10-Q

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

Form 10-Q

(Mark one)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                               to

Commission file number 333-68630

EDISON MISSION ENERGY
(Exact name of registrant as specified in its charter)

Delaware	95-4031807
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
18101 Von Karman Avenue, Suite 1700 Irvine, California	92612
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (949) 752-5588

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer ý
(Do not check if a
smaller reporting company) Smaller reporting company o

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

        Number of shares outstanding of the registrant's Common Stock as of May 8, 2008: 100 shares (all shares held by an affiliate of the registrant).

TABLE OF CONTENTS

		Page
	Glossary	ii
PART I—Financial Information
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4T.	Controls and Procedures	46
PART II—Other Information
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 6.	Exhibits	47
	Signatures	48

i

GLOSSARY

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

Btu	British thermal units
Commonwealth Edison	Commonwealth Edison Company
CONE	cost of new entry
EME	Edison Mission Energy
EME Homer City	EME Homer City Generation L.P.
EMMT	Edison Mission Marketing & Trading, Inc.
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FIN No. 39-1	Financial Accounting Standards Board Staff Position No. 39-1, "Amendment of FASB Interpretation No. 39"
Fitch	Fitch Ratings
GAAP	generally accepted accounting principles
GWh	gigawatt-hours
Illinois Plants	EME's largest power plants (fossil fuel) located in Illinois
MD&A	Management's Discussion and Analysis of Financial Condition and Results of Operations
Midwest Generation	Midwest Generation, LLC
MMBtu	million British thermal units
Moody's	Moody's Investors Service, Inc.
MW	megawatts
MWh	megawatt-hours
NOV	Notice of Violation
NOX	nitrogen oxide
NYISO	New York Independent System Operator
PJM	PJM Interconnection, LLC
PRB	Powder River Basin
RPM	reliability pricing model
S&P	Standard & Poor's Ratings Services
SFAS	Statement of Financial Accounting Standards issued by the FASB
SFAS No. 133	Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"
SFAS No. 141(R)	Statement of Financial Accounting Standards No. 141(R), "Business Combinations"
SFAS No. 157	Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"

ii

SFAS No. 161	Statement of Financial Accounting Standards No. 161, "Disclosures About Derivative Instruments and Hedging Activities" (an amendment of FASB No. 133)
SIP(s)	state implementation plan(s)
SO2	sulfur dioxide
US EPA	United States Environmental Protection Agency

iii

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, Unaudited)

			Three Months Ended March 31,
			2008			2007
Operating Revenues			$	719		$	673
Operating Expenses
	Fuel			187			176
	Plant operations			136			132
	Plant operating leases			44			44
	Depreciation and amortization			44			35
	Gain on buyout of contract and sale of assets (Note 8)			(16	)		—
	Administrative and general			48			39
		Total operating expenses		443			426
	Operating income			276			247
Other Income (Expense)
	Equity in income from unconsolidated affiliates			12			26
	Dividend income			1			1
	Interest income			8			24
	Interest expense			(71	)		(60	)
	Other income (expense), net			6			(1	)
		Total other income (expense)		(44	)		(10	)
	Income from continuing operations before income taxes			232			237
	Provision for income taxes			82			84
Income From Continuing Operations				150			153
	Income (loss) from operations of discontinued subsidiaries, net of tax (Note 5)			(5	)		3
Net Income			$	145		$	156

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

1

EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions, Unaudited)

			Three Months Ended March 31,
			2008			2007
Net Income			$	145		$	156
Other comprehensive loss, net of tax:
	Unrealized gains (losses) on derivatives qualified as cash flow hedges:
		Other unrealized holding losses arising during period, net of income tax benefit of $92 and $115 for the three months ended March 31, 2008 and 2007, respectively		(138	)		(169	)
		Reclassification adjustments included in net income, net of income tax expense (benefit) of $6 and $(12) for the three months ended March 31, 2008 and 2007, respectively		(8	)		15
Other comprehensive loss				(146	)		(154	)
Comprehensive Income (Loss)			$	(1	)	$	2

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

2

EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, Unaudited)

