of California - San Francisco County
 al. v. Duke Energy Trading and
 Marketing, LLC, et al.

 J&M Karsant Family Limited          May 21, 2002         Superior Court of California - Alameda County
 Partnership, et al. v. Duke
 Energy Trading and Marketing, LLC, et al.

 Bronco Don Holdings, LLP, et al.    May 24, 2002         Superior Court of California - San Francisco County
 v. Duke Energy Trading and
 Marketing, LLC, et al.


     Each of the seven cases has been removed by the defendants to United States
District Courts in California. The RDJ Farms suit was removed to the United
States District Court for the Eastern District of California, and the other six
cases were removed to the United States District Court for the Northern District
of California. On October 11, 2002, the federal judicial panel on multidistrict
litigation ordered the seven rate payer suits filed between April 23, 2002 and
May 24, 2002 to be transferred to the United States District Court for the
Southern District of California and consolidated for purposes of pretrial
proceedings with the six rate payer suits already pending before that court.

     On June 3, 2002, a lawsuit, Hansen v. Dynegy Power Marketing, et al., was
filed in the Superior Court for the County of San Francisco against various
owners of electric generation facilities in California, including Mirant and
several of its subsidiaries, alleging substantially similar claims to the
ratepayer actions described above. The plaintiff sought class action status for
the lawsuit and purported to represent residential ratepayers located in various
public utility districts in the State of Washington. The complaint sought, among
other things, injunctive relief, disgorgement of profits, restitution and treble
damages. This action has been dismissed by the plaintiff.

     On July 15, 2002, an additional rate payer lawsuit, Public Utility District
No. 1 of Snohomish Co. v. Dynegy Power Marketing, et al., was filed in the
United States District Court for the Central District of California against
various owners of electric generation facilities in California, including Mirant
and its subsidiaries, by Public Utility District No. 1 of Snohomish County,
which is a municipal corporation in the state of Washington that provides
electric and water utility service. The plaintiff public utility district
                                       30


alleges that defendants violated California's antitrust statute by conspiring to
raise wholesale power prices, injuring plaintiff through higher power purchase
costs. The plaintiff also alleges that defendants acted both unfairly and
unlawfully in violation of California's Unfair Competition Act through various
unlawful and anticompetitive acts, including the purportedly wrongful
acquisition of plants, engagement in "Enron-style" trading, and withholding
power from the market. The plaintiff seeks restitution, disgorgement of profits,
injunctive relief, treble damages, and attorney's fees. The federal judicial
panel on multidistrict litigation has ordered the Snohomish suit to be
transferred to the United States District Court for the Southern District of
California and consolidated for purposes of pretrial proceedings with the six
rate payer suits already pending before that court.


     On October 18, 2002, another rate payer lawsuit, Kurtz v. Duke Energy
Trading et al., was filed in the Superior Court for the County of Los Angeles.
The Kurtz suit alleges that certain owners of electric generation facilities in
California, as well as certain energy marketers, including Mirant and various of
its subsidiaries, engaged in various unlawful and fraudulent business acts that
served to manipulate wholesale markets and inflate wholesale electricity prices
in California since early 1998 in violation of California's Unfair Competition
Act. The Kurtz suit contains allegations of misconduct by the defendants,
including the Mirant entities, that are similar to the allegations made in the
previously filed rate payer suits, in the suits filed by the California Attorney
General on March 11, 2002, and April 15, 2002, and in the suits filed
challenging long-term agreements with the California DWR. The plaintiff seeks to
represent a class consisting of all persons and entities that purchased energy
that was sold into California by the defendants through sales to the CAISO, the
PX or the DWR. The action seeks, among other things, restitution, compensatory
and general damages, and to enjoin the defendants from engaging in illegal
conduct.

Enron Bankruptcy Proceedings: Since December 2, 2001, Enron and a number of its
subsidiaries, have filed for bankruptcy. As of March 31, 2002, the total amount
owed to Mirant by Enron was approximately $82 million. Based on a reserve for
potential bad debts recorded in 2001, the Company does not expect the outcome of
the bankruptcy proceeding to have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

State Line: On July 28, 1998, an explosion occurred at the Company's State Line
plant causing a fire and substantial damage to the plant. The precise cause of
the explosion and fire has not been determined. Thus far, seven personal injury
lawsuits have been filed against Mirant, five of which were filed in Cook
County, Illinois. Mirant has settled the claims of five of these plaintiffs. The
terms of the settlements involve cash payments to the plaintiffs, with such
payments being fully covered by insurance. The outcome of these proceedings
cannot now be determined and an estimated range of loss cannot be made; however,
the Company has significant insurance coverage for losses occurring as a result
of the explosion.

Edison Mission Energy Litigation: On March 8, 2002, two subsidiaries of Edison
International (collectively, "EME") filed a breach of contract action against
Mirant Corporation and two of its subsidiaries in the Superior Court of Orange
County, California. In July 2001, Mirant and its subsidiaries entered into a
contract with EME to purchase its 50% ownership interest in EcoElectrica
Holdings Ltd. ("EcoElectrica"), a limited partnership owning a 540 MW liquefied
natural gas fired combined cycle cogeneration facility in Puerto Rico together
with various related facilities. EME alleges that Mirant and its subsidiaries
breached the purchase agreement by failing to complete the purchase of EME's
interest in EcoElectrica. The plaintiffs seek damages in excess of $50 million,
plus interest and attorney fees. At the same time Mirant and its subsidiaries
entered into the contract with EME, they entered into a separate agreement with
a subsidiary of Enron to purchase an additional 47.5% ownership interest in
EcoElectrica. That purchase also was not completed.

Environmental Information Requests: Along with several other electric generators
which own facilities in New York, in October 1999 Mirant New York received an
information request from the State of New York concerning the air quality
control implications of various repairs and maintenance activities at its Lovett
facility. Mirant New York responded fully to this request and provided all of
the information requested by the State. The State of New York issued notices of
violation to some of the utilities being investigated. The State issued a notice
of violation to the previous owner of Plant Lovett, Orange and Rockland
Utilities, alleging violations associated with the operation of Plant Lovett
prior to the acquisition of the plant by Mirant New York. To date, Mirant New
                                       31


York has not received a notice of violation. Mirant New York disagrees with the
allegations of violations in the notice of violation issued to the previous
owner. The notice of violation does not specify corrective actions, which the
State of New York may require. If a violation is determined to have occurred at
Plant Lovett, Mirant New York 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 Orange and Rockland Utilities for Plant Lovett, Orange
and Rockland Utilities is responsible for fines and penalties arising from any
violation associated with historical operations, but the state or federal
government could seek fines and penalties from Mirant New York, the cost of
which may be material. Mirant New York is engaged in discussions with the State
to explore a resolution of this matter.

     In January 2001, the EPA, Region 3 issued a request for information to
Mirant concerning the air permitting implications of past repair and maintenance
activities at its Potomac River plant in Virginia and Chalk Point, Dickerson and
Morgantown plants in Maryland. The requested information concerns the period of
operations that predates Mirant's ownership of the plants. Mirant has responded
fully to this request. If a violation is determined to have occurred at any of
the plants, Mirant 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, but the state or federal government
could seek fines and penalties from Mirant, 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 and it is judged to not
be in compliance, this could require substantial expenditures to bring the
Company's power plants into compliance and have a material adverse effect on its
financial condition, cash flows and results of operations.

     In addition to the matters discussed above, Mirant is party to legal
proceedings arising in the ordinary course of business. In the opinion of
management, the disposition of these matters will not have a material adverse
impact on the Company's consolidated results of operations, cash flows or
financial position. The Company recognizes estimated losses from contingencies
when information available indicates that a loss is probable and the amount of
the loss is reasonably estimable in accordance with SFAS No. 5, "Accounting for
Contingencies."

Commitments and Capital Expenditures

     Mirant has made firm commitments to buy materials and services in
connection with its ongoing operations and planned expansion and has made
financial guarantees relative to certain of its investments.

     The material commitments are discussed in the following sections.

    Energy Marketing and Risk Management

    Mirant Corporation had approximately $903 million of trade credit support
commitments outstanding as of March 31, 2002, which included $460 million of
letters of credit, $56 million of net cash collateral posted and $387 million of
parent guarantees.

     Mirant Corporation has also guaranteed the performance of its obligations
under a multi-year agreement entered into by Mirant Americas Energy Marketing
with Brazos Electric Power Cooperative ("Brazos"). Mirant Corporation's
guarantee was $60 million at March 31, 2002, a decrease of $5 million from
December 31, 2001. Mirant Corporation is subject to regulatory and commercial
risks under this energy requirements contract. Mirant Corporation believes, but
cannot guarantee, that it has adequately provided for the potential risks
related to this contract, which terminates at the end of 2003.

     Mirant Corporation also has a guarantee related to Pan Alberta Gas, Ltd. of
$64 million issued in 2000 and outstanding at March 31, 2002.
                                       32


     Vastar, a subsidiary of BP, and Mirant Corporation had issued certain
financial guarantees made in the ordinary course of business, on behalf of
Mirant Americas Energy Marketing's counterparties, to financial institutions and
other credit grantors. Mirant Corporation has agreed to indemnify BP against
losses under such guarantees in proportion to Vastar's former ownership
percentage of Mirant Americas Energy Marketing. At March 31, 2002, such
guarantees amounted to approximately $92 million.

     Mirant Americas Energy Marketing has a 20-year tolling agreement with
Perryville under which Perryville will sell all the electricity generated by the
facility to Mirant Americas Energy Marketing. At June 30, 2002, the total
estimated notional commitment under this agreement was approximately $1.07
billion over the 20-year life of the contract. Effective August 23, 2002, Mirant
Americas Energy Marketing and Perryville, with the consent of the project
lenders, restructured the tolling agreement between the parties to remove the
requirement to post a letter of credit or other credit support in the event of a
downgrade from S&P or Moody's. In connection with the restructuring, Mirant
Americas made a $100 million subordinated loan to Perryville, the proceeds of
which were used to repay an existing $25 million subordinated loan owed to a
Mirant subsidiary and to repay $75 million of senior debt of the project. In
addition, Mirant Americas guaranteed the obligations of Mirant Americas Energy
Marketing under the tolling agreement up to the amount of the subordinated loan.
The obligations of Mirant Americas Energy Marketing under the tolling agreement
are guaranteed by Mirant Corporation.

     To the extent that Mirant Corporation does not maintain its current credit
ratings, it could be required to provide alternative collateral to certain risk
management and marketing counterparties based on the value of the Company's
portfolio at such time, in order to continue its current relationship with those
counterparties. Mirant could also be required to provide alternative collateral
related to committed pipeline capacity charges. Such collateral might be in the
form of cash and/or letters of credit. There is an additional risk that in the
event of a reduction of Mirant's credit rating that certain counterparties may,
without contractual justification, request additional collateral or terminate
their obligations to Mirant.

   Turbine Purchases and Other Construction-Related Commitments

     During the three months ended March 31, 2002, Mirant committed itself to a
strategic business plan designed to reduce capital spending and operating
expenses. As a result, the Company recorded restructuring charges in the three
months ended March 31, 2002 related to these changes. The reduced capital
spending plan results in material changes to Mirant's commitments under its
turbine purchase agreements and its turbine procurement facilities. Mirant has
canceled and intends to cancel certain turbines under its purchase agreements
and its off-balance sheet equipment procurement facilities by March 31, 2003.
The commitments for turbines that Mirant has canceled and intends to cancel are
included in Mirant's restructuring charge (Note G), and Mirant plans to formally
terminate the orders for these turbines at various times within one year of the
restructuring commitment date. Until these termination orders are issued Mirant
continues to have the option to purchase the turbines.

     As of March 31, 2002, Mirant had agreements to purchase 37 turbines (28 gas
turbines and 9 steam turbines) to support the Company's ongoing and planned
construction efforts. At March 31, 2002, minimum termination amounts under the
remaining 26 turbine purchase contracts that Mirant intends to exercise
consisted of $28 million. Total amounts to be paid under the agreements if the
remaining 26 turbines that Mirant intends to exercise are purchased as planned
are estimated to be $125 million at March 31, 2002. At March 31, 2002, other
construction-related commitments totaled approximately $818 million.

     In addition to these commitments, Mirant, through certain of its
subsidiaries, has two off-balance sheet equipment procurement facilities. These
facilities are being used to fund equipment progress payments due under purchase
contracts that have been assigned to two separate, independent third-party
owners. For the first facility, which is a $1.8 billion notional value facility,
remaining contracts as of March 31, 2002 for 42 turbines (28 gas turbines and 14
                                       33


steam turbines) have been assigned to a third-party trust. For the second
facility, which at March 31, 2002 was a Euro 1.1 billion notional value
facility, remaining contracts as of March 31, 2002 for six engineered equipment
packages ("power islands") have been assigned to a third-party owner
incorporated in The Netherlands (See Note K - Subsequent Events).

     As part of its strategic restructuring, Mirant negotiated certain deferrals
under both equipment purchase facilities. Because the term of the deferred
fabrication period for certain turbines included in the $1.8 billion notional
value facility exceeds the agreed fabrication period as permitted within the
equipment procurement facilities, the Company will not have the option to enter
into a lease arrangement for this equipment, thereby forcing Mirant to exercise
its purchase option. Consequently, Mirant has included a $35 million liability
for these turbines on the accompanying unaudited condensed consolidated balance
sheet. At March 31, 2002, Mirant Corporation's guarantees in connection with the
equipment procurement facilities, including certain payment obligations were
approximately $373 million with respect to the turbines for which the facilities
have a contractual obligation (excluding the $35 million which is now included
in "Other long-term debt" on its unaudited condensed consolidated balance
sheet). If Mirant had elected not to exercise its purchase options with respect
to the remaining 11 turbines and power islands and to terminate the procurement
contracts, minimum termination amounts due would have been $181 million at
March 31, 2002 (See Note K - Subsequent Events.) If the purchase options or
options to lease the remaining 11 turbines and power islands are exercised as
planned, total commitments would be approximately $477 million.

   Long-Term Service Agreements

     Mirant has entered into long-term service agreements for the maintenance
and repair by third parties of many of its combustion-turbine generating plants.
Generally, these agreements may be terminated at little or no cost in the event
that the shipment of the associated turbine is canceled. As of March 31, 2002,
the minimum termination amounts for long-term service agreements associated with
completed and shipped turbines were $536 million. As of March 31, 2002, the
total estimated commitments for long-term service agreements associated with
turbines already completed and shipped were approximately $684 million. These
commitments are payable over the course of each agreement's term. The terms are
projected to range from ten to twenty years. Estimates for future commitments
for long-term service agreements are based on the stated payment terms in the
contracts at the time of execution. These payments are subject to an annual
inflationary adjustment.

     As a result of the turbine cancellations as part of Mirant's restructuring,
the long-term service agreements associated with the canceled turbines will also
be canceled. However, as stated above, canceling the long-term service
agreements will result in little or no termination costs to Mirant. Mirant does
not intend to cancel long-term service agreements associated with turbines that
have already shipped. Consequently, the Company's restructuring should not have
an impact on the long-term service agreement commitments disclosed above.

 Obligations Under Energy Delivery and Purchase Commitments

     Under the asset purchase and sale agreement for the PEPCO generating
assets, Mirant assumed and recorded net obligations of approximately $2.3
billion representing the fair value (at the date of acquisition) of
out-of-market energy delivery and power purchase agreements, which consist of
five power purchase agreements ("PPAs") and two transition power agreements
("TPAs"). The PPAs are for a total capacity of 735 MW and expire over periods
through 2021. The TPA agreements state that Mirant will sell a quantity of
megawatthours over the life of the contracts based on PEPCO's load requirements
and expire in January 2005. As actual megawatthours are purchased or sold under
these agreements, Mirant releases a ratable portion of the obligation into gross
margin. For the three months ended March 31, 2002, the Company released
approximately $113 million, pre-tax. As of March 31, 2002, the remaining
obligations recorded in the unaudited condensed consolidated balance sheet for
the TPAs and PPAs totaled $1,209 million and $517 million, respectively, of
which $462 million and $66 million, respectively, are current. At March 31,
                                       34


2002, the estimated notional commitments under the PPA agreements were $1.63
billion based on the total remaining MW commitment at contractual prices.

     Other obligations under various agreements of approximately $156 million
are also included in the unaudited condensed consolidated balance sheet.

   Fuel Commitments

     Mirant has fixed volumetric purchase commitments under fuel purchase and
transportation agreements totaling $602 million at March 31, 2002. These
agreements will continue to be in effect through 2011. In addition, Mirant has a
contract with BP whereby BP is obligated to deliver fixed quantities of natural
gas at identified delivery points. The negotiated purchase price of delivered
gas is generally equal to the monthly spot rate then prevailing at each delivery
point. The agreement will continue to be in effect through December 31, 2007,
unless terminated sooner. The estimated commitment for the term of this
agreement based on current spot prices is $6.29 billion as of March 31, 2002.
Because this contract is based on the current spot price at the time of
delivery, Mirant has the ability to sell the gas at the same spot price, thereby
offsetting the full amount of its commitment related to this contract. In the
event the Company does not maintain its current credit ratings, BP could request
additional collateral. Based on the Company's current estimate and the pricing
as of March 31, 2002, Mirant could be required to post approximately $266
million of additional collateral.