			March 31, 2008		December 31, 2007
Assets
Current Assets
	Cash and cash equivalents		$	1,129	$	994
	Short-term investments			34		81
	Accounts receivable—trade			260		224
	Receivables from affiliates			16		35
	Inventory			156		149
	Derivative assets			29		56
	Margin and collateral deposits			111		85
	Deferred taxes			118		21
	Prepaid expenses and other			106		89
		Total current assets		1,959		1,734
Investments in Unconsolidated Affiliates				377		387
Property, Plant and Equipment				5,039		4,942
	Less accumulated depreciation and amortization			1,094		1,053
		Net property, plant and equipment		3,945		3,889
Other Assets
	Deferred financing costs			40		41
	Long-term derivative assets			91		91
	Restricted cash			45		48
	Rent payments in excess of levelized rent expense under plant operating leases			765		716
	Other long-term assets			381		366
		Total other assets		1,322		1,262
Total Assets			$	7,603	$	7,272

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

3

EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, Unaudited)

			March 31, 2008			December 31, 2007
Liabilities and Shareholder's Equity
Current Liabilities
	Accounts payable		$	103		$	73
	Payables to affiliates			60			17
	Accrued liabilities			268			289
	Derivative liabilities			168			28
	Interest payable			98			30
	Current maturities of long-term obligations			13			17
		Total current liabilities		710			454
Long-term obligations net of current maturities				3,881			3,806
Deferred taxes and tax credits				361			351
Deferred revenues				65			65
Long-term derivative liabilities				95			88
Other long-term liabilities				532			543
Total Liabilities				5,644			5,307
Minority Interest				41			42
Commitments and Contingencies (Note 8)
Shareholder's Equity
	Common stock, par value $0.01 per share; 10,000 shares authorized; 100 shares issued and outstanding as of March 31, 2008 and December 31, 2007			64			64
	Additional paid-in capital			1,327			1,326
	Retained earnings			736			596
	Accumulated other comprehensive loss			(209	)		(63	)
Total Shareholder's Equity				1,918			1,923
Total Liabilities and Shareholder's Equity			$	7,603		$	7,272

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

4

EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, Unaudited)

			Three Months Ended March 31,
			2008			2007
Cash Flows From Operating Activities
	Net income		$	145		$	156
	Less: Income (loss) from discontinued operations			5			(3	)
	Income from continuing operations, net		$	150		$	153
	Adjustments to reconcile income to net cash provided by operating activities:
		Equity in income from unconsolidated affiliates		(12	)		(25	)
		Distributions from unconsolidated affiliates		15			23
		Depreciation and amortization		46			39
		Deferred taxes and tax credits		11			(22	)
		Gain on buyout of contract and sale of assets		(16	)		—
	Changes in operating assets and liabilities:
		Increase in margin and collateral deposits		(27	)		(13	)
		Decrease (increase) in accounts receivable		(17	)		9
		Increase in inventory		(7	)		(2	)
		Decrease (increase) in prepaid expenses and other		(6	)		48
		Increase in rent payments in excess of levelized rent expense		(49	)		(48	)
		Increase in accounts payable and other current liabilities		50			11
		Increase in interest payable		68			52
		Increase in derivative assets and liabilities		(71	)		(112	)
		Other operating—assets		(7	)		—
		Other operating—liabilities		6			10
	Operating cash flow from continuing operations			134			123
	Operating cash flow from discontinued operations			(5	)		3
		Net cash provided by operating activities		129			126
Cash Flows From Financing Activities
	Borrowings on long-term debt			76			30
	Payments on long-term debt agreements			(6	)		(54	)
	Cash dividends to parent			—			(26	)
	Payments to affiliates related to stock-based awards			(5	)		(21	)
	Excess tax benefits related to stock-based awards			1			6
	Financing costs			(1	)		—
		Net cash provided by (used in) financing activities		65			(65	)
Cash Flows From Investing Activities
	Capital expenditures			(117	)		(130	)
	Proceeds from return of capital, loan repayments and sale of assets			8			10
	Purchase of interest of acquired companies			—			(4	)
	Purchase of short-term investments			—			(25	)
	Maturities and sales of short-term investments			47			108
	Decrease in restricted cash			2			36
	Proceeds from (investments in) other assets			1			(62	)
		Net cash used in investing activities		(59	)		(67	)
Net increase (decrease) in cash and cash equivalents				135			(6	)
Cash and cash equivalents at beginning of period				994			1,213
Cash and cash equivalents at end of period			$	1,129		$	1,207

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

5

EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

        EME's significant accounting policies were described in Note 1 to its consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2007. EME follows the same accounting policies for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2008 as discussed below in "—Margin and Collateral Deposits" and "—New Accounting Pronouncements." This quarterly report should be read in conjunction with such financial statements.

        In the opinion of management, all adjustments, including recurring accruals, have been made that are necessary to fairly state the consolidated financial position and results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the operating results for the full year.

        Certain prior year reclassifications have been made to conform to the current year financial statement presentation mostly pertaining to the adoption of FIN No. 39-1. Except as indicated, amounts reflected in the notes to the consolidated financial statements relate to continuing operations of EME.

Short-term Investments

        At March 31, 2008 and December 31, 2007, EME had classified all marketable debt securities as held-to-maturity. The securities were carried at amortized cost plus accrued interest which approximated their fair value. Gross unrealized holding gains and losses were not material.

        Held-to-maturity securities, which all mature within one year, consisted of the following:

	March 31, 2008		December 31, 2007
	(in millions)
Commercial paper	$	3	$	32
Certificates of deposit		29		41
Treasury bills		2		7
Corporate bonds		—		1
Total	$	34	$	81

Inventory

        Inventory is stated at the lower of weighted average cost or market. Inventory at March 31, 2008 and December 31, 2007 consisted of the following:

	March 31, 2008		December 31, 2007
	(in millions)
Coal and fuel oil	$	105	$	100
Spare parts, materials and supplies		51		49
Total	$	156	$	149

6

Margin and Collateral Deposits

        Margin and collateral deposits include cash deposited with counterparties and brokers as credit support under energy contracts. The amount of margin and collateral deposits generally varies based on changes in fair value of the related positions. See "—New Accounting Pronouncements—Accounting Principle's Adopted—FASB Staff Position FIN No. 39-1" for a discussion of EME's adoption of FIN No. 39-1. In accordance with FIN No. 39-1, EME presents a portion of its margin and cash collateral deposits net with its derivative positions on EME's consolidated balance sheets. Amounts recognized for cash collateral provided to others that have been offset against net derivative liabilities totaled $134 million and $36 million at March 31, 2008 and December 31, 2007, respectively. Amounts recognized for cash collateral received from others that have been offset against net derivative assets totaled $6 million at March 31, 2008.

New Accounting Pronouncements

Accounting Principles Adopted

FASB Staff Position FIN No. 39-1—

        In April 2007, the FASB issued FIN No. 39-1. This pronouncement permits companies to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. In addition, upon the adoption, companies were permitted to change their accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting agreements. EME adopted FIN No. 39-1 effective January 1, 2008. The adoption resulted in netting a portion of margin and cash collateral deposits with derivative positions on EME's consolidated balance sheets, but had no impact on EME's consolidated statements of income. The consolidated balance sheet at December 31, 2007 has been retroactively restated for the change, which resulted in a decrease in net assets (margin and collateral deposits) of $36 million. The consolidated statements of cash flows for the three months ended March 31, 2007 has been retroactively restated to reflect the balance sheet changes, which had no impact on total operating cash flow from continuing operations.

Statement of Financial Accounting Standards No. 159—

        In February 2007, the FASB issued SFAS No. 159, "Fair Value Option for Financial Assets and Liabilities, Including an Amendment of FASB Statement No. 115," which provides an option to report eligible financial assets and liabilities at fair value, with changes in fair value recognized in earnings. EME adopted this pronouncement effective January 1, 2008. The adoption had no impact because EME did not make an optional election to report additional financial assets and liabilities at fair value.

Statement of Financial Accounting Standards No. 157—

        In September 2006, the FASB issued SFAS No. 157, which clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. EME adopted SFAS No. 157 effective January 1, 2008. The adoption did not result in any retrospective adjustment to its consolidated financial statements. The accounting requirements for employers' pension and other postretirement benefit plans are effective at the end of 2008, which is the next measurement date for these benefit plans. The effective date will be January 1, 2009 for nonfinancial assets and liabilities which are measured or disclosed on a non-recurring basis. For further discussion see Note 2—Fair Value Measurements.