     Effective July 26, 2002, Mirant and BP have restructured their contract.
The contract term has been extended to December 31, 2009, unless terminated
sooner. Mirant has the ability to reduce the purchase obligation on this
contract annually. Based on current contract volumes, the estimated minimum
commitment for the term of this agreement based on current spot prices is $2.2
billion as of September 30, 2002. The contract is now subject to the North
American Master Netting Agreement between Mirant and BP, dated December 1, 2001
(the "Master Netting Agreement") and a new collateral annex to the Master
Netting Agreement. Together, the Master Netting Agreement and Collateral Annex
provide that the amounts due to BP under the contract will be netted against
payments due between Mirant and BP under various other gas and power contracts,
and that collateral will be posted by one party to the other based on the net
amount of exposure.

   Operating Leases

     Mirant has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled
approximately $31 million and $30 million during the three months ended March
31, 2002 and 2001, respectively. As of March 31, 2002, estimated minimum rental
commitments for non-cancelable operating leases were $3.61 billion.

  Perryville Guarantee

     On March 22, 2002, Perryville achieved the air and wastewater discharge
permit compliance thereby terminating Mirant's guarantees for certain debt
payments in connection with a loan agreement between Perryville and its lenders
with respect to such permits.

I.  Discontinued Operations

     In February 2002, Mirant announced that it had entered into an agreement to
sell its State Line generating facility for $181 million plus an adjustment for
working capital. The sale was completed in June 2002. State Line was previously
reported in Mirant's North America Group operations. In addition, income from
discontinued operations for the three months ended March 31, 2001 includes SE
Finance, which was contributed to Southern on March 5, 2001 as part of Mirant's
spin-off from Southern.
                                       35


     Mirant's results of discontinued operations for the three months ended
March 31, 2002 and 2001 were as follows (in millions):



                                                               For the Three Months
                                                                 Ended March 31,
                                                                 2002         2001
                                                               -------       ------
                                                                          
          Revenue................................................. $15           $14
          Leveraged lease income..................................   -            10
          Expense.................................................   9             9
          Impairment loss.........................................   2             -
          Equity in income/(loss) of affiliates..................    -            (3)
          Pre-tax income.........................................    4            12
          Taxes..................................................    2             1
                                                                   ----         -----
          Net income.............................................   $2           $11
                                                                   ====         =====


    The table below presents the components of State Line's balance sheet
accounts classified as current assets and liabilities held for sale as of March
31, 2002 and December 31, 2001 (in millions):


                                                                          
                                                       March 31, 2002       December 31, 2001
                                                      -----------------    --------------------
          Current Assets:
          Accounts receivable....................            $5                   $5
          Inventory..............................             3                    3
          Other..................................             1                    1
          Property, plant and equipment..........           173                  175
          Intangibles............................             9                    9
                                                           ------              ------
             Total current assets held for sale..          $191                 $193
                                                           ======              ======
          Current Liabilities:
          Taxes and other payables...............           $10                  $10
          Deferred taxes.........................            15                   15
                                                           -------             -------
             Total current liabilities related to
              assets held for sale                          $25                  $25
                                                           =======             =======



                                       36




J. Segment Reporting

    With the sale of the Company's investment in Bewag and its restructuring,
Mirant has changed its principal business segments from Americas, Asia-Pacific
and Europe to North America and International. North America includes Mirant's
United States, Canadian and Caribbean operations, and International includes
Mirant's Asia-Pacific, European and Brazilian operations. The other reportable
business segment is Corporate.

                            Financial Data by Segment
               For the Three Months Ended March 31, 2002 and 2001
                                  (In Millions)


                                                                                               
                                                                                         Corporate and
                                                   North America      International       Eliminations       Consolidated
                                               ------------------- ------------------- ----------------- -------------------
                                                  2002      2001      2002      2001      2002     2001     2002       2001
                                               --------- --------- --------- --------- --------- ------- ---------- --------
Operating Revenues:
   Generation and energy marketing              $6,346     $8,039    $ 435      $ 87       $ -      $ -    $6,781   $ 8,126
   Distribution & integrated utility revenues      108         36        -         -         -        -       108        36
   Other                                            11          -        8         6         -        -        19         6
                                               --------- --------- --------- --------- --------- -------- --------- --------
   Total operating revenues                      6,465      8,075      443        93         -        -     6,908     8,168

Operating Expenses:
   Cost of fuel, electricity and other products  5,988      7,368      310        13         -        -     6,298     7,381
                                               --------- --------- --------- --------- --------- -------- --------- --------
   Gross Margin                                    477        707      133        80         -        -       610       787
Other Operating Expenses:
   Depreciation and amortization                    52         51       23        33         2        1        77        85
   Maintenance                                      27         22        5         5         -        -        32        27
   Selling, general, and administrative            100        223       34        28        14       45       148       296
   Impairment loss                                   -          4        -         -         -        -         -         4
   Restructuring charges                           486          -       65         -        11        -       562         -
   Other operating expenses                         98         92        2         3         7        4       107        99
                                               --------- --------- --------- --------- --------- -------- --------- --------
   Total other operating expenses                  763        392      129        69        34       50       926       511
                                               --------- --------- --------- --------- --------- -------- --------- --------
Operating (Loss) Income                           (286)       315        4        11       (34)     (50)     (316)      276

Other Income (Expense):
   Interest expense, net                           (33)       (37)     (29)      (29)      (40)     (25)     (102)      (91)
   Equity in income of affiliates                    7          7       71        72         -        -        78        79
   Gain on sales of assets, net                      -          -      291         -         -        -       291         -
   Other                                             5         (1)      19         8         -        -        24         7


(Loss) Income From Continuing Operations       --------- --------- --------- --------- --------- -------- --------- --------
   Before Income Taxes and Minority Interest      (307)       284      356        62       (74)     (75)      (25)      271

(Benefit) Provision for income taxes              (120)       115      115       (20)      (28)      (7)      (33)       88
Minority interest                                    2          1        8         8         6        5        16        14
                                               --------- --------- --------- --------- --------- -------- --------- --------
(Loss) Income From Continuing Operations          (189)       168      233        74       (52)     (73)       (8)      169

Income From Discontinued Operations,
    Net of Tax Benefit                               2          6        -         -         -        5         2        11
                                               --------- --------- --------- --------- --------- -------- --------- --------
Net (Loss) Income                                $(187)     $ 174    $ 233      $ 74     $ (52)    $(68)     $ (6)    $ 180
                                               ========= ========= ========= ========= ========= ======== ========= ========



                                       37



                  Selected Balance Sheet Information by Segment
                                At March 31, 2002
                                  (In Millions)


                                                                                              

                                                                                 Corporate and
                                      North America          International        Eliminations            Total
                                     ---------------        ---------------     ---------------        ----------
Current assets                              $ 6,629               $  934            $ (1,815)            $ 5,748

Property, plant & equipment,
  including leasehold interest                5,967                1,766                 112               7,845

Total assets                                 13,338                5,215               1,815              20,368

Total debt                                    5,068                1,413                 758               7,239

Common equity                                 4,142                2,851              (1,529)              5,464








                                       38





K.       Subsequent Events

    Convertible Senior Notes

     In July 2002, Mirant Corporation completed the issuance of $370 million of
convertible senior notes. The net proceeds from the offering, after deducting
underwriting discounts and commissions payable by Mirant, were $361 million.

     The notes mature on July 15, 2007 with an annual interest rate of 5.75%.
Holders of the notes may convert their notes into 131.9888 shares of Mirant
common stock for each $1,000 principal amount of the notes at any time prior to
July 15, 2007. This conversion rate is equivalent to the initial conversion
price of $7.58 per share based on the issue price of the notes. Mirant has the
right to redeem for cash, some or all of the notes at any time on or after July
20, 2005, upon not less than 30 nor more than 60 days' notice by mail to holders
of the notes, for a price equal to 100% of the principal amount of the notes to
be redeemed plus any accrued and unpaid interest to the redemption date.

   Liquidity

     To enhance Mirant's liquidity and reduce reliance on external financing,
Mirant has designed and launched an additional phase for its restructuring plan.
In 2002, Mirant announced its plan to sell additional assets, including WPD, to
raise $700 million to $1 billion. In addition, Mirant's board has authorized the
expenditure of up to $500 million for the repurchase of debt securities as the
Company's liquidity permits through 2003.

     In July 2002, Mirant Corporation fully drew the commitments under its
$1.125 billion 364-Day Credit Facility, and elected to convert all advances
outstanding into a term loan maturing in July 2003. Effective with the Company's
third quarter reporting, this credit facility will be reclassified from
long-term debt to short-term debt as it will be due within 12 months. The
Company expects that this reclassification will potentially cause the Company to
have a negative working capital balance. The Company is evaluating various
potential financing transactions to repay and/or refinance the credit facility
prior to its maturity. As a result of present market conditions and other
factors, including the reaudit of its historical financial statements, Mirant
cannot provide assurance that it will be successful in entering into a new
credit facility. If Mirant is successful in entering into a new credit facility,
it expects the facility will likely be smaller and will have higher pricing and
more restrictive terms than the current facility.

     In July 2002, Mirant Corporation and Mirant Americas Generation drew down
most of their available revolving credit commitments. The schedule below
summarizes the outstanding borrowings under the credit facilities held by Mirant
Corporation and its subsidiaries as of September 30, 2002 (in millions).



                                                         Drawn Amount excluding      Letters of Credit
       Company                                              Letters of Credit           Outstanding
                                                                                      
                                                       ---------------------------- ---------------------
       Mirant Corporation ........................                $1,551(1)                 $1,048
       Mirant Americas Generation.................                    300                      -
       Mirant Canada Energy Marketing.............                     44                      -
       Mirant Americas Energy Capital.............                    150                      -
(1)Amount includes fully drawn commitments under Mirant's $1.125 billion 364-Day
Credit Facility that was converted in July 2002 to a term loan maturing in July
2003.


   Income Taxes

     The IRS has completed its audit of Mirant for all tax years through 1995.
The IRS is currently auditing the tax years 1996-1999. Subsequent to June 30,
2002, the IRS issued Notices of Proposed Adjustments for this period for several
tax return filing positions affecting taxable income. While Mirant believes it
has substantial authority for the positions it has taken, it continues to review
this situation. The negative liquidity impact of these adjustments, if accepted
                                       39


by Mirant, could be as much as $100 million. Management has not yet determined
the income statement impact of these potential adjustments.

   Turbine Commitments

     In October 2002, Mirant terminated contracts for three turbines that Mirant
did not anticipate terminating as of June 30, 2002. At the termination in
October 2002, the total net termination expense of these turbines was
approximately $34 million.

   Asset Sales

     In May 2002, Mirant completed the sale of its 60% ownership interest in the
750 MW Kogan Creek power project, located near Chinchilla in southeast
Queensland, Australia, and associated coal deposits for approximately $29
million. The after-tax gain on the sale of Mirant's investment in Kogan Creek
was approximately $17 million.

     In May 2002, Mirant completed the sale of its 9.99% ownership interest in
SIPD, located in the Shandong Province, China, for approximately $120 million.
The after-tax loss on the sale of Mirant's investment in SIPD was approximately
$9 million.

     In July 2002, Mirant announced that it had entered into an agreement to
sell its Neenah generating facility ("Neenah") in the state of Wisconsin to
Alliant Energy Resources, Inc. for approximately $109 million. The sale of
Mirant's investment in Neenah will be near book value. The sale is expected to
close in the fourth quarter of 2002.

     In August 2002, Mirant completed the sale of its wholly owned subsidiary
MAP Fuels Limited, which fully owned Allied Queensland Coalfields Pty Ltd.
("AQC"), in Queensland, Australia, for approximately $21 million. The asset was
sold at approximately book value. The sale included both the Wilkie Creek Coal
Mine and the Horse Creek coal deposits.

    The table below presents the components of Neenah's and AQC's balance sheet
accounts as of March 31, 2002 (in millions):

          Assets:
          Accounts receivable....................            $4
          Inventory..............................             2
          Other current assets...................            10
          Property, plant and equipment..........           112
          Intangibles............................             5
                                                          ------
             Total assets........................          $133
                                                          ======
          Liabilities:
          Taxes and other payables...............           $20
                                                          ------
             Total liabilities...................           $20
                                                          ======

     In September 2002, Mirant completed the sale of its 49% economic interest
in, and shared management control of, Western Power Distribution Holdings
Limited and WPD Investment Holdings (both identified jointly as WPD) for
approximately $235 million. Prior to the sale, Mirant recorded a write-down of
approximately $306 million, including $11 million of related income tax
benefits, during the second quarter of 2002 to reflect the difference between
the carrying value of its investment and its fair value. The after-tax loss on
the sale of Mirant's investment in WPD was approximately $306 million. The WPD
assets include the electricity distribution networks for Southwest England and
South Wales.
                                       40





   Write Down of Asset

     In September 2002, Mirant recorded an after-tax write down of $37 million
reflecting the fair market value of Mirant Americas Production Company. Mirant
Americas Production Company is an oil and gas exploration, development and
production company that Mirant has a plan to sell within a year. Mirant Americas
Production Company is included in the North America Group.

    Suspended Construction

    In August 2002, Mirant announced suspension of construction of the 298 MW
natural gas-fired Mint Farm Generating Station in Longview, Washington due to
weak market conditions. The project was about 60% complete and had an expected
commercial operating date of June 2003. Costs incurred of $42 million are
included in "Construction work in progress" on Mirant's condensed consolidated
balance sheet at March 31, 2002. The site will be maintained to preserve the
completed work and allow for restart of construction when market conditions
become more favorable.

    Commencement of Operations

      In June 2002, the Ilijan facility located in the Philippines, in which
Mirant has a 20% ownership interest, commenced commercial operations.

     In July 2002, Mirant commenced operation of the second phase at its
Zeeland, Michigan generating plant, operation at its Wrightsville, Arkansas
generating plant and operation of the first phase at its Sugar Creek generating
plant near Terre Haute, Indiana. Upon completion of the projects, $678 million
in costs were transferred from "Construction work in progress" to "Property,
plant and equipment."

     In October 2002, JPSCo, in which Mirant has an 80% ownership interest,
commenced operation of a new unit at its Bogue generating plant in Montego Bay,
Jamaica. Upon completion of the project, approximately $80 million in costs were
transferred from "Construction work in progress" to "Property, plant and
equipment."

   Pagbilao Put Options

     The Pagbilao project shareholder agreement grants minority shareholders put
option rights, such that they can require Mirant Asia-Pacific Limited to
purchase their interests in the project. Two of the three Pagbilao project
minority shareholders have served notice of their intent to exercise their
respective put options which aggregate to 8.52% ownership interest in the
project. The current intent of Mirant is to fund the purchase of the put
interests with amounts available at Mirant Asia-Pacific and/or its subsidiaries.

   West Georgia Generating Company, LLC

     West Georgia Generating Company, LLC ("West Georgia"), a wholly owned
subsidiary acquired by Mirant in August 2001, has an approximately $144 million
project finance credit facility ($144 million drawn balance at June 30, 2002).
Under the terms of that credit facility, West Georgia is required to deliver
audited financial statements to the lenders thereunder within 120 days of fiscal
year end. On May 24, 2002, within the thirty day cure period under the credit
agreement, the agent under the credit facility extended the period for delivery
of such audited financial statements until the end of July. In July 2002, the
required audited financial statements were delivered to the lenders as required
under the terms of the credit facility.

                                       41




   Mirant New England Guarantee

     In April 2002, Mirant Corporation issued a guarantee in the amount of $188
million for any obligations Mirant New England may incur under its Wholesale
Transition Service Agreement with Cambridge Electric Light Company and
Commonwealth Electric Company. Under the agreement, Mirant New England is
required to sell electricity at fixed prices to Cambridge and Commonwealth in
order for them to meet their supply requirements to certain retail customers.
Both the guarantee and the agreement expire in February 2005.

    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 will purchase a minimum of 2.4 million tons of
fuel per annum through December 2007. The purchase price of the fuel will vary
with the delivered cost of the coal feedstock. Based on current coal prices it
is expected that the annual purchase commitment will be approximately $100
million. Minimum purchase commitments became effective upon the commencement of
the synthetic fuel plant operation at the Morgantown facility in July 2002.

     In July 2002, in conjunction with the commencement of Mirant Mid-Atlantic's
minimum synthetic fuel purchase commitments, Mirant Americas Energy Marketing
arranged for the synthetic fuel supplier to contract with the coal supplier to
purchase coal directly from the supplier. Mirant Americas Energy Marketing's
minimum coal purchase commitments are reduced to the extent that the synthetic
fuel supplier purchases coal under this arrangement. Since the inception of this
arrangement, the synthetic fuel supplier has purchased 100% of Mirant Americas
Energy Marketing's minimum coal purchase commitment thereby reducing the amount
of coal purchased by Mirant Americas Energy Marketing under the contracts, which
are included in the fixed volumetric purchase commitment of $602 million
disclosed in Note H.

   Litigation

Shareholder Litigation: Twenty lawsuits have been filed since May 29, 2002
against Mirant and four of its officers alleging, among other things, that
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by making material misrepresentations
and omissions to the investing public regarding Mirant's business operations and
future prospects during the period from January 19, 2001 through May 6, 2002.
The suits have each been filed in the United States District Court for the
Northern District of Georgia, with the exception of the Thomas, Purowitz, and
Delgado suits, which were filed in the United States District Court for the
Northern District of California. The complaints seek unspecified damages,
including compensatory damages and the recovery of reasonable attorneys' fees
and costs. Additional "copy cat" law suits may be filed. The captions of each of
the cases follow:

   CAPTION                                            DATE FILED

   Kornfeld v. Mirant Corp., et al.                   May 29, 2002

   Holzer v. Mirant Corp., et al.                     May 31, 2002

   Abrams v. Mirant Corp., et al.                     June 1, 2002

   Kellner  v. Mirant Corp., et al.                   June 14, 2002

   Sved  v. Mirant Corp., et al.                      June 14, 2002

   Teaford  v. Mirant Corp., et al.                   June 14, 2002

   Woff  v. Mirant Corp., et al.                      June 14, 2002

   Purowitz v. Mirant Corp., et al.                   June 10, 2002

   Peruchi  v. Mirant Corp., et al.                   June 14, 2002

   Froelich  v. Mirant Corp., et al.                  June 4, 2002

   Rand  v. Mirant Corp., et al.                      June 5, 2002

   Thomas  v. Mirant Corp., et al.                    June 18, 2002

   Urgenson v. Mirant Corp., et al.                   June 18, 2002

   Orlofsy v. Mirant Corp., et al.                    June 18, 2002
                                       42


   Jannett v. Mirant Corp.                            June 28, 2002

   Green v. Mirant Corp., et al.                      July 9, 2002

   Greenberg v. Mirant Corp., et al.                  July 16, 2002

   Law v. Mirant Corp., et al.                        July 17, 2002

   Russo v. Mirant Corp., et al.                      July 18, 2002

   Delgado v. Mirant Corp., et al.                    October 4, 2002

     The seventeen suits filed in the United States District Court for the
Northern District of Georgia have been consolidated.

     SEC Informal Investigation and U.S. Department of Justice and CFTC
Inquiries: In August 2002, Mirant received a notice from the Division of
Enforcement of the Securities and Exchange Commission that it was conducting an
investigation of Mirant. The Division of Enforcement has asked for information
and documents relating to various topics such as accounting issues, including
the issues announced on July 30, 2002 and August 14, 2002; energy trading
matters (including round trip trades); Mirant's accounting for transactions
involving special purpose entities; and information related to shareholder
litigation. Mirant intends to cooperate fully with the Securities and Exchange
Commission.

     In addition, the Company has been contacted by the U.S. Department of
Justice regarding the Company's disclosure of its accounting issues and energy
trading matters. The Company has been asked to provide copies of the same
documents requested by the SEC in their informal inquiry, and it intends to
cooperate fully.

     In August 2002, the Commodities Futures Trading Commission ("CFTC") asked
the Company for information about a small number of buy and sell transactions
occurring during 2001. The Company provided information regarding such trades to
the CFTC in mid August, none of which it considers to be wash trades. The CFTC
subsequently requested additional information, including information about all
trades conducted on the same day with the same counterparty that were
potentially offsetting during the period from January 1, 1999, through June 17,
2002.

Shareholder Derivative Litigation: On July 2, 2002, Mirant received notice that
a purported shareholders' derivative lawsuit had been filed in the Superior
Court of Fulton County, Georgia against Mirant and its directors. Subsequently
two other purported shareholders' derivative suits were filed against Mirant,
its directors and certain officers of the Company. The Pettingill suit was filed
in the Court of the Chancery for New Castle County, Delaware and the White suit
in the Superior Court of Fulton County. The captions of each of the cases
follow:

   CAPTION                                            DATE FILED

   Kester v. Correll, et al.                          June 26, 2002

   Pettingill v. Fuller, et al.                       July 30, 2002

   White v. Correll, et al.                           August 9, 2002

     These lawsuits allege that the directors breached their fiduciary duties by
allowing the Company to engage in alleged unlawful or improper practices in the
California energy market during 2000 and 2001. The company practices complained
of in the purported derivative lawsuits largely mirror those complained of in
the shareholder litigation, the rate payer litigation and the California
attorney general lawsuits that have been previously disclosed by the Company.
The Pettingill suit also alleges that the defendant officers engaged in insider
trading. The complaints seek unspecified damages on behalf of the Company,
including attorneys' fees, costs and expenses and punitive damages. The Kester
                                       43


and White suits have been consolidated and stayed until discovery begins in the
seventeen consolidated suits pending in the United States District Court for the
Northern District of Georgia described in Shareholder Litigation. The Pettingill
suit is also stayed until discovery begins in those seventeen consolidated
suits.

Philippines IPP Review: Pursuant to the Electric Power Industry Reform Act of
2001 a governmental Inter-Agency Review Committee ("Committee") was established
to review all contracts with IPPs in the Philippines, including those of the
Company, to determine whether such contracts have provisions which are grossly
disadvantageous or onerous to the government of the Philippines. On July 5,
2002, it was reported that 29 of the 35 contracts reviewed had legal or
financial issues requiring further review or action. These included several of
Mirant's contracts. Mirant Philippines, the Power Sector Assets and Liabilities
Management Corporation ("PSALM"), the Department of Energy, and the Department
of Justice have entered into a letter agreement establishing a general framework
("Framework Agreement") for resolving all outstanding issues raised by the
Committee about Mirant's IPP contracts. The Department of Energy has announced
that the parties "have successfully resolved, through bilateral agreement,
between the Philippine Government and the firm, all outstanding issues" on
Mirant's IPP contracts. The key terms of the new agreements are: Pagbilao will
no longer nominate capacity beyond the plant's nominal capacity; Pagbilao will
agree to settle certain issues on interpretation of its ECA relating to
penalties resulting from forced outages and waive past claims relating thereto;
the ECAs for Navotas I and II will be terminated and Mirant will acquire rights
to the Navotas I and II plants in return for a net payment of approximately
US$12 million; Mirant will be free to sell Navotas and excess Pagbilao energy
output in the open market; and Sual and Pagbilao will waive their claims to be
reimbursed for local business taxes. The benefits to Mirant are confirmation
that the original contracts for Sual and Pagbilao remain intact and will be
reaffirmed; no resultant material net income impact; reduction in potential
penalty payments due to outages at Pagbilao; acquisition of ownership rights of
Navotas I and II; and facilitation of further energy sales from Sual, Pagbilao
and Navotas I and II. The Framework Agreement has numerous conditions precedent
and its implementation will require many other agreements involving project
companies, and in some cases other parties and government agencies. The parties
have agreed to complete the measures within 90 days from the date of the
Framework Agreement. Any issue with respect to Ilijan is outside the terms of
the Framework Agreement.

Wallula Power Project: On June 20, 2002, Wallula Generation, LLC ("Wallula")
sent a letter to Mirant Americas Energy Marketing, a wholly-owned subsidiary of
Mirant, requesting a letter of credit in the amount of $166 million in
connection with a tolling arrangement pursuant to a Conversion Services
Agreement (the "Agreement") between Mirant Americas Energy Marketing and Wallula
for the planned Wallula Power Project to be constructed by Wallula in the State
of Washington by October 2004, which date could be extended pursuant to the
Agreement. Mirant Americas Energy Marketing disagreed with Wallula's
interpretation of the collateral and credit requirements of the Agreement.

     By letter dated July 10, 2002, Wallula requested that Mirant arbitrate the
issue of whether Mirant was obligated to provide a letter of credit in the
amount of $166 million. In September, Mirant and Wallula entered into an
agreement settling their outstanding dispute. Under that settlement agreement,
Mirant has paid Wallula an amount that will not have a materially adverse impact
on the Company. In addition, the Agreement between Mirant Americas Energy
Marketing and Wallula has been terminated.

Panda-Brandywine, L.P. Power Purchase Agreement: On July 18, 2002, the Maryland
Court of Special Appeals ruled that a Power Purchase Agreement ("Panda PPA")
between Panda-Brandywine, L.P. ("Panda") and PEPCO had been improperly assigned
to Mirant and that PEPCO had improperly delegated its duties under the Panda PPA
to Mirant. The Panda PPA is a long term power purchase agreement that expires in
2021. At the time that Mirant purchased the Mid-Atlantic assets from PEPCO in
2000, Mirant and PEPCO entered into a contractual arrangement (the "Back-to-Back
Agreement") with respect to the Panda PPA under which (1) PEPCO agreed to resell
to Mirant all "capacity, energy, ancillary services and other benefits" to which
it is entitled from Panda under the Panda PPA; (2) Mirant agreed to pay PEPCO
each month all amounts due from PEPCO to Panda for the immediately preceding
month associated with such capacity, energy, ancillary services and other
benefits; and (3) PEPCO irrevocably and unconditionally appointed Mirant to deal
                                       44


directly with Panda with respect to all matters arising under the Panda PPA.
Mirant has also entered into an agreement with PEPCO that the Back-to-Back
Agreement would be terminated and an adjustment would be made to the price paid
by Mirant under the asset purchase and sale agreement if the Back-to-Back
Agreement was found to be void by a binding court order within the period ending
in March 2005. The amount of the purchase price adjustment is to be set so as to
compensate PEPCO for the termination of the benefit to PEPCO of the back-to-back
arrangement while also holding Mirant economically indifferent from any such
court order. In December 2000, Mirant estimated that the charges to be paid by
PEPCO for electricity under the Panda PPA exceeded the then existing market
prices for electricity by $365 million on a net present value basis. In its July
18, 2002 decision, the Court of Special Appeals also ruled, however, that the
Maryland PSC has the authority to approve the transfer of rights, duties and
obligations under the Panda PPA to Mirant on public policy grounds despite the
assignment provision and remanded the case to the Maryland PSC. PEPCO and Panda
have each filed a petition seeking to appeal the decision made by the Court of
Special Appeals to the Maryland Court of Appeals, its highest court. Mirant does
not believe that it will ultimately be required to make the purchase price
adjustment, but the ultimate outcome cannot now be determined.

     With respect to each of these lawsuits, the Company cannot currently
determine the outcome of the proceedings or the amounts of any potential losses
from such proceedings.



                                       45



                     Independent Accountants' Review Report

The Board of Directors and Shareholders
Mirant Corporation:

We have reviewed the condensed consolidated balance sheet of Mirant Corporation
and subsidiaries as of March 31, 2002, and the related condensed consolidated
statements of income, stockholders' equity and cash flows for the three-month
period ended March 31, 2002. These condensed consolidated financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.

The consolidated financial statements of the Company as of and for the year
ended December 31, 2001, were not audited by us and, accordingly, we do not
express an opinion or any form of assurance on the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2001.
Additionally, the condensed consolidated statements of income and cash flows for
the three-month period ended March 31, 2001, were not reviewed or audited by us
and, accordingly, we do not express an opinion or any form of assurance on them.





/s/ KPMG LLP

Atlanta, Georgia
November 6, 2002


                                       46



                       MIRANT CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

     We are a global competitive energy company that delivers value primarily by
producing and selling electricity in the U.S., Philippines, China and the
Caribbean. In the U.S. we optimize the value of our extensive power plant asset
base by buying and selling power and natural gas utilizing our risk management
and marketing expertise. In the Philippines and China we have long-term
contracts to sell the majority of the power produced from our power plants and
in the Caribbean we also own fully integrated electric utilities with
generation, transmission and distribution capabilities. As of September 30,
2002, we owned or controlled more than 22,500 MW of electric generating capacity
around the world and expect to bring online approximately 1,200 MW by December
2003. In North America, we also control access to approximately 3.8 billion
cubic feet per day of natural gas production, more than 3.6 billion cubic feet
per day of natural gas transportation and approximately 49 billion cubic feet of
natural gas storage.

     With the sale of our investments in Bewag, WPD and our restructuring, we
have changed our principal business segments from Americas, Asia-Pacific and
Europe to North America and International. North America includes our United
States, Canadian and Caribbean operations and International includes our
Asia-Pacific, European and Brazilian operations. The other reportable business
segment is Corporate. In the fourth quarter of 2002, we launched an additional
phase of our restructuring plan, which moved our Caribbean operations from our
North America Group to our International Group.

     As a result of the ongoing downward trend in market conditions, we have
modified our business strategy to focus on our North American, Caribbean and
Philippines operations. As part of this new focus, we will continue to reduce
the level of our trading and marketing activity, particularly with respect to
physical natural gas, as well as continue our asset sales program. As a result
of this contraction, we expect to record additional restructuring charges during
the remainder of 2002. Our current portfolio of power plants and electric
utilities gives us a net ownership and leasehold interest of over 18,900 MW of
electric generating capacity around the world, and control of over 3,600 MW of
additional generating capacity through management contracts. Our business also
includes managing risks associated with market price fluctuations of energy and
energy-linked commodities. We use our risk management capabilities to optimize
the value of our U.S. asset portfolio and offer risk management services to gas
producers.

   Changes in Senior Management

     In August 2002, Larry Westbrook, was named as the Company's Senior Vice
President and Interim Principal Accounting Officer. Mr. Westbrook is a retired
Chief Financial Officer of the Southern Company and has primary responsibility
for overseeing the resolution of the accounting issues that were discussed in
the Company's August 14, 2002 Form 8-K. In September 2002, James Ward, Mirant's
Controller and Principal Accounting Officer, retired from service with the
Company.

     In October 2002, the Company announced that at the end of October 2002,
Randy Harrison, Senior Vice President - East Region, would be retiring and that
Gary Morsches, Senior Vice President - West Region, would be leaving the
Company.


                                       47




    Accounting Errors and Reaudit of Historical Financial Statements

     As disclosed in a press release dated July 30, 2002, the Company identified
several accounting issues related to its risk management and marketing
operations. Subsequent to its July 30, 2002 press release, the Company
determined that there is no $100 million overstatement of an account payable and
reconciled the potential $68 million overstatement of an accounts receivable
asset referenced in the July 30 press release. The resolution of the $68 million
item did, however, indicate that earnings for the first quarter of 2002 were
understated by $16 million, and previously reported second quarter 2002 earnings
were overstated by $16 million. This first quarter 2002 correction has been
reflected in the accompanying unaudited condensed consolidated statements of
income for the three months ended March 31, 2002.

     The Company also determined the cumulative impact of the previously
disclosed $85 million overstatement of a natural gas asset and recorded
after-tax charges totaling $42 million in its December 31, 2001 retained
earnings balance. The specific interim periods within previous years to which
the $42 million relates have not been determined at this time; accordingly, the
December 31, 2001 retained earnings balance in the accompanying condensed
consolidated balance sheets has been adjusted but not the accompanying 2001
condensed consolidated statements of income. The interim periods to which the
$42 million relates will be determined in connection with the reaudit described
below.

    As a result of the identification of the initial accounting issues described
in the July 30, 2002 press release, the Company retained the law firm of King &
Spalding with the support of a nationally recognized accounting firm to conduct
an independent review and to report to the Company's Audit Committee. King and
Spalding has concluded that there was no fraudulent conduct on the part of any
Mirant employee or officer related to the identified accounting issues.

    In the course of resolving the previously announced accounting issues
discussed above, and the concurrent review of Mirant's interim financial
statements, errors affecting Mirant's historical financial statements were
identified. A summary of these adjustments is as follows (in millions):



                                                                Increase (Decrease) in Net Income
                                                              --------------------------------------
                                                              2001 and Prior    First Quarter 2002
                                                                                 
                                                              ---------------- ---------------------
U.S. income taxes on Asian income (a)....................           $42
Natural gas asset (b)....................................           (42)
Other corrections of prior years' income ................           (15)
Accrued power revenues (c)..............................            (29)              $8
WPD income taxes (d).....................................           (17)
Other corrections of items impacting 2002 and prior year(s)          10                6
$68 million gas accrual (e)                                                           16
Accrued gas revenues (f)                                                              12
Other corrections of items impacting 2002 interim results                             (6)
                                                              ---------------- ---------------------
  Total corrections                                                ($51)             $36
                                                              ================ =====================

(a) excess U.S. income tax on Asia income of $10 million in each of 1999 and
2000, and $22 million in 2001
(b) the cumulative impact of the previously disclosed $85 million overstatement
of a natural gas asset
(c) $48 million of overstated physical power sales were accrued through
December 31, 2001; $13 million of expenses were originally recorded in the first
quarter of 2002 related to this item
(d) $17 million of deferred tax expenses related to the Company's investment in
    WPD were originally recorded in the second quarter of 2002. These expenses
    relate to 1999, 2000 and 2001.
(e) earnings for the first quarter of 2002 were understated by $16 million
(f) correction of accrued gas revenues that decreased first quarter net loss by
    $12 million

                                       48


     The Company has also restated its previously reported financial statements
as of and for the three months ended March 31, 2002. The Company has restated
its financial position by reducing its originally reported assets and
liabilities by $225 million, the major details of which are shown below. The
Company has restated its previously reported results of operations for the three
months ended March 31, 2002 to a net loss of $6 million from an originally
reported net loss of $42 million. The Company has restated its previously
reported first quarter 2002 statement of cash flows, increasing originally
reported cash provided from operations by $46 million to reflect cash receipts
and disbursements in the appropriate period, and increasing cash provided by
investing activities by $11 million. These corrections have been reflected in
the accompanying 2002 unaudited condensed consolidated financial statements.