7

Accounting Principles Not Yet Adopted

Statement of Financial Accounting Standards No. 141(R)—

        In December 2007, the FASB issued SFAS No. 141(R), which establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date fair value. SFAS No. 141(R) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after fiscal years beginning January 1, 2009. Early adoption is not permitted.

Statement of Financial Accounting Standards No. 160—

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements," which requires an entity to present minority interest that reflects the ownership interests in subsidiaries held by parties other than the entity, within the equity section but separate from the entity's equity in the consolidated financial statements. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of income; changes in ownership interest be accounted for similarly as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. EME will adopt SFAS No. 160 on January 1, 2009. In accordance with this standard, EME will reclassify minority interest to a component of shareholder's equity (at March 31, 2008 this amount was $41 million).

Statement of Financial Accounting Standards No. 161—

        In March 2008, the FASB issued SFAS No. 161, which requires additional disclosures related to derivative instruments, including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008, with early adoption permitted. EME will adopt SFAS No. 161 in the first quarter of 2009. SFAS No. 161 will impact disclosures only and will not have an impact on EME's consolidated results of operations, financial condition or cash flows.

Note 2. Fair Value Measurements

        SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price" in SFAS No. 157). SFAS No. 157 clarifies that a fair value measurement for a liability should reflect the entity's nonperformance risk.

        The standard establishes a hierarchy for fair value measurements. Financial assets and liabilities carried at fair value on a recurring basis are classified and disclosed in the three categories outlined below:

•

Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;



•

Level 2—Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and



•

Level 3—Unobservable inputs using data that is not corroborated by market data and primarily based on internal company analysis.

8

        EME's assets and liabilities carried at fair value primarily consist of derivative positions. These positions may include forward sales and purchases of physical power, options and forward price swaps which settle only on a financial basis (including futures contracts).

        Level 1 includes derivatives that are exchange traded. The fair values are determined using quoted exchange transaction market prices.

        Level 2 includes non-exchange traded derivatives using over-the-counter markets. The fair value of these derivatives is determined using forward market prices adjusted for credit risk. The majority of Level 2 derivatives are entered into for hedging purposes.

        Level 3 includes derivatives that trade infrequently such as firm transmission rights and over-the-counter derivatives at illiquid locations and long-term power agreements. Where EME does not have observable market prices, EME believes that the transaction price is the best estimate of fair value at inception. For illiquid firm transmission rights, EME reviews objective criteria related to system congestion on a quarterly basis and other underlying drivers and adjusts fair value when EME concludes a change in objective criteria would result in a new valuation that better reflects the fair value. Changes in fair values are based on hypothetical sale of illiquid positions. For illiquid long-term power agreements, fair value is based upon a discounting of future electricity prices derived from a proprietary model using the risk free discount rate for a similar duration contract, adjusted for credit and liquidity. Changes in fair value are based on changes to forward market prices, including forecasted prices for illiquid forward periods.

        In circumstances where EME cannot verify fair value with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. As markets continue to develop and more pricing information becomes available, EME continues to assess valuation methodologies used to determine fair value.

        When appropriate, valuations are adjusted for various factors including liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used.

        The following table sets forth EME's financial assets and liabilities that were accounted for at fair value as of March 31, 2008 by level within the fair value hierarchy.

	Level 1			Level 2			Level 3			Netting and Collateral(1)			Total at March 31, 2008
	(in millions)
Assets at Fair Value Derivative contracts	$	—		$	18		$	120		$	(6	)	$	132
Liabilities at Fair Value Derivative contracts	$	(91	)	$	(309	)	$	(9	)	$	134		$	(275	)

(1)

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

9

        The following table sets forth a summary of changes in the fair value of EME's Level 3 derivative contracts, net for the three months ended March 31, 2008.

		(in millions)
Fair value of derivative contracts, net at January 1, 2008		$	120
Total realized/unrealized gains (losses):
	Included in earnings(1)		33
	Included in accumulated other comprehensive loss		(2	)
Purchases and settlements, net			(37	)
Transfers out of Level 3			(3	)
Fair value of derivative contracts, net at March 31, 2008		$	111
Change during the period in unrealized gains (losses) related to derivative contracts, net held at March 31, 2008(1)		$	(4	)

(1)

Reported in "Operating Revenues" on EME's consolidated statements of income.

Note 3. Accumulated Other Comprehensive Loss

        Accumulated other comprehensive loss consisted of the following:

	Unrealized Losses on Cash Flow Hedges			Unrecognized Losses and Prior Service Costs, Net(1)			Accumulated Other Comprehensive Loss
	(in millions)
Balance at December 31, 2007	$	(60	)	$	(3	)	$	(63	)
Current period change		(146	)		—			(146	)
Balance at March 31, 2008	$	(206	)	$	(3	)	$	(209	)

(1)

For further detail, see Note 6—Compensation and Benefit Plans.

        Unrealized losses on cash flow hedges, net of tax, at March 31, 2008, included unrealized losses on commodity hedges related to Midwest Generation and EME Homer City futures and forward electricity contracts that qualify for hedge accounting. These losses arise because current forecasts of future electricity prices in these markets are greater than the contract prices. As EME's hedged positions for continuing operations are realized, $149 million, after tax, of the net unrealized losses on cash flow hedges at March 31, 2008 are expected to be reclassified into earnings during the next 12 months. Management expects that reclassification of net unrealized losses will decrease energy revenue recognized at market prices. Actual amounts ultimately reclassified into earnings over the next 12 months could vary materially from this estimated amount as a result of changes in market conditions. The maximum period over which a cash flow hedge is designated is through December 31, 2010.

        Under SFAS No. 133, the portion of a cash flow hedge that does not offset the change in value of the transaction being hedged, which is commonly referred to as the ineffective portion, is immediately recognized in earnings. EME recorded net losses of $13 million and $1 million during the first quarters of 2008 and 2007, respectively, representing the amount of cash flow hedges' ineffectiveness for continuing operations, reflected in operating revenues in EME's consolidated income statements.

Note 4. Variable Interest Entities

        EME has a number of wind projects that were consolidated in accordance with FIN 46(R). These projects were funded with nonrecourse debt totaling $23 million at March 31, 2008. Properties serving as collateral for these loans had a carrying value of $64 million ($53 million and $11 million are classified as property, plant and equipment and prepaid expenses and other, respectively, on EME's consolidated balance sheet at March 31, 2008).

10

        EME completed a review of the application of FIN 46(R) to its subsidiaries and affiliates and concluded that it had significant variable interests in variable interest entities as defined in this Interpretation. As of March 31, 2008, these entities consisted of five equity investments (the Big 4 projects and the Sunrise project) that had interests in natural gas-fired facilities with a total generating capacity of 1,782 MW. An operations and maintenance subsidiary of EME operates the Big 4 projects, but EME does not supply the fuel consumed or purchase the power generated by these facilities. EME determined that it is not the primary beneficiary in these entities; accordingly, EME continues to account for its variable interests on the equity method. EME's maximum exposure to loss in these variable interest entities is generally limited to its investment in these entities, which totaled $336 million as of March 31, 2008.

Note 5. Discontinued Operations

Lakeland Project

        EME received a payment of £0.4 million (approximately $0.8 million) and £4 million (approximately $8 million) in the first quarters of 2008 and 2007, respectively. The after-tax income attributable to the Lakeland project was $0.5 million and $5 million for the first quarters of 2008 and 2007, respectively.

Summarized Financial Information for Discontinued Operations

	Three Months Ended March 31,
	2008			2007
	(in millions)
Income (loss) before income taxes and minority interest	$	(6	)	$	6
Provision (benefit) for income taxes		(1	)		3
Income (loss) from operations of discontinued subsidiaries		(5	)		3

Note 6. Compensation and Benefit Plans

Pension Plans and Postretirement Benefits Other Than Pensions

Pension Plans

        As of March 31, 2008, EME had made no contributions to its pension plans and estimates to make $21 million of contributions in the last nine months of 2008. Expected contribution funding in 2008 could vary from anticipated amounts, depending on the funded status at year-end and the tax-deductible funding limitations.