     A summary comparison of the previously reported and restated March 31, 2002
unaudited condensed consolidated balance sheet follows (in millions):



                                                         March 31, 2002, as        March 31, 2002, as
                                                        Previously Reported             Restated
                                                      ------------------------- --------------------------
                                                                                   
    Total current assets..............................         $5,889                    $5,748
    Noncurrent assets.................................         14,704                    14,620
                                                             ---------                 ---------
        Total assets..................................        $20,593                   $20,368
                                                             =========                 =========
    Total current liabilities.........................         $5,999                    $5,870
    Other liabilities.................................          9,127                     9,034
    Stockholders' equity..............................          5,467                     5,464
                                                              --------                  --------
         Total liabilities and stockholders' equity.          $20,593                   $20,368
                                                              ========                  ========


    A summary of the adjustments to the previously filed first quarter 2002
unaudited condensed consolidated statement of income follows (in millions):

                                Three Months Ended March 31, 2002
                            ------------------------------------------
                             As Previously
                                 Filed              As Restated
                            ----------------- ------------------------
  Operating revenues........   $7,037               $6,908
  Operating expenses........    6,465                6,298
                               --------             --------
  Gross margin..............      572                  610
  Other.....................     (614)                (616)
                               --------             ---------
  Net (loss)................   $  (42)              $   (6)
                               ========             =========

    The Company has also resolved its announced balance sheet reclassifications
that reduce both energy risk management and marketing assets and liabilities in
the Company's December 31, 2000 and 2001 consolidated balance sheets by $1.53
billion and $820 million, respectively. These reclassifications relate primarily
to intra-company eliminations and do not have any effect on the Company's
results of operations, revenues, expenses, net income, liquidity or cash flow.

    The Company's independent auditors assessed the Company's internal controls
of its North American energy marketing and risk management operations as part of
the interim review for the second quarter. The independent auditors provided the
Company with detailed process improvement recommendations to address internal
control deficiencies in existence at June 30, 2002. The independent auditors
have advised the Audit Committee that these internal control deficiencies
constitute reportable conditions and, collectively, a material weakness as
defined in Statement on Auditing Standards No. 60. The Company has assigned the
highest priority to the short-term and long-term correction of these internal
control deficiencies. Management has discussed its proposed actions with the
Audit Committee and its independent auditors. The Company has implemented
corrective actions to mitigate the risk that these deficiencies could lead to
material misstatements in the Company's current financial statements. In
addition, the Company has performed additional procedures to enable the
completion of the independent auditors' review of the Company's interim
financial statements despite the presence of the control weaknesses as noted
above.
                                       49


    In October 2002, the Company engaged KPMG to reaudit the Company's 2000 and
2001 financial statements for two primary reasons: (i) to address accounting
errors identified during reviews of the Company's previously disclosed
accounting issues; and (ii) to enable its independent auditors to provide an
opinion on Mirant's 2000 and 2001 financial statements in accordance with the
new accounting standards of EITF Issue 02-3 and SFAS No. 144. The Company
expects the reaudit to result in a restatement of its statement of income for
either or both of 2000 and 2001 and potentially for interim periods in 2001 and
2002.

 RESULTS OF OPERATIONS

             FIRST QUARTER 2002, As Restated vs. FIRST QUARTER 2001

Significant  income  statement  items  appropriate  for  discussion  include the
following:

                                                    Increase (Decrease)
                                                      First Quarter
                                                ---------------------------
                                                      (in millions)

Operating revenues                                     $(1,260)        (15%)
Cost of fuel, electricity and other products.....       (1,083)        (15%)
Other operating expenses
   Maintenance...................................            5          19%
   Depreciation and amortization.................           (8)         (9%)
   Selling, general and administrative...........         (148)        (50%)
   Restructuring charge..........................          562           -
Other income/expense
   Interest income...............................          (35)        (67%)
   Interest expense..............................          (24)        (17%)
   Gain on sale of assets........................          291           -
   Equity in income of affiliates................           (1)         (1%)
   Receivables recovery..........................           19         190%
(Benefit) provision for income
   taxes.........................................         (121)       (138%)


      Operating revenues. Our operating revenues for the three months ended
March 31, 2002 were $6,908 million, a decrease of $1,260 million over the same
period in 2001. The following factors were responsible for the decrease in
operating revenues:

o    Revenues from generation and energy marketing products for the three months
     ended March 31, 2002, were $6,781 million, compared to $8,126 million for
     the same period in 2001. This decrease of $1,345 million resulted primarily
     from decreased prices for natural gas and power and reduced generation
     primarily in the western U.S., which was partially offset by higher
     revenues from our European energy marketing operations due to higher
     physical volumes in the German market, the commencement of operations at
     our Michigan plant in June 2001 and the commencement of the second phase of
     our Texas plant in June 2001.

o    Distribution and integrated utility revenues for the three months ended
     March 31, 2002, were $108 million, compared to $36 million for the same
     period in 2001. This increase of $72 million was attributable to our
     Jamaican investment which was acquired in March 2001, offset somewhat by
     the elimination of revenue due to the sale of our Chilean operations in
     December 2001.
                                       50


o    Other revenues for the three months ended March 31, 2002, were $19 million,
     compared to $6 million for the same period in 2001. This increase of $13
     million was primarily attributable to revenues related to the gas and oil
     operations we acquired from Castex in August 2001.

     Cost of fuel, electricity and other products. Cost of fuel, electricity and
other products for the three months ended March 31, 2002, was $6,298 million,
compared to $7,381 million for the same period in 2001. This decrease of $1,083
million was primarily attributable to decreased prices for natural gas and
reduced generation primarily in the western U.S., partially offset by higher
costs from our European energy marketing operations due to higher physical
volumes in the German market and the operating expenses in the first quarter of
2002 from our Jamaican investment which was acquired in March 2001. The decrease
was offset by the commencement of operations at our Michigan plant in June 2001
and of the second phase of our Texas plant in June 2001.

     Other operating expenses. Other operating expenses for the three months
ended March 31, 2002, were $926 million, an increase of $415 million over the
same period in 2001. The following factors were responsible for the decrease in
operating expenses:

o    Depreciation and amortization expense for the three months ended March 31,
     2002, was $77 million, compared to $85 million for the same period in 2001.
     This decrease of $8 million resulted primarily from the elimination of
     goodwill amortization of approximately $18 million, offset by additional
     depreciation from our Jamaican investment which was acquired in March 2001,
     from the commencement of operations at our Michigan plant in June 2001 and
     from commencement of the second phase of our Texas plant in June 2001.

o    Maintenance expense for the three months ended March 31, 2002, was $32
     million, compared to $27 million for the same period in 2001. This increase
     of $5 million resulted primarily from the plants and businesses we acquired
     in North America.

o    Selling, general and administrative expense for the three months ended
     March 31, 2002, was $148 million, compared to $296 million for the same
     period in 2001. The majority of the decrease of $148 million resulted from
     provisions for potential losses taken in the first quarter of 2001 related
     to uncertainties in the California power markets. In addition, the amount
     of stock related compensation was higher in 2001. These decreases were
     offset somewhat by operating expenses in the first quarter of 2002 from our
     Jamaican investment which was acquired in March 2001.

o    Restructuring charge for the three months ended March 31, 2002, was $562
     million. The components of the restructuring charge include:

     -    $285 million  related to write-downs of capital  previously  invested,
          either  directly  into   construction  or  in  progress   payments  on
          equipment.

     -    $246 million related to costs to cancel  equipment  orders and service
          agreements per contract terms.

     -    $31  million  related  to the  severance  of 500  employees  and other
          employee termination-related charges.

          Total other income (expense). Other income for the three months ended
     March 31, 2002 was $291 million, compared to other expense of $5 million
     for the same period in 2001. The increase in other income of $296 million
     was primarily due to the following:


o    Gain on the  sale of our  investment  in Bewag  in  February  2002 was $290
     million.

                                       51


o    Interest income for the three months ended March 31, 2002, was $17 million,
     compared to $52 million for the same period in 2001.  This  decrease of $35
     million  was  primarily  due  to  lower  interest  revenue  from  our  loan
     receivables related to Shajiao C and Hyder, lower overall bank balances and
     lower interest rates earned on those balances. In addition, we had interest
     income of  approximately  $12 million from the Capital  Funding  subsidiary
     transferred to Southern in March 2001.

o    Interest expense for the three months ended March 31, 2002, was $119
     million, compared to $143 million for the same period in 2001. This
     decrease of $24 million was primarily due to higher capitalized interest in
     the first quarter of 2002. Capitalized interest for the three months ended
     March 31, 2002 was $38 million, compared to $7 million for the same period
     in 2001. The increase in capitalized interest resulted from higher levels
     of construction in progress in the first quarter of 2002. In addition, we
     had interest expense of approximately $12 million from the Capital Funding
     subsidiary transferred to Southern in March 2001.

o    Equity in income of affiliates for both the three months ended March 31,
     2002 and 2001 was $78 million. There was a decrease due to lower earnings
     from Bewag, offset by higher earnings from our Shajiao C venture due to
     forced outages in 2001 and higher earnings from CEMIG primarily due to a
     tariff settlement.

o    Receivables recovery of $29 million was received by us as final payment
     related to receivables that were assumed in conjunction with the Mirant
     Asia-Pacific Limited business acquisition. During the three months ended
     March 31, 2001, we received $10 million related to these receivables. At
     the time of the purchase, we did not place value on the receivables due to
     the uncertain credit standing of the party with whom the receivables were
     secured.

     (Benefit) provision for income taxes. The benefit for income taxes for the
three months ended March 31, 2002, was $33 million, compared to a provision of
$88 million for the same period in 2001. This represents a change of $121
million primarily due to restructuring charges taken, the decrease in income
generated in North America in the first quarter of 2002 and additional
provisions related to our consolidated tax position taken in the first quarter
of 2001. This change was offset somewhat by additional taxes related to the gain
on the sale of our investment in Bewag in February 2002 and additional taxes in
2002 related to SIPD.

Earnings

     Our consolidated net loss for the three months ended March 31, 2002, was $6
million ($.01 per diluted share) compared to net income of $180 million ($0.52
per diluted share) for the corresponding period of 2001. The decrease in net
income of $186 million from the same period in 2001 is attributable to our
business segments as follows:

   North America
    Net loss for the North America Group totaled $187 million for the three
months ended March 31, 2002. This represents a decrease in income of $361
million from the same period in 2001 and is primarily attributable to
restructuring charges of $294 million, decreased prices for natural gas and
power and reduced generation primarily in the western U.S. This was partly
offset by the elimination of goodwill amortization in 2002. In addition, 2001
net income includes a $147 million ($245 million pre-tax) provision for the
uncertainties in the California power market recorded in the first quarter of
2001. The total amount of provisions made in relation to these uncertainties was
$177 million ($295 million pre-tax). As of March 31, 2002, the total amount owed
to us by the CAISO and the PX was $355 million.

                                       52



    International
     Net income for the International Group totaled $233 million for the three
months ended March 31, 2002, an increase of $159 million from the same period in
2001. This increase was primarily attributable to the after-tax gain of $167
million from the sale of our interest in Bewag, higher amounts received related
to receivables that were assumed in conjunction with the Mirant Asia-Pacific
Limited business acquisition, the elimination of goodwill amortization, higher
earnings from our Shajiao C venture due to forced outages in 2001 and higher
earnings from CEMIG primarily due to a tariff settlement. The increase was
partially offset by restructuring charges of $43 million and lower income from
operations of Bewag and SIPD in the first quarter of 2002.

   Corporate
     After-tax corporate expenses produced a net loss from continuing operations
of $52 million for the three months ended March 31, 2002. The decreased costs
for the quarter resulted from higher compensation in 2001 and additional tax
provisions related to our consolidated tax position in 2001. These decreases
were offset somewhat by increased interest expense in 2002 on corporate
borrowings used to fund working capital and construction.

FINANCIAL CONDITION

     Liquidity and Capital Resources

     Historically, we have obtained cash from operations, borrowings under
credit facilities and issuance of senior notes, proceeds from equity issuances,
capital contributions from Southern and proceeds from non-recourse project
financing. These funds have been used to finance operations, service debt
obligations, fund the acquisition, development and construction of generating
facilities and distribution businesses, finance capital expenditures and meet
other cash and liquidity needs. In addition, the Company has used cash and
letters of credit to meet the collateral requirements for its trading and
marketing activities. Over the next several years, we will be required to repay
bank credit facilities and capital market obligations which are significant.
Because of the general deteriorating conditions in our industry and because our
credit ratings have been lowered, we do not expect to be able to refinance these
obligations in the same amounts or on terms as favorable as our existing
borrowings. We expect that we will meet our liquidity needs through a
combination of re-financing transactions, use of our existing cash balances and
asset sales. In addition, planned contractions in the level of our trading and
marketing activity are expected to reduce the need for collateral posted through
letters of credit and cash. However, in the event we were unable to refinance a
substantial portion of our indebtedness, we could be required to seek bankruptcy
court or other protection from creditors.

     The projects that we have developed typically required substantial capital
investment. Some of the projects and assets in which we have an interest have
been financed primarily with non-recourse debt that is repaid from the cash
flows of such project assets. Some of this debt is secured by interests in the
physical assets, major project contracts and agreements, cash accounts and, in
some cases, the ownership interest in that project subsidiary. These financing
structures are designed so that Mirant Corporation is not contractually
obligated to repay the debt of the subsidiary, that is, the debt is
"non-recourse" to Mirant Corporation and to its other subsidiaries not involved
in the project or asset. However, we have agreed to undertake limited financial
support for some of our subsidiaries in the form of limited obligations and
contingent liabilities such as guarantees of specific obligations. To the extent
we become liable under these guarantees or other agreements in respect of a
particular project or asset, we may choose to use distributions we receive from
other projects and assets or corporate borrowing capacity to satisfy these
obligations.

   Operating Activities

      Net cash provided by operating activities per our unaudited condensed
consolidated statements of cash flows totaled $321 million for the three months
                                       53


ended March 31, 2002, as compared to net cash used in operating activities of
$111 million for the same period in 2001. This increase was due to the following
items:

o    We made payments in the first quarter of 2001 to fuel suppliers and others
     of approximately $140 million, which were accrued in 2000 and related to
     amounts owed to us and not collected from the CAISO and California PX.

o    We received $170 million of net cash collateral in the first quarter of
     2002 compared to a net payment of cash collateral of $25 million in the
     first quarter of 2001. The receipts in 2002 were due primarily to a
     reduction in our energy marketing credit exposure as a result of lower
     prices in the first quarter of 2002 and expanding the use of our master
     netting agreements.

o    We received net tax refunds of $90 million in March 2002 as a result of
     over payments made in the fourth quarter of 2001 due to changes in
     estimates related to the 2001 tax year compared to $48 million paid in the
     first quarter of 2001.

     Excluding the effects of working capital reflected as "Changes in certain
assets and liabilities, excluding effects from acquisitions" in our unaudited
condensed consolidated statements of cash flows, our operating cash flows for
the three months ended March 31, 2002 increased by $188 million compared to the
same period in 2001. This increase was due to a higher portion of our gross
margin being realized in cash in the first three months of 2002 compared to the
first three months of 2001. This increase was partially offset by lower prices
and margins in 2002 compared to 2001.

     For the three months ended March 31, 2002, net income included the release
of approximately $68 million in after-tax provisions recorded in connection with
the PEPCO acquisition compared to $73 million for the same period in 2001. Our
after-tax funding obligation for the energy delivery and purchase agreements
associated with this acquisition was $20 million for the first three months of
2002, compared to $98 million for the same period in 2001.The total after-tax
assumed obligation recorded in purchase accounting was $1.4 billion, which was
our estimate of actual after-tax cash payments we expected to make over the term
of the contracts as a result of assuming the out-of-market contracts from PEPCO,
based on future price and volume estimates at the time of our acquisition.

    Investing Activities

     Net cash provided by investing activities totaled $1,035 million for the
three months ended March 31, 2002, as compared to net cash used in investing
activities of $548 million for the same period in 2001. For the three months
ended March 31, 2002, we received proceeds from the sale of our indirect
interest in Bewag of approximately $1.63 billion. This was offset by capital
expenditures of approximately $499 million. The 2001 investing activities
included capital expenditures in North America and the acquisition of our
Jamaican investment in March 2001. Cash flows from investing activities also
include the repayment of notes receivable in the form of shareholder's loans to
Shajiao C in the amount of $7 million in 2002 and $52 million in 2001. Of these
amounts, we are entitled to approximately $7 million and $47 million
respectively, after repayments to minority shareholders.

   Financing Activities

     Net cash used for financing activities totaled $1,229 million for the three
months ended March 31, 2002, as compared to net cash provided by financing
activities of $790 million for the same period in 2001. The decrease is
primarily attributable to higher repayments of long-term debt, much of which was
completed using the proceeds received from the sale of our indirect interest in
Bewag and other asset sales.

      Our cash from operations, asset sales, existing credit facilities and cash
position, along with existing credit facilities at our subsidiaries, is expected
to provide sufficient liquidity for working capital and capital expenditures,
including letters of credit, over the next 12 months. In addition, we expect our
cash from operations will be sufficient to fund our interest costs on an ongoing
basis.
                                       54


     Our liquidity could be impacted by changing prices resulting from abnormal
weather, excess capacity, the ability to complete asset sales, changes in credit
ratings and other factors. In addition, a significant part of Mirant
Corporation's investments are in subsidiaries financed with project or
subsidiary level indebtedness to be repaid solely from the respective
subsidiary's cash flows. Subsidiaries financed in this manner are often
restricted by their respective project credit documents in their ability to pay
dividends and management fees periodically to Mirant Corporation. These
limitations usually require that debt service payments be current, debt service
coverage and leverage ratios be met and there be no default or event of default
under the relevant credit documents. There are also additional limitations that
are adapted to the particular characteristics of each subsidiary and its assets.

     To enhance Mirant's liquidity and reduce reliance on external financing,
Mirant has designed and launched an additional phase for its restructuring plan.
In 2002, Mirant announced its plan to sell additional assets, including WPD, to
raise $700 million to $1 billion. Mirant's board has authorized the expenditure
of up to $500 million for the repurchase of debt securities as the Company's
liquidity permits through 2003.

   Income Taxes

     Due to the uncertainty regarding restructuring and foreign asset sales,
Mirant may not be in a position to fully utilize all of its future foreign tax
credits. Failure to fully utilize Mirant's foreign tax credits would have the
effect of increasing its effective tax rate, thereby decreasing the Company's
net income, and potentially cash flow in the affected periods. Mirant expects to
fully utilize all of its foreign tax credits through 2002.

     In September 2002, the IRS refunded $195 million in overpaid income taxes
to Mirant for the tax period April 3 to December 31, 2001.

     The IRS has completed its audit of Mirant for all tax years through 1995.
The IRS is currently auditing the tax years 1996-1999. Subsequent to June 30
2002, the IRS issued Notices of Proposed Adjustments for this period for several
tax return filing positions affecting taxable income. While Mirant believes it
has substantial authority for the positions it has taken, it continues to review
this situation. The negative liquidity impact of these adjustments, if accepted
by Mirant, could be as much as $100 million. Management has not yet determined
the income statement impact of these potential adjustments.

   Common Stock

    The market price of our common stock at March 31, 2002 was $14.45 per share
and the book value was $13.61 per share based on the 401,495,567 shares
outstanding at March 31, 2002, representing a market-to-book ratio of 106%.

   Credit Ratings

     The following table presents the current credit ratings on Mirant and its
subsidiaries from the three major rating agencies. The outlooks for all credit
ratings are negative.

                                            S&P          Moody's         Fitch
                                          -----         --------      ----------
Mirant Corporation......................    BB             B1             BB
Mirant Americas Generation...............   BB             Ba3            BB
Mirant Mid-Atlantic......................   BB             Ba3            BB+
Mirant Americas Energy Marketing.........   BB             Ba3         Not rated
Mirant Trust I...........................    B             B3             B+

      On June 24, 2002, Fitch lowered its rating on Mirant's senior notes and
convertible senior notes to BBB- from BBB, and on October 15, 2002, Fitch
                                       55


further lowered its rating on Mirant's senior notes and convertible senior notes
to BB from BBB-. Fitch's new ratings on Mirant securities each include a
negative outlook. Fitch also lowered its rating on the following of the
Company's subsidiaries or subsidiary issues: Mirant Trust I, Mirant Americas
Generation and Mirant Mid-Atlantic.

     On October 10, 2002, Moody's lowered its rating on Mirant's senior
unsecured debt to B1 from Ba1. Moody's new rating on Mirant debt includes a
negative outlook. Moody's also lowered its rating on the following of the
Company's subsidiaries or subsidiary issues: Mirant Americas Energy Marketing,
Mirant Trust I, Mirant Americas Generation and Mirant Mid-Atlantic.

     On October 21, 2002, S&P lowered its rating on Mirant's senior unsecured
debt to BB from BBB-. S&P's new rating on Mirant debt includes a negative
outlook. S&P also lowered its rating on the following of the Company's
subsidiaries or subsidiary issues: Mirant Americas Energy Marketing, Mirant
Trust I, Mirant Americas Generation and Mirant Mid-Atlantic.

     As a result of Moody's, Fitch and S&P lowering their ratings in October
2002 on our senior unsecured debt, as of October 30, 2002, we have had to post
approximately $150 million of new collateral in the form of cash and letters of
credit and have agreed to post approximately $90 million of additional
collateral. As a result of the recent downgrades by Fitch and S&P, Mirant
Asia-Pacific is prohibited under the terms of its credit facility from making
distributions to Mirant Corporation.

     While the foregoing indicates the ratings from these agencies, we note that
these ratings are not a recommendation to buy, sell or hold our securities, that
the ratings may be subject to revision or withdrawal at any time by the
assigning rating organization 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 judgement,
circumstances so warrant. Further, we note that each of the rating agencies
continues to monitor Mirant's credit profile, with increased scrutiny arising
from the reported financial difficulties of other market participants, the
uncertainty and turmoil in the financial markets generally and in the energy
sector specifically and our pending reaudit. In addition, we note the risk
factors related to a downgrade in our credit ratings as disclosed in our Form
10-K filed in March 2002.

   Turbine Commitments

     In October 2002, Mirant terminated contracts for three turbines that Mirant
did not anticipate terminating as of June 30, 2002. At the termination in
October 2002, the total net termination expense of these turbines was
approximately $34 million.

     As of June 30, 2002, Mirant disclosed total turbine commitments of $555
million with a termination cost of $212 million. If Mirant had anticipated the
termination of the above mentioned turbines, Mirant's total turbine commitments
as of June 30, 2002, would have been $462 million with a termination cost of
$178 million.

   Asset Sales

     In February 2002, we completed the sale of our 44.8% indirect interest in
Bewag for approximately $1.63 billion. We received approximately $1.06 billion
in net proceeds after repayment of approximately $550 million in related debt.
The after-tax gain on the sale of our investment in Bewag was $167 million. The
net proceeds were used for general corporate purposes, capital expenditures and
repayment of certain drawn balances on revolving credit facilities.

     In May 2002, we completed the sale of our 60% ownership interest in the
Kogan Creek power project, located near Chinchilla in southeast Queensland,
                                       56


Australia, and associated coal deposits for approximately $29 million. The
after-tax gain on the sale of our investment in Kogan Creek was approximately
$17 million.

     In May 2002, we completed the sale of our 9.99% ownership interest in SIPD,
located in the Shandong Province, China, for approximately $120 million. The
after-tax loss on the sale of our investment in SIPD was approximately $9
million.

     In June 2002, we completed the sale of our State Line generating facility
for approximately $181 million plus an adjustment for working capital. The asset
was sold at approximately book value.

     In June 2002, we completed the sale of our 50% ownership interest in
Perryville to Cleco, which holds the remaining 50% ownership interest in
Perryville. In connection with such sale, Cleco assumed our $13 million future
equity commitment to Perryville and paid approximately $55 million in cash to us
as repayment of the subordinated loan, invested capital to date and other
miscellaneous costs. Our investment was sold at approximately book value based
on the value of the investment at the date of sale. At such time, in connection
with the existing project financing, we agreed to make a $25 million
subordinated loan to the project. Effective August 23, 2002, Mirant Americas
Energy Marketing and Perryville, with the consent of the project lenders,
restructured the tolling agreement between the parties to remove the requirement
to post a letter of credit or other credit support in the event of a downgrade
from S&P or Moody's. In connection with the restructuring, Mirant Americas made
a $100 million subordinated loan to Perryville, the proceeds of which were used
to repay the existing $25 million subordinated loan owed to a Mirant subsidiary
and to repay $75 million of senior debt of the project. In addition, we retain
certain obligations as a project sponsor, some of which are subject to
indemnification by Cleco. The obligations retained by us and not subject to
indemnity relate primarily to the existing 20-year tolling agreement between
Mirant Americas Energy Marketing and Perryville as described in "-Contractual
Obligations and Commitments - Energy Marketing and Risk Management." The
obligations of Mirant Americas Energy Marketing under the tolling agreement are
guaranteed by Mirant Corporation.

     In July 2002, we announced that we had entered into an agreement to sell
our Neenah generating facility to Alliant Energy Resources, Inc. for
approximately $109 million. The sale of Mirant's investment in Neenah will be
near book value. The sale is expected to close in the fourth quarter of 2002.

     In August 2002, we completed the sale of our wholly owned subsidiary, MAP
Fuels Limited, which fully owned Allied Queensland Coalfields Pty Ltd., in
Queensland, Australia, for approximately $21 million. The asset was sold at
approximately book value. The sale included both the Wilkie Creek Coal Mine and
the Horse Creek coal deposits.

     In September 2002, we completed the sale of our 49% economic interest in,
and shared management control of, Western Power Distribution Holdings Limited
and WPD Investment Holdings (both identified jointly as WPD) for approximately
$235 million. The after-tax loss on the sale of our investment in WPD was
approximately $306 million. The WPD assets include the electricity distribution
networks for Southwest England and South Wales.

   Write Down of Asset

     In September 2002, Mirant recorded an after-tax write down of $37 million
reflecting the fair market value of Mirant Americas Production Company. Mirant
Americas Production Company is an oil and gas exploration, development and
production company that Mirant has a plan to sell within a year. Mirant Americas
Production Company is included in the North America Group.

                                       57


    Suspended Construction

    In August 2002, we announced suspension in construction of the 298 MW
natural gas-fired Mint Farm Generating Station in Longview, Washington due to
weak market conditions. The project was about 60% complete and had an expected
commercial operating date of June 2003. Costs incurred of $42 million are
included in "Construction work in progress" on Mirant's condensed consolidated
balance sheet at March 31, 2002. The site will be maintained to preserve the
completed work and allow for restart of construction when market conditions
become more favorable.

    Commencement of Operations

      In June 2002, the Ilijan facility located in the Philippines, in which
Mirant has a 20% ownership interest, commenced commercial operations.

    In July 2002, we commenced operation of the second phase at our Zeeland,
Michigan generating plant, operation at our Wrightsville, Arkansas generating
plant and operation of the first phase at our Sugar Creek generating plant near
Terre Haute, Indiana. Upon completion of the projects, $678 million of costs
were transferred from "Construction work in progress" to "Property, plant and
equipment."

     In October 2002, JPSCo, in which we have an 80% ownership interest,
commenced operation of a new unit at its Bogue generating plant in Montego Bay,
Jamaica. Upon completion of the project, approximately $80 million in costs were
transferred from "Construction work in progress" to "Property, plant and
equipment."

   Available Liquidity and Related Debt to Capitalization Ratios

   The following table contains our available liquidity as of March 31, 2002 and
December 31, 2001 (in millions):

                                                       Liquidity
                                         ---------------------------------------
                                          As of March 31,     As of December 31,
                                               2002                2001
                                         ------------------ --------------------
Cash at Mirant Corporation..........          $441               $406
Cash at subsidiaries................           546                454
Availability of credit facilities:
  Mirant Corporation...............            796                867
  Mirant Americas Generation........           227                227
  Mirant Canada Energy Marketing...             21                 18
Cash at subsidiaries not available for
   immediate payment to parent (1).           (327)              (293)
                                           --------            -------
Total .............................         $1,704             $1,679
                                           ========            =======

(1)      Represents estimated cash at the subsidiary level that is required for
         operating, working capital or investment purposes at the respective
         subsidiary and that is not available for immediate payment to Mirant
         Corporation.

     The following table contains some of our key debt to capitalization ratios
as of March 31, 2002 and December 31, 2001:

                                             March 31,      December 31, 2001
                                                2002
                                          ----------------- ------------------
Recourse Debt /Total Recourse Capital.         34.6%              34.9%
Total Debt /Total Capital.............         59.2%              62.3%
Balance Sheet Debt/Balance Sheet
 Capital............................           58.1%              61.8%

                                       58


     Total Debt is calculated as the sum of Short-term Debt, Current Portion of
Long-term Debt, Notes Payable, Other Long-term Debt, and two balance sheet
adjustments to reflect the operating lease at Mirant Mid-Atlantic and 89.9% "the
guaranteed portion" of the drawn amounts on the equipment procurement
facilities. The Mirant Mid-Atlantic operating lease figure represents the
present value of the future lease payments discounted at 10%. Recourse Debt is
calculated as the portion of Total Debt that is a direct obligation of Mirant
Corporation or an obligation at a subsidiary that has a guarantee from Mirant
Corporation. Total Capital is calculated as the sum of Total Debt (as defined
above), Preferred Stock, Minority Interest in Subsidiaries, Company Obligated
Mandatorily Redeemable Securities of a Subsidiary Holding Solely Parent Company
Debentures, and Total Stockholders' Equity.


                                       59



 Debt
    The following table sets forth our short-term and long-term debt as of
December 31, 2001 and March 31, 2002 (in millions):


                                                                             

                                                                 March 31,     December 31,
                                                                   2002            2001
                                                               ------------   --------------
Short-term debt
      Mirant Canada Energy Marketing.........................    $   23        $     26
      Jamaica Public Service Company.........................        23              22
      Mirant Asia-Pacific Limited  -  Mirant Asia-Pacific
        Singapore Pte Ltd. ..................................         7               7
                                                               --------        --------
           Total short-term debt.............................        53              55
Current portion of long-term debt
      Mirant Asia-Pacific....................................        14             792
      Sual and Pagbilao project term loans...................     1,118           1,201
      Mirant Asia-Pacific Ltd - Shajiao C....................         1               -
      Mirant Holdings Beteiligungsgesellschaft term loan.....         -             566
      Mirant Americas, Inc. - deferred acquisition price.....        21              21
      West Georgia Generating Company........................         5               5
      Capital leases - Jamaica...............................         9               9
      Jamaica Public Service Company.........................         -               8
      Grand Bahama Power Company.............................         2               2
                                                               --------        --------
           Total current portion of long-term debt...........     1,170           2,604
Notes Payable
      Mirant Corporation senior notes .......................       700             700
      Mirant Americas Generation senior notes................     2,500           2,500
      Mirant Americas Generation revolving credit facilities.        73              73
      Mirant Americas, Inc. - deferred acquisition price.....        45              45
      Mirant Asia-Pacific....................................       240               -
      West Georgia Generating Company*.......................       140             140
      Mirant Americas Energy Capital ........................       150             150
      Mirant Grand Bahamas...................................        16              16
      Grand Bahama Power Company.............................        29              30
      Mirant Trinidad bonds..................................        73              73
      Mirant Asia-Pacific Limited - Shajiao C................        26              27
         Unamortized debt premium/ discounts on notes.......         (3)             (3)
                                                               ---------       ---------
           Total notes payable...............................     3,989           3,751
Other long-term debt
      Mirant Corporation convertible senior debentures.......       750             750
      Mirant Corporation revolving credit facilities.........       975           1,075
      Mirant Americas Development Capital....................        35               -
      Jamaica Public Service Company.........................       133             125
      Mirant Caribe..........................................         9               0
      Capital leases  - North America........................        11              10
      Capital leases  - Jamaica..............................       114             108
                                                               --------        --------
           Total other long-term debt........................     2,027           2,068
                                                               --------        --------
                Total debt..................................   $  7,239        $  8,478
                                                               ========        ========


*After the initial maturity in December 2003, all cash generated by the project
is used to repay indebtedness until final maturity in 2009.


     We have revolving credit facilities with various lending institutions
totaling approximately $3.19 billion of commitments. At March 31, 2002,
commitments utilized under such facilities (including drawn amounts and letters
of credit) totaled $2.15 billion and are comprised of the following: commitments
of $23 million drawn under the facility expiring in 2002, commitments of $975
million drawn or utilized under facilities expiring in 2003 (which included
amounts outstanding under Mirant Corporation's 364-Day Credit Facility with an
initial termination date of July 2002) and commitments of $1.15 billion drawn or
utilized under the facilities expiring in 2004 and beyond. Except for the credit
facility of Mirant Canada Energy Marketing, an indirect wholly owned subsidiary
of Mirant Corporation, borrowings under these facilities are recorded as
long-term debt in the unaudited condensed consolidated balance sheet. The credit
facilities generally require payment of commitment fees based on the unused
portion of the commitments. The schedule below summarizes amounts available on
                                       60


these facilities held by Mirant Corporation and the specified subsidiaries as of
December 31, 2001 and March 31, 2002 and September 30, 2002 (in millions).



                                                                                      
                                                                          Amount Available
                                                        ------------------------------------------------------
  Company                                    Facility   September 30, 2002                     December 31,
                                             Amount                          March 31, 2002        2001
  ------------------------------------------ ---------- ------------------- ----------------- ----------------
  Mirant Corporation *....................      $2,700       $101                $796              $867
  Mirant Americas Generation .............         300          -                 227               227
  Mirant Canada Energy Marketing.........           44          1                  21                18
  Mirant Americas Energy Capital..........         150          -                   -                 -
                                             ---------- ------------------- ----------------- ----------------
     Total...............................       $3,194       $102              $1,044            $1,112
                                             ========== =================== ================= ================

*At March 31, 2002, there was $1,904 million of drawn amounts which included
$929 million of letters of credit outstanding compared to $1,833 million of
drawn amounts which included $758 million of letters of credit outstanding at
December 31, 2001. At September 30, 2002, there was $2,599 million of utilized
commitments which included $1,048 million of letters of credit outstanding.


     In July 2002, Mirant Corporation fully drew the commitments under its
$1.125 billion 364-Day Credit Facility and elected to convert all revolving
credit advances outstanding into a term loan maturing in July 2003. Effective
with our third quarter reporting this Facility will be reclassified from
long-term debt to short-term debt as it will be due within 12 months. The
Company expects that this reclassification will potentially cause the Company to
have a negative working capital balance. In order to mitigate concerns about a
negative working capital balance, the Company is evaluating various potential
financing transactions to repay and/or refinance the Facility prior to its
maturity. As a result of present market conditions and other factors, including
reaudit of its historical financial statements, Mirant cannot provide assurance
that it will be successful in entering into a new credit facility. If Mirant is
successful in entering into a new credit facility, it expects the facility will
likely be smaller and will have higher pricing and more restrictive terms than
the current facility.

     In July 2002, Mirant Corporation and Mirant Americas Generation drew down
most of their available revolving credit commitments. The schedule below
summarizes the outstanding borrowings under the credit facilities held by Mirant
Corporation and its subsidiaries as of September 30, 2002 (in millions).

                                            Drawn Amount
                                         excluding Letters   Letters of Credit
Company                                      of Credit          Outstanding
                                         ------------------- -------------------
Mirant Corporation ...................     $1,551(1)              $1,048
Mirant Americas Generation............         300                   -
Mirant Canada Energy Marketing........          44                   -
Mirant Americas Energy Capital........         150                   -
(1)Amount includes fully drawn commitments under Mirant's $1.125 billion 364-Day
Credit Facility that was converted in July 2002 to a term loan maturing in July
2003.

    Each of Mirant's credit facilities contains various covenants including,
among other things, (i) limitations on (a) dividends, redemptions and
repurchases of capital stock, (b) the incurrence of indebtedness and liens and
(c) limitations on the sale of assets, and (ii) affirmative covenants to (a)
provide annual audited and quarterly unaudited financial statements prepared in
accordance with US GAAP and (b) comply with legal requirements in the conduct of
its business. In addition to other covenants and terms, each of Mirant's credit
facilities includes minimum debt service coverage and a maximum leverage
covenant. As of March 31, 2002, there were no events of default under such
credit facilities.

      In connection with its review of the previously disclosed accounting
issues, the Company identified various errors affecting the Company's historical
financial statements. The Company believes that the errors it has identified do
not constitute a breach of a covenant or an event of default under its credit
facilities. If the Company were in default, or the type or amount of any
adjustments arising from the announced reaudit of the Company's historical
financial statements were to result in an event of default under its credit
                                       61


facilities, the lenders would have the right to accelerate the Company's
obligations under its credit facilities. Any such acceleration would trigger
cross-acceleration provisions in a substantial portion of the Company's other
consolidated indebtedness. In such event, the Company would be required to seek
waivers or other relief from its lenders and, absent such relief, approximately
$4.5 billion of the Company's consolidated debt would be classified as
short-term debt and could be accelerated. Further, in the event that its lenders
accelerated such indebtedness, the Company can provide no assurances that it
would be able to refinance such indebtedness in the existing credit markets and
would likely have to seek bankruptcy court or other protection from its
creditors.

    Mirant Canada Energy Marketing has extended its credit facility to June 30,
2003. The revolving credit facility of approximately $44 million (denominated as
70 million Canadian dollars) had outstanding borrowings of $23 million, at an
interest rate of 4.75% at March 31, 2002. The credit facility is guaranteed by
Mirant Corporation and is secured by a letter of credit in the amount of $46
million and security interests in the real and personal property of Mirant
Canada Energy Marketing.

     In February 2002, Mirant, Mirant Americas Energy Marketing, Perryville and
the lenders under its credit facility entered into the following transactions:
(i) an indirect, wholly owned subsidiary of Mirant Corporation made a
subordinated loan of $48 million to Perryville, (ii) Mirant Corporation agreed
to guarantee the obligations of Mirant Americas Energy Marketing under the
tolling agreement, (iii) Perryville (with the consent of its lenders) and Mirant
Americas Energy Marketing lowered the ratings threshold in the tolling agreement
with respect to Mirant related to the ratings below which Mirant Americas Energy
Marketing has agreed to post a letter of credit or other credit support, and
(iv) the parties agreed to certain additional terms in support of the
syndication of the credit facility. In June 2002, Mirant completed the sale of
its 50% ownership interest in Perryville to Cleco, which holds the remaining 50%
ownership interest in Perryville. Cleco assumed Mirant's $13 million future
equity commitment to Perryville and paid approximately $55 million in cash to
Mirant as repayment of its subordinated loan, invested capital to date and other
miscellaneous costs. At such time, Mirant agreed to make a $25 million
subordinated loan to the project.

     Effective August 23, 2002, Mirant Americas Energy Marketing and Perryville,
with the consent of the project lenders, restructured the tolling agreement
between the parties to remove the requirement to post a letter of credit or
other credit support in the event of a downgrade from S&P or Moody's. In
connection with the restructuring, Mirant Americas made a $100 million
subordinated loan to Perryville, the proceeds of which were used to repay the
existing $25 million subordinated loan owed to a Mirant subsidiary and to repay
$75 million of senior debt of the project. In addition, Mirant retains certain
obligations as a project sponsor, some of which are subject to indemnification
by Cleco. The obligations retained by Mirant which are not subject to indemnity
relate primarily to the existing 20-year tolling agreement with Mirant Americas
Energy Marketing as described in "--Contractual Obligations and Commitments -
Energy Marketing and Risk Management."

     In March 2002, Mirant Americas Energy Capital transferred the borrowing
base assets under its credit facility to a special purpose vehicle and granted
security interests in such assets. The special purpose vehicle is consolidated
with Mirant.

     As part of its strategic restructuring, Mirant negotiated certain deferrals
under its equipment purchase facility. Because the term of the deferred
fabrication period for certain turbines exceeds the agreed fabrication period as
permitted within the equipment procurement facilities, Mirant will not have the
option to enter into a lease arrangement for this equipment, thereby forcing
Mirant to exercise its purchase option. Consequently, Mirant has included a $35
million liability for these turbines in "Other long-term debt" on its unaudited
condensed consolidated balance sheet.

     On January 23, 2002, Mirant Asia-Pacific, an indirect, wholly owned
subsidiary of Mirant Corporation, borrowed $192 million under a new credit
facility to repay, in part, its prior $792 million credit facility. The
                                       62


repayment of the balance of the prior credit facility was funded by Mirant
Corporation. In March 2002, Mirant Asia-Pacific secured a second tranche of $62
million which has been used to repay part of the funding from Mirant
Corporation. The new credit facility contains various business and financial
covenants including, among other things, (i) limitations on dividends and
distributions, including a prohibition on dividends if Mirant ceases to be rated
investment grade by at least two of Fitch, S&P and Moody's, (ii) mandatory
prepayments upon the occurrence of certain events, including certain asset sales
and certain breaches of the Sual and the Pagbilao energy conversion agreements,
(iii) limitations on the ability to make investments and to sell assets, (iv)
limitations on transactions with affiliates of Mirant and (v) maintenance of
minimum debt service coverage ratios. As a result of the recent downgrades by
Fitch and S&P, Mirant Asia-Pacific is prohibited under the terms of its credit
facility from making distributions to Mirant Corporation.

     Each of the lenders under the Sual and Pagbilao facilities has executed
temporary waivers of default with respect to the obligations to provide specific
levels of insurance coverage which extend to the insurance renewal date of
November 1, 2002. Effective as of October 24 and 28, 2002 for the Sual and
Pagbilao facilities, respectively, each of the lenders has agreed to amend the
insurance provisions of the loan agreements. The amendments state that, in the
event Sual and Pagbilao do not obtain the levels of insurance specified in the
loan agreements, Sual and Pagbilao will not be held in breach of the agreements
provided they obtain all of the insurance coverage that is reasonably available
and commercially feasible in the insurance market for similarly situated
facilities, as certified by the lenders' insurance advisor. To avoid breaching
the agreements, the coverage obtained must further be in amounts above threshold
levels defined in the amendments. The Company believes that with these
amendments (and the levels of minimum thresholds defined in the amendments) it
will be able to obtain insurance coverage in the future that will allow it to
remain in continued compliance with the loan agreements. The insurance coverage
obtained for the November 1, 2002 renewal satisfies the amended terms of the
loan agreements.

     West Georgia Generating Company, LLC ("West Georgia"), a wholly owned
subsidiary acquired by Mirant in August 2001, has an approximately $144 million
project finance credit facility ($144 million drawn balance at June 30, 2002).
Under the terms of that credit facility, West Georgia is required to deliver
audited financial statements to the lenders thereunder within 120 days of fiscal
year end. On May 24, 2002, within the thirty day cure period under the credit
agreement, the agent under the credit facility extended the period for delivery
of such audited financial statements until the end of July. In July 2002, the
required audited financial statements were delivered to the lenders as required
under the terms of the credit facility.

   Convertible Senior Notes

     In July 2002, Mirant Corporation completed the issuance of $370 million of
convertible senior notes. The net proceeds from the offering, after deducting
underwriting discounts and commissions payable by Mirant, were $361 million.

     The notes mature on July 15, 2007 with an annual interest rate of 5.75%.
Holders of the notes may convert their notes into 131.9888 shares of Mirant
common stock for each $1,000 principal amount of the notes at any time prior to
July 15, 2007. This conversion rate is equivalent to the initial conversion
price of $7.58 per share based on the issue price of the notes. The initial
conversion rate may be subject to adjustment. Mirant has the right to redeem for
cash, some or all of the notes at any time on or after July 20, 2005, upon not
less than 30 nor more than 60 days' notice by mail to holders of the notes, for
a price equal to 100% of the principal amount of the notes to be redeemed plus
any accrued and unpaid interest to the redemption date.

                                       63




Contractual Obligations and Commitments

      Energy Marketing and Risk Management

    Certain financial instruments that we use to manage risk exposure to energy
prices do not meet the hedge criteria under SFAS No. 133.The fair values of
these instruments are recorded in energy marketing and risk management assets
and liabilities on our accompanying unaudited condensed consolidated balance
sheets.

    The following table provides a summary of the factors impacting the change
in net fair value of the energy marketing and risk management asset and
liability accounts during the three months ended March 31, 2002 (in millions).


                                                                                      

      Net fair value of portfolio at January 1December 31, 2002...................      $(76)
      Gains (losses) recognized in the period, net (1)............................        68
      Contracts settled during the period, net....................................       (72)
      Change in fair value as a result of a change in valuation technique (2).....         -
      Other changes in fair value, net (3)........................................       (24)
      Deferred option premiums, net...............................................        77
                                                                                      ---------
      Net fair value of portfolio at March 31, 2002...............................      $(27)
                                                                                      =========
(1)      This amount includes approximately $5 million which represents
         management's estimate of initial value of new contracts entered into
         during the three months ended March 31, 2002.
(2)      Mirant's modeling methodology has been consistently applied for the three months ended March 31, 2002.
(3)      Consists primarily of purchase accounting and other adjustments to energy marketing and risk management assets
         (liabilities).


    The fair values and average values of our energy marketing and risk
management assets and liabilities, net of credit reserves, as of March 31, 2002
are included in the following table (in millions). The average values are based
on a monthly average for 2002.



                                                                                        Net Energy Marketing
                                                                                   
                             Energy Marketing and Risk    Energy Marketing and Risk      and Risk Management
                                 Management Assets          Management Liabilities       Assets (Liabilities)
                             --------------------------   --------------------------   -----------------------
                                             Value at                      Value at
                               Average       March 31,       Average       March 31,          Net Value at
                                Value         2002           Value          2002            March 31, 2002
                             ------------- -------------  -------------- ------------  ------------------------
Energy commodity
  instruments:
Electricity..................  $  566       $  504         $  481         $  424             $  80
Natural gas..................     968        1,004          1,122          1,112              (108)
Crude oil....................       7            3              8              3                 -
Other........................      46           26             48             25                 1
                              ------------- ---------  -------------- ------------  ------------------------
  Total....................    $1,587       $1,537         $1,659         $1,564             $ (27)
                              ============= =========  ============== ============  =========================


                                       64



     The following table represents the net energy and risk management assets
and liabilities by tenor, complexity and liquidity. As of March 31, 2002,
approximately 65% of the net value, excluding the prepaid gas transaction
discussed below, was calculated using low complexity models with high price
discovery. These include forwards, swaps and options at actively traded
locations. Also, as of March 31, 2002, approximately 69% of the net value,
excluding the prepaid gas transaction discussed below, was expected to be
realized by the end of 2003. Examples of medium and high complexity models
include natural gas storage and transportation renewal options, respectively.



                                           Fair Value of Energy Marketing and Risk Management
                                              Assets and Liabilities as of March 31, 2002
                                                             (in millions)
                   --------------------------------------------------------------------------------------------------

                    Low Complexity Models      Medium Complexity Models         High Complexity Models
                       Price Discovery              Price Discovery                Price Discovery
                                                                               
                   ------------------------- ------------------------------ ------------------------------- ---------
                     High   Medium     Low    High    Medium        Low         High     Medium     Low      Total
                    -----   -------   -----   -----  -------        ----        ----     ------     -----    ------
2002...........     $25      $4         $2    $25    $  -         $  -          $1        $  -       $  -      $57
2003..........       52      11          5     10       1            -           1           -          -       80
2004...........      (1)      5          4      3       1            -           -           -          -       12
2005...........      22     (12)        (4)     3       -            1           -           -          -       10
2006..........       28       -        (16)     3       -            -           -           -          -       15
Thereafter ....       3       1        (15)     4      22            9           -           -          -       24
                    -----   -----     -----   -----   -----        ----        -----       -----      -----    ------
Net assets
(liabilities)
excluding
prepaid gas
transaction...     $129      $9       $(24)   $48     $24          $10          $2        $  -       $  -     $198
                  ======    =====     =====   ====    ====         ====         ====      ======     ======
Adjustment for
prepaid gas
transaction (1)                                                                                              ($225)
                                                                                                             ------
 Net
(liabilities)                                                                                                 ($27)
                                                                                                              ======


(1)      In October 2001, the Company entered into a prepaid gas transaction
         with a counterparty and a simultaneous natural gas swap with a
         third-party independent to the prepaid gas transaction. The prepaid gas
         transaction resulted in the receipt of payments in 2001 in exchange for
         financial settlements to be made over a future three-year period.
         Approximately 10% of the contract notional quantity will settle in 2002
         and 2003, respectively, and the remaining 80% will settle in 2004 based
         on fixed notional quantities of gas defined in the agreement at natural
         gas index prices on the date of each settlement. The natural gas swap
         served to fix the price of the gas to be settled under the prepaid gas
         agreement. At the date the transaction was consummated, the notional
         fixed future natural gas settlements totaled approximately $250 million
         and the fair value of such gas settlements was approximately $225
         million. Since this transaction results in fixed payments through
         2004 and no market price risk to the Company, its impact has been
         disclosed separately above.

Model Complexity:

o    Low - Transactions involving exchange, or exchange look-a-like products
     with no operational or other constraints.
o    Medium - Transactions involving some operational constraints, but where
     these constraints are not the primary drivers of value/risk.
o    High - Transactions involving much more complex operational and/or
     contractual constraints, incorporating factors such as temperature, and
     where these items can be the primary drivers of value/risk.

Level of Price Discovery:

o    High -  Large,  liquid  markets  with  multiple  daily  third-party  and/or
     exchange settled price quotes available.
o    Medium - Less liquid markets with periodic external price quotes available,
     or price  levels  which are  validated,  on a daily  basis,  indirectly  as
     temporal and/or locational spreads off of "High" price discovery data.
o    Low - Illiquid  markets with little or no external  price quotes,  or where
     the underlying  transactions  constitute a large portion of the totality of
     the transactions in the market.

     Additionally, the process of model development, independent testing and
verification of model robustness, system implementation and security, and
version control are all covered by the oversight activities of our Model
Oversight Committee which is chaired by the Assistant Global Risk Control
Officer. Documentation covering this process, including independent testing of
                                       65


model results by the Risk Control organization, is maintained for audit and
oversight purposes.

    Mirant Corporation had approximately $903 million trade credit support
commitments outstanding as of March 31, 2002, which included $460 million of
letters of credit, $56 million of net cash collateral posted and $387 million of
parent guarantees.

     Mirant Corporation has also guaranteed the performance of its obligations
under a multi-year agreement entered into by Mirant Americas Energy Marketing
with Brazos. Under the agreement, effective January 1999, Mirant Corporation
provides all the electricity required to meet the needs of the distribution
cooperatives served by Brazos. Mirant Corporation is entitled to the output of
Brazos' generation facilities and its rights to electricity under power purchase
agreements Brazos has entered into with third parties. Mirant Corporation's
guarantee was $60 million at March 31, 2002, a decrease of $5 million from
December 31, 2001. Mirant Corporation is subject to regulatory and commercial
risks under this energy requirements contract. Mirant Corporation believes that
it has adequately provided for the potential risks related to this contract,
which terminates at the end of 2003; however, no assurance can be given that
additional losses will not occur.

     Mirant Corporation also has a guarantee related to Pan Alberta Gas of $64
million issued in 2000 and outstanding at March 31, 2002.

     Vastar, a subsidiary of BP, and Mirant Corporation had issued financial
guarantees made in the ordinary course of business, on behalf of Mirant Americas
Energy Marketing's counterparties, to financial institutions and other credit
grantors. Mirant Corporation has agreed to indemnify BP against losses under
such guarantees in proportion to Vastar's former ownership percentage of Mirant
Americas Energy Marketing. At March 31, 2002, such guarantees amounted to
approximately $92 million.

     In June 2001, Mirant provided an air permit guarantee and a wastewater
discharge permit guarantee in connection with a loan agreement between
Perryville and its lenders. Under these guarantees, Mirant guaranteed the debt
payments under the loan agreement if Perryville does not obtain or achieve
necessary air and waste water discharge permit compliance. In March 2002,
Perryville achieved the air and wastewater discharge permit compliance thereby
terminating Mirant's guarantee with respect to the air and wastewater discharge
permits for the debt payments in connection with a loan agreement between
Perryville and its lenders.

     Mirant Americas Energy Marketing has a 20-year tolling agreement with
Perryville in which Perryville will sell all the electricity generated by the
facility to Mirant Americas Energy Marketing. At March 31, 2002, the total
estimated notional commitment under this agreement was approximately $1.07
billion over the 20-year life of the contract. Effective August 23, 2002, Mirant
Americas Energy Marketing and Perryville, with the consent of the project
lenders, restructured the tolling agreement between the parties to remove the
requirement to post a letter of credit or other credit support in the event of a
downgrade from S&P or Moody's. In connection with the restructuring, Mirant
Americas made a $100 million subordinated loan to Perryville, the proceeds of
which were used to repay an existing $25 million subordinated loan owed to a
Mirant subsidiary and to repay $75 million of senior debt of the project. In
addition, Mirant Americas guaranteed the obligations of Mirant Americas Energy
Marketing under the tolling agreement up to the amount of the subordinated loan.
The obligations of Mirant Americas Energy Marketing under the tolling agreement
are guaranteed by Mirant Corporation.

     To the extent that Mirant Corporation does not maintain its current credit
ratings, it could be required to provide alternative collateral to certain risk
management and energy marketing counterparties based on the value of our
portfolio at such time, in order to continue our current relationship with them.
Mirant could also be required to provide alternative collateral related to
committed pipeline capacity charges. Such collateral could be in the form of
cash and/or letters of credit. There is an additional risk that in the event of
                                       66


a further reduction of Mirant's credit rating, certain counterparties may,
without contractual justification, request additional collateral or terminate
their obligations to Mirant. As of October 29, 2002, the Company has a credit
rating of B1 (non-investment grade), with a negative outlook by Moody's, BB
(non-investment grade) with a negative outlook by S&P and BB (non-investment
grade) with a negative outlook by Fitch. While the foregoing indicates the
ratings from the various agencies, we note that these ratings are not a
recommendation to buy, sell or hold the Company's 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 so warrant. Further, the Company notes that,
given the reported financial difficulties of other market participants, the
uncertainty and turmoil in the financial markets generally and in the energy
sector specifically and the Company's pending accounting review, each of the
credit rating agencies continues to monitor its credit position closely. The
Company notes the risk factors related to a downgrade in the Company's credit
ratings as disclosed in its Annual Report on Form 10-K for the year ended
December 31, 2001, which was filed in March 2002.

    Turbine Purchases and Other Construction-Related Commitments

     During the three months ended March 31, 2002, Mirant committed itself to a
strategic business plan designed to reduce capital spending and operating
expenses. As a result, we recorded restructuring charges during the three months
ended March 31, 2002 related to these changes. The reduced capital spending plan
results in material changes to our commitments under our turbine purchase
agreements and our turbine procurement facilities. We have canceled and intend
to cancel certain turbines under our purchase agreements and off-balance sheet
equipment procurement facilities within the next 12 months. The commitments for
turbines that we have canceled and intend to cancel are included in our
restructuring charge. We plan to formally terminate the orders for the turbines
that we intend to cancel at various times within one year of the restructuring
commitment date. Our financial plan does not contemplate purchasing the turbines
that we have designated for termination. From a contractual perspective,
however, until the contracts are cancelled, we have the option to purchase the
turbines designated for termination at various times up to and through 2003.

     As of March 31, 2002, we had agreements to purchase 37 turbines (28 gas
turbines and 9 steam turbines) to support the our ongoing and planned
construction efforts. At March 31, 2002, minimum termination amounts under the
remaining 26 turbine purchase contracts that we intend to exercise consisted of
$28 million. Total amounts to be paid under the agreements if the remaining 26
turbines that we intend to exercise are purchased as planned are estimated to be
$125 million at March 31, 2002. At March 31, 2002, other construction-related
commitments totaled approximately $818 million.

     In addition to these commitments, we, through certain of our subsidiaries,
have two off-balance sheet equipment procurement facilities. These facilities
are being used to fund equipment progress payments due under purchase contracts
that have been assigned to two separate, independent third-party owners. For the
first facility, which is a $1.8 billion notional value facility, remaining
contracts for 42 turbines (28 gas turbines and 14 steam turbines) have been
assigned to a third-party trust. For the second facility, which was reduced from
a Euro 1.1 billion notional value facility to a Euro 550 million notional value
facility in April 2002, remaining contracts for six engineered equipment
packages ("power islands") have been assigned to a third-party owner
incorporated in The Netherlands.

     As part of our strategic restructuring, we negotiated certain deferrals
under both equipment purchase facilities. Because the term of the deferred
fabrication period for certain turbines included in the $1.8 billion notional
value facility exceeds the agreed fabrication period, as permitted within the
equipment procurement facilities, we will not have the option to enter a lease
arrangement for this equipment, thereby forcing us to exercise our purchase
option. Consequently, we have included a $35 million liability for these
turbines on our accompanying unaudited condensed consolidated balance sheet.

                                       67


At March 31, 2002, Mirant Corporation's guarantees in connection with the
equipment procurement facilities, including certain payment obligations were
approximately $373 million with respect to the turbines for which the facilities
have a contractual obligation (excluding the $35 million which is now included
in "Other long-term debt" on our unaudited condensed consolidated balance
sheet). If we had elected not to exercise our purchase options with respect to
the remaining 11 turbines and power islands and to terminate the procurement
contracts, minimum termination amounts due would have been $181 million at March
31, 2002. If the purchase options or options to lease the 11 remaining turbines
and power islands are exercised as planned, total commitments would be
approximately $477 million.

   Long-Term Service Agreements

     We have entered into long-term service agreements for the maintenance and
repair by third parties of many of our combustion-turbine generating plants.
Generally these agreements may be terminated at little or no cost in the event
that the shipment of the associated turbine is canceled. As of March 31, 2002,
the minimum termination amounts for long-term service agreements associated with
completed and shipped turbines were $536 million. As of March 31, 2002, the
total estimated commitments for long-term service agreements associated with
turbines already completed and shipped were approximately $684 million. These
commitments are payable over the course of each agreement's term. The terms are
projected to range from ten to twenty years. Estimates for future commitments
for long-term service agreements are based on the stated payment terms in the
contracts at the time of execution. These payments are subject to an annual
inflationary adjustment.

     As a result of the turbine cancellations as part of our restructuring, the
long-term service agreements associated with the canceled turbines will also be
cancelled. However, as stated above, canceling the long term service agreements
will result in little or no termination costs to us. We do not intend to cancel
long-term service agreements associated with turbines that have already shipped.
Consequently, our restructuring should not have an impact on the long-term
service agreement commitments disclosed above.

    Obligations Under Energy Delivery and Purchase Commitments

     Under the asset purchase and sale agreement for the PEPCO generating
assets, Mirant assumed and recorded net obligations of approximately $2.3
billion representing the fair value (at the date of acquisition) of
out-of-market energy delivery and power purchase agreements, which consist of
five power purchase agreements ("PPAs") and two transition power agreements
("TPAs"). The PPAs are for a total capacity of 735 MW and expire over periods
through 2021. The TPA agreements state that Mirant will sell a quantity of
megawatthours over the life of the contracts based on PEPCO's load requirements
and expire in January 2005. As actual megawatthours are purchased or sold under
these agreements, Mirant releases a ratable portion of the obligation into gross
margin. For the three months ended March 31, 2002, the Company released
approximately $113 million, pre-tax. As of March 31, 2002, the remaining
obligations recorded in the unaudited condensed consolidated balance sheet for
the TPAs and PPAs totaled $1,209 million and $517 million, respectively, of
which $462 million and $66 million, respectively, are current. At March 31,
2002, the estimated notional commitments under the PPA agreements were $1.63
billion based on the total remaining MW commitment at contractual prices.

     Other obligations under various agreements of approximately $156 million
are also included in the unaudited condensed consolidated balance sheet.

   Fuel Commitments

     We have fixed volumetric purchase commitments under fuel purchase and
transportation agreements totaling $602 million at March 31, 2002. These
agreements will continue to be in effect through 2011. In addition, we have a
contract with BP whereby BP is obligated to deliver fixed quantities of natural
gas at identified delivery points. The negotiated purchase price of delivered
gas is generally equal to the monthly spot rate then prevailing at each delivery
point. The estimated commitment for the term of this agreement based on monthly
                                       68


spot prices is $6.29 billion as of March 31, 2002. Because this contract is
based on the monthly spot price at the time of delivery, we have the ability to
sell the gas at the same spot price, thereby offsetting the full amount of our
commitment related to this contract. Effective July 26, 2002, Mirant and BP have
restructured this contract. The contract term has been extended to December 31,
2009, unless terminated sooner. Mirant has the ability to reduce the purchase
obligation on this contract annually. Based on current contract volumes, the
estimated minimum commitment for the term of this agreement based on current
spot prices is $2.2 billion as of September 30, 2002. The contract is now
subject to the North American Master Netting Agreement between Mirant and BP,
dated December 1, 2001 (the "Master Netting Agreement") and a new collateral
annex to the Master Netting Agreement. Together, the Master Netting Agreement
and Collateral Annex provide that the amounts due to BP under the contract will
be netted against payments due between Mirant and BP under various other gas and
power contracts, and that collateral will be posted by one party to the other
based on the net amount of exposure.

    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 will 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 June 2002. The purchase price of the fuel will vary with
the delivered cost of the coal feedstock. Based on current coal prices it is
expected that the annual purchase commitment will be approximately $100 million.

     In July 2002, in conjunction with the commencement of Mirant Mid-Atlantic's
minimum synthetic fuel purchase commitments, Mirant Americas Energy Marketing
arranged for the synthetic fuel supplier to contract with the coal supplier to
purchase coal directly from the supplier. Mirant Americas Energy Marketing's
minimum coal purchase commitments are reduced to the extent that the synthetic
fuel supplier purchases coal under this arrangement. Since the inception of this
arrangement, the synthetic fuel supplier has purchased 100% of Mirant Americas
Energy Marketing's minimum coal purchase commitment thereby reducing the amount
of coal purchased by Mirant Americas Energy Marketing under the contracts, which
are included in the fixed volumetric purchase commitment of $602 million noted
above.

   Operating Leases

     We have commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled
approximately $31 million and $30 million during the three months ended March
31, 2002 and 2001, respectively. As of March 31, 2002, estimated minimum rental
commitments for non-cancelable operating leases were $3.61 billion.

     Of this amount, we have approximately $2.9 billion in total notional
minimum lease payments for the remaining life of the leases related to the PEPCO
acquisition. The leases are treated as operating leases for accounting purposes
whereby one of our subsidiaries records periodic lease rental expenses.

   Mirant New England Guarantee

    In April 2002, Mirant issued a guarantee in the amount of $188 million for
any obligations Mirant New England may incur under its Wholesale Transition
Service Agreement with Cambridge Electric Light Company and Commonwealth
Electric Company. Under the agreement, Mirant New England is required to sell
electricity at fixed prices to Cambridge and Commonwealth in order for them to
meet their supply requirements to certain retail customers. Both the guarantee
and the agreement expire in February 2005.

Litigation and Other Contingencies

     Reference is made to Notes H and K to the financial statements filed as
part of this quarterly report on Form 10-Q relating to the following litigation
matters and other contingencies:

Litigation:

o        Western Power Markets Investigations
o        California Attorney General Litigation
o        Defaults by SCE and Pacific Gas and Electric, and the Bankruptcies of
         Pacific Gas and Electric and the PX
o        RMR Agreements
o        Western Power Markets Price Mitigation and Refund Proceedings
                                       69


o        DWR Power Purchases
o        California Rate Payer Litigation
o        Enron Bankruptcy Proceedings
o        State Line
o        Edison Mission Energy Litigation
o        Environmental Information Requests
o        Shareholder Litigation
o        SEC Informal Investigation and U.S. Department of Justice and CFTC
         Inquiries
o        Shareholder Derivative Litigation
o        Panda Brandywine, L.P. Power Purchase Agreement

     Additionally, for recent events occurring after March 31, 2002 reference is
made to Note K to the financial statements filed as part of this quarterly
report on Form 10-Q.

     In addition to the proceedings described above, we experience routine
litigation from time to time in the normal course of our business, which is not
expected to have a material adverse effect on our consolidated financial
condition, cash flows or results of operations.

                                       70






           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As part of our energy marketing and risk management activities, we enter
into a variety of contractual commitments, such as forward purchase and sale
agreements, futures, swaps, and option contracts. These contracts generally
require future settlement and are either executed on an exchange or marketed as
OTC instruments. Contractual commitments have widely varying terms and have
tenors that range from a few days to a number of years, depending on the
instrument.

    Our accounting and financial statement presentation of contractual
commitments depends on both the type and purpose of the contractual commitment
held or issued. We record all contractual commitments used for energy marketing
purposes, including those used to hedge marketing positions, at fair value.
Consequently, changes in the amounts recorded in our unaudited condensed
consolidated balance sheets resulting from movements in fair value are included
in operating revenues in the period in which they occur. Contractual commitments
expose us to both market risk and credit risk.

Market Risk

     Market risk is the potential loss that we may incur as a result of changes
in the fair value of a particular instrument or commodity. All financial and
commodities-related instruments, including derivatives, are subject to market
risk. Our exposure to market risk is determined by a number of factors,
including the size, tenor, composition and diversification of positions held and
the absolute and relative levels of commodity prices, interest rates, as well as
market volatility of the commodity prices and liquidity. For instruments such as
options, the time period during which the option may be exercised and the
relationship between the current market price of the underlying instrument and
the option's contractual strike or exercise price also affects the level of
market risk. We manage market risk by actively monitoring compliance with stated
risk management policies as well as monitoring the effectiveness of our hedging
policies and strategies through our risk oversight committees. Our risk
oversight committee reviews and monitors compliance with risk management
policies that limit the amount of total net exposure during the stated periods.
Our Global Risk Control Officer is a member of the risk oversight committee,
which also includes senior commercial, legal and finance management personnel as
members, thereby ensuring that information is communicated to our senior
management and audit committee as needed.

     Market risk is a function not only of the behavior of the prices and the
structure of the markets for the commodities in which we operate, but it also
depends on the nature and complexity of the energy marketing and risk management
transactions that we enter. Therefore, a risk exists that our models do not
fully capture the essential details of the contractual arrangements. In order to
ensure that the model risk is properly controlled through a process of
systematic model development, deployment and control, we created and utilize a
Model Risk Oversight Committee, as described earlier in the Contractual
Obligations and Commitments section. The Model Risk Oversight Committee sets the
guidelines for the model development, testing, implementation process and
responsibilities. The Risk Control organization and the Mid-Office have the
joint responsibility for ensuring proper oversight and reporting of the values
and risks of transactions employing different models of value and risk. We
employ a systematic approach to the evaluation and management of the risks
associated with our energy marketing and risk management related contracts,
including Value-at-Risk ("VaR"). VaR is defined as the maximum loss that is not
expected to be exceeded with a given degree of confidence and over a specified
holding period. We use a 95% confidence interval and holding periods that vary
by commodity and tenor to evaluate our VaR exposure. A 95% confidence interval
means there is a 5% probability that the actual loss will be greater than the
estimated loss under the VaR. Therefore, we expect that the loss in our
portfolio value will not exceed our VaR for 95% of the time. A holding period is
the time period it would take to liquidate our portfolio. Our VaR measurement
takes into account the relative liquidity of different commodity positions
across different time horizons and locations through the use of different
holding periods. For very liquid commodity positions, such as natural gas for
                                       71


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 three-month
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. We also incorporate seasonally
updated correlations between commodity prices in arriving at the portfolio VaR.

     For the three months ended March 31, 2002, the average VaR, using various
holding periods and a 95% confidence interval, was $30.8 million and the VaR as
of March 31, 2002, was $33.8 million. In order to enable comparison on a common
base with our peers in the sector, we also report the portfolio VaR levels using
a one-day holding period for all positions and commitments in our portfolio.
Based on a 95% confidence interval and employing a one-day holding period for
all positions, our portfolio VaR was $11.1 million at March 31, 2002 and the
average over the three months ended March 31, 2002 was $10.2 million. During the
three months ended March 31, 2002, the actual daily loss on a fair value basis
exceeded the corresponding one-day VaR calculation three times, which falls
within our 95% confidence interval. In addition to VaR, we utilize additional
risk control mechanisms such as commodity position limits and stress testing of
the total portfolio and its components. In stress testing, we stress both the
price and volatility curves for the entire portfolio in 10% increments to
determine the effects on the fair value.

     The fair values of our energy marketing and risk management assets recorded
in the unaudited condensed consolidated balance sheet at March 31, 2002, were
comprised primarily of approximately 33% electricity and 65% natural gas. The
fair values of our energy marketing and risk management liabilities recorded in
the unaudited condensed consolidated balance sheet at March 31, 2002, were
comprised primarily of approximately 27% electricity and 71% natural gas.
Because of the expected contraction in our natural gas trading and marketing
activities, the percentage of natural gas positions would be expected to
decline.

Credit Risk

     In conducting our energy marketing and risk management activities, we
regularly transact business with a broad range of entities and a wide variety of
end users, energy companies and financial institutions. To examine and manage
credit risk, we look at credit risk from our stance as being exposed to
potential default by our counterparties. Credit risk is measured by the loss we
would record if our counterparties failed to perform pursuant to the terms of
their contractual obligations, and the value of collateral held by us, if any,
was not adequate to cover such losses. We have established controls to determine
and monitor the creditworthiness of counterparties, as well as the quality of
pledged collateral and use master netting agreements whenever possible to
mitigate our exposure to counterparty credit risk. Master netting agreements
enable us to net certain assets and liabilities by counterparty. We also net
across product lines and against cash collateral, provided such provisions are
established in the master netting and cash collateral agreements. Additionally,
we may require counterparties to pledge additional collateral when deemed
necessary. We try to manage the portfolio of our positions such that the average
credit quality of our portfolio falls inside an authorized range. We use
published ratings of counterparties to guide us in the process of setting credit
levels, risk limits and contractual arrangements including master netting
agreements. Where external ratings are not available, we conduct internal
assessments of counterparties. The average credit quality is monitored on a
regular basis and reported to the risk oversight committee on a periodic basis
together with steps initiated to bring credit exposures into line within the
authorized range. The weighted average credit rating of the counterparties,
based on outstanding balances and management's internal assessment, included in
the net fair value of our energy marketing and risk management assets was BBB+
at March 31, 2002 and September 30, 2002.
                                       72


     We also monitor the concentration of credit risk from various positions,
including contractual commitments. Credit concentration risk exists when groups
of counterparties have similar business characteristics, and/or are engaged in
like activities that would cause their ability to meet their contractual
commitments to be adversely affected, in a similar manner, by changes in the
economy or other market conditions. We monitor credit concentration risk on both
an individual basis and a group counterparty basis.

    In addition to continuously monitoring our credit exposure to our
counterparties, we also take appropriate steps to limit the exposures, initiate
actions to lower credit exposure and take credit reserves as appropriate. The
process of establishing and monitoring credit reserves is based on a standard
methodology of employing default probabilities to the current and potential
exposures by both settled and open contracts.

     As of March 31, 2002, no amounts owed from a single customer represented
more than 10% of Mirant's total credit exposure. Our total credit exposure is
computed as total accounts and notes receivable, adjusted for energy marketing,
risk management and derivative hedging activities and netted against offsetting
payables and posted collateral as appropriate. Our overall exposure to credit
risk may be impacted, either positively or negatively, because our
counterparties may be similarly affected by changes in economic, regulatory or
other conditions.

   Interest Rate Risk

     Our policy is to manage interest expense using a combination of fixed- and
variable-rate debt. To manage this mix in a cost-efficient manner, we enter into
interest rate swaps in which we agree to exchange, at specified intervals, the
difference between fixed- and variable-interest amounts calculated by reference
to agreed-upon notional principal amounts. These swaps are designated to hedge
underlying debt obligations. For qualifying hedges, the changes in the fair
value of gains and losses of the swaps are deferred in OCI, net of tax, and the
interest rate differential is reclassified from OCI to interest expense as an
adjustment over the life of the swaps. Gains and losses resulting from the
termination of qualifying hedges prior to their stated maturities are recognized
ratably over the remaining life of the hedged instrument.

   Foreign Currency Hedging

     From time to time, we use cross-currency swaps and currency forwards to
hedge our net investments in certain foreign subsidiaries. Gains or losses on
these derivatives are designated as hedges of net investments and are offset
against the foreign currency translation effects reflected in OCI, net of tax.

     We also utilize currency forwards intended to offset the effect of exchange
rate fluctuations on forecasted transactions arising from contracts denominated
in a foreign currency. From time to time, we also utilize cross-currency swaps
that offset the effect of exchange rate fluctuations on foreign currency
denominated debt and fix the interest rate exposure. Certain other assets are
exposed to foreign currency risk. We designate currency forwards as hedging
instruments used to hedge the impact of the variability in exchange rates on
accounts receivable denominated in certain foreign currencies. When these
hedging strategies qualify as cash flow hedges, the gains and losses on the
derivatives are deferred in OCI, net of tax, until the forecasted transaction
affects earnings. The reclassification is then made from OCI to earnings in the
same revenue or expense category as the hedged transaction.
                                       73


   Interest Rate and Currency Derivatives

     The interest rates noted in the following table represent the range of
fixed interest rates that we pay on the related interest rate swaps. On
virtually all of these interest rate swaps, we receive floating interest rate
payments at LIBOR. The currency derivatives mitigate our exposure arising from
certain foreign currency transactions, such as cross border sales and foreign
equity investments.




                                                                                         
                             Year of Maturity                         Number of        Notional       Unrealized
           Type               or Termination     Interest Rates    Counterparties       Amount       (Loss) Gain
--------------------------- -------------------- ---------------- ------------------ ------------- -----------------
                                                                                             (in millions)
Interest rate swaps....          2003-2012         3.85%-7.12%            4            $624          $(34)


Currency forwards......          2002-2004              -                 3        (1)CAD117           (1)
                                   2003                 -                 1        (pound)58            -
                                 2002-2003              -                 2           (2)$14            -
                                                                                                    --------
                                                                                                     $(35)
                                                                                                    ========

(pound) - Denotes British pounds sterling
CAD - Denotes Canadian dollar
(1)CAD contracts with a notional amount of CAD106 million are included in fair value of energy marketing and risk
management liabilities because hedge accounting criteria are not met.
(2) USD contracts are utilized by a foreign subsidiary to hedge U. S. dollar denominated sales contracts.


     The unrealized gain/loss for interest rate swaps is determined based on the
estimated amount that we would receive or pay to terminate the swap agreement at
the reporting date based on third-party quotations. The unrealized gain/loss for
cross-currency forwards is determined based on current foreign exchange rates.

Controls and Procedures

     Effective April 1, 2002, the Company implemented a new IT system ("ENDUR")
for its gas trading and marketing activities in North America. Because of
ENDUR's improved capabilities over the legacy systems, management views the
implementation of ENDUR as a significant change in internal controls. In
addition, the Company recently modified its power trading and marketing IT
system to improve reporting of realized and unrealized income associated with
power transactions.

     The Company's independent auditors assessed the Company's internal controls
of its North American energy marketing and risk management operations as part of
the interim review for the second quarter. The Company has 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 the Company's systems and
processes and include:

     (i)  Inadequate   actualization   analysis,   documentation   and  internal
          communication;

     (ii) Inadequate reconciliation of the risk report and general ledger;

     (iii) Inadequate systems integration and data reconciliation; and

     (iv) Untimely balance sheet discrepancy resolution.

     The Company's independent auditors have advised the Audit Committee that
these internal control deficiencies constitute reportable conditions and,
collectively, a material weakness as defined in Statement on Auditing Standards
No. 60 ("SAS No. 60"). The Company has assigned the highest priority to the
short-term and long-term correction of these internal control deficiencies.
Management has discussed its proposed actions with the Audit Committee and its
independent auditors. The Company has implemented corrective actions to mitigate
the risk that these deficiencies could lead to material misstatements in the
                                       74


Company's current financial statements. In addition, the Company has performed
additional procedures to enable the completion of the independent auditors'
review of the Company's interim financial statements, despite the presence of
control weaknesses as noted above.

     The following short-term corrective actions are being implemented:

     (i)  Additional training and replacement of certain individuals;

     (ii) Additional management oversight and detailed reviews;

     (iii)Reports  submitted  monthly  to the CFO and CEO  certifying  that  the
          balance  sheet  reconciliations  have  been  completed,  the  accounts
          appropriately adjusted and any discrepancies listed;

     (iv) Involvement  of the  Company's  internal  audit  personnel  to monitor
          certain critical monthly and quarterly closing processes; and

     (v)  Use of outside resources to supplement Company employees in evaluating
          and implementing the internal control recommendations.

     Longer-term corrective actions, some of which the Company has already begun
to implement, will include:


     (i)  Implementation  of the  ENDUR  system  for power  transactions  in the
          second quarter of 2003;

     (ii) Evaluation  of the  feasibility  of automated  interfaces  between the
          Company's various systems,  including risk management,  scheduling and
          general ledger;

     (iii)Process   mapping  and   evaluation   to  assure   timely  review  and
          reconciliation  between  risk  management  systems  and the  Company's
          accounting systems;

     (iv) Evaluation  of  accounting  organization  structure to align roles and
          responsibilities with process and control changes;

     (v)  Re-evaluation of the role and resources  devoted to internal  auditing
          to assure compliance with accounting requirements;

     (vi) Re-evaluation  of the Chief Risk Officer's  duties to assure  adequate
          controls; and

     (vii)Re-evaluation  of the Company's  Risk Oversight  Committee's  role and
          focus to include  monthly  reporting  and  tracking of progress on the
          completion  of all controls  enhancements  and to ensure  controls are
          appropriate  for the  ongoing  size  and  level of  activities  in the
          business.

     Separately, the Company expects that the anticipated significant reduction
in its physical gas volumes and longer-term, structured transactions will have
an additional mitigating effect on the impact of the identified controls
weaknesses.

     Apart from the changes made as a result of the evaluation noted above, no
significant changes have been made in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation. The Company continues to evaluate the effectiveness of
its overall controls and procedures and will take such further actions as
dictated by such continuing reviews.

                                       75




Critical Accounting Estimates

     The accounting policies described in the Company's Form 10-K and below are
viewed by management as "critical" because their correct application requires
the use of material estimates and because they have a material impact on its
financial results and position. To aid in the Company's application of these
critical accounting policies, management invests substantial human and financial
capital in the development and maintenance of models and other forecasting tools
and operates a robust environment of internal controls surrounding these areas
in particular. These tools, in part, facilitate the measurement of less liquid
financial instruments accounted for at fair value and ensure that such
measurements are applied consistently across periods. In addition, separate
tools enable management to forecast the Company's global income tax position to
ensure that tax charges are appropriate in each period.

     Additionally, in 2002, the Company adopted SFAS Nos. 141, 142 and 144.
These new pronouncements, among other things, change the accounting model for
impairing the balance sheet value of assets held for use and held for sale, as
well as the book value of goodwill and other intangible assets. The Company's
announced asset sale program, as well as overall conditions affecting the
Company and its sector, may materially impact the carrying values of its
property plant and equipment, its construction work in progress, its investment
in suspended construction, its goodwill and its other intangible assets. The
Company will assess the book values of its goodwill late in the fourth quarter
of 2002, after completing its annual financial planning process for 2003. This
process provides management with the best information from which to analyze the
book values of its assets under the new accounting models prescribed by the
above-referenced GAAP. Management expects the outcome of these analyses to be
completed prior to reporting its 2002 results. Currently, Mirant does not
believe that the suspended "Construction work in progress" is subject to an
impairment loss under SFAS No. 144.

     As discussed above, Mirant adopted SFAS No. 142 effective January 1, 2002.
SFAS No. 142 requires a two-step impairment analysis process. The first step of
the test compares the estimated fair value of a reporting unit to its net book
value to determine if there is potential goodwill impairment. If no impairment
is indicated in step one the test is complete. If the net book value of the
reporting unit exceeds the fair value in step one, the second step of the
impairment test is required. Step two measures the amount of the impairment
charge by comparing the estimated fair value of the reporting unit goodwill to
its book value. The excess of the book value of goodwill to its estimated fair
value is recognized as an impairment charge. Management currently believes there
is no impairment of goodwill; however, Mirant's announced asset sale program and
the overall conditions impacting the energy sector may materially impact the
book value of goodwill.  This assessment may result in impairments at one or
more subsidiaries that do not result in impairments in Mirant's consolidated
financial statements.

Audit Committee Pre-Approval of Audit and Non-Audit Services

     Mirant's Audit Committee has approved all audit and audit related services
performed by its independent auditor, KPMG. In addition, the Audit Committee has
delegated to its Chair the ability to pre-approve other non-audit services by
KPMG, and the Audit Committee Chair has pre-approved certain tax work. The fees
for such non-audit work for 2002 are not currently expected to exceed $1.3
million.



                                       76





PART II     OTHER INFORMATION

Item 1.       Legal Proceedings

     The discussions concerning the following legal matters are hereby
incorporated by reference from Notes H and K in the consolidated financial
statements that are a part of this quarterly report on Form 10-Q:

o        Western Power Markets Mitigation and Refund Proceedings
o        California Attorney General Litigation
o        California Rate Payer Litigation
o        Shareholder Litigation
o        Environmental Information Requests
o        Shareholder Derivative Litigation
o        SEC Informal Investigation, U.S. Department of Justice and
         CFTC Inquiries

     With respect to each of the preceding matters, we cannot currently
determine the outcome of the proceedings or the amounts of any potential losses
from such proceedings.

Item 6.       Exhibits and Reports on Form 8-K

(a)      Exhibits.

10.64        Form of Change in Control Agreement for Edwin H. Adams,
             Randall E. Harrison, William J. Holden and Gary J. Morsches
10.65        Form of Retention Agreement with Edwin H. Adams, Randall E.
             Harrison, Gary J. Morsches
15           KPMG Awareness Letter to Mirant Corporation


(b)  Reports on Form 8-K.

     During the quarter ended March 31, 2002, we filed a Current  Report on Form
8-K dated March 20, 2002.  Item 5 was reported and no financial  statements were
filed.






                                       77





                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.

    MIRANT CORPORATION




    By  /s/ Raymond D. Hill
            Raymond D. Hill
            Executive Vice President and
              Chief Financial Officer
            (Principal Financial Officer)

                                                        Date: November 7, 2002





                                 CERTIFICATIONS

I, Marce Fuller, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Mirant Corporation;

2.   Based on my knowledge, this quarterly 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 quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly 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
     quarterly report;




Date: November 7, 2002                         /s/ S. Marce Fuller
                                                   -------------------
                                                   S. Marce Fuller
                                                   President, Chief Executive
                                                     Officer
                                                  (Principal Executive Officer)


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


I, Raymond Hill, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Mirant Corporation;

2.   Based on my knowledge, this quarterly 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 quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly 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
     quarterly report;


Date: November 7, 2002                     /s/ Raymond D. Hill
                                               ---------------
                                               Raymond D. Hill
                                               Executive Vice President and
                                                 Chief Financial Officer
                                               (Principal Financial Officer)