        The following are components of pension expense:

	Three Months Ended March 31,
	2008			2007
	(in millions)
Service cost	$	5		$	4
Interest cost		4			3
Expected return on plan assets		(3	)		(2	)
Total expense	$	6		$	5

Postretirement Benefits Other Than Pensions

        As of March 31, 2008, EME had made no contributions to its postretirement benefits other than pensions and estimates to make $2 million of contributions in the last nine months of 2008. Expected

11

contribution funding in 2008 could vary from anticipated amounts, depending on the funded status at year-end and tax-deductible funding limitations.

        The following are components of postretirement benefits expense:

	Three Months Ended March 31,
	2008		2007
	(in millions)
Service cost	$	1	$	1
Interest cost		1		1
Total expense	$	2	$	2

Note 7. Income Taxes

        EME's income tax provision from continuing operations was $82 million and $84 million for the three months ended March 31, 2008 and 2007, respectively. Income tax benefits are recognized pursuant to a tax-allocation agreement with Edison International. During the three months ended March 31, 2008 and 2007, EME recognized $9 million and $5 million, respectively, of production tax credits related to wind projects and $2 million during each of the first quarters of 2008 and 2007 related to estimated state income tax benefits allocated from Edison International.

Note 8. Commitments and Contingencies

Commitments

Capital Improvements

        At March 31, 2008, EME's subsidiaries had firm commitments to spend approximately $240 million during the remainder of 2008 and $4 million in 2009 on capital and construction expenditures. The majority of these expenditures relate to the construction of wind projects. These expenditures are planned to be financed by cash on hand, cash generated from operations or existing subsidiary credit agreements.

Turbine Commitments

        At March 31, 2008, EME had entered into agreements with vendors securing 483 wind turbines (1,076 MW) for an aggregate purchase price of $1.3 billion, with remaining commitments of $474 million in 2008, $540 million in 2009 and $49 million in 2010. At March 31, 2008, EME had recorded wind turbine deposits of $197 million included in other long-term assets in its consolidated balance sheet.

        In addition, EME had 30 wind turbines (90 MW) in temporary storage to be used for future wind projects with remaining commitments of $3 million in 2008. At March 31, 2008, EME had recorded $84 million related to these wind turbines included in other long-term assets in its consolidated balance sheet.

Fuel Supply Contracts

        In connection with the acquisition of the Illinois Plants, Midwest Generation had assumed a long-term coal supply contract and recorded a liability to reflect the fair value of this contract. In March 2008, Midwest Generation entered into an agreement to buyout its coal obligations for the years 2009 through 2012 under this contract with a one-time payment to be made in January 2009. Midwest Generation recorded a pre-tax gain of $15 million ($9 million, after tax) during the first quarter of 2008. The remaining payments due under this contract are $20 million.

12

Standby Letters of Credit

        At March 31, 2008, standby letters of credit aggregated $90 million and were scheduled to expire as follows: $75 million in 2008 and $15 million in 2009.

Guarantees and Indemnities

        EME and certain of its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, guarantees of debt and indemnifications.

Tax Indemnity Agreements

        In connection with the sale-leaseback transactions related to the Homer City facilities in Pennsylvania, the Powerton and Joliet Stations in Illinois, and, previously, the Collins Station in Illinois, EME and several of its subsidiaries entered into tax indemnity agreements. Under these tax indemnity agreements, these entities agreed to indemnify the lessors in the sale-leaseback transactions for specified adverse tax consequences that could result in certain situations set forth in each tax indemnity agreement, including specified defaults under the respective leases. The potential indemnity obligations under these tax indemnity agreements could be significant. Due to the nature of these potential obligations, EME cannot determine a maximum potential liability which would be triggered by a valid claim from the lessors. EME has not recorded a liability related to these indemnities. In connection with the termination of the Collins Station lease in April 2004, Midwest Generation continues to have obligations under the tax indemnity agreement with the former lease equity investor.

Indemnities Provided as Part of the Acquisition of the Illinois Plants

        In connection with the acquisition of the Illinois Plants, EME agreed to indemnify Commonwealth Edison with respect to specified environmental liabilities before and after December 15, 1999, the date of sale. The indemnification claims are reduced by any insurance proceeds and tax benefits related to such claims and are subject to a requirement that Commonwealth Edison takes all reasonable steps to mitigate losses related to any such indemnification claim. Due to the nature of the obligation under this indemnity, a maximum potential liability cannot be determined. This indemnification for environmental liabilities is not limited in term and would be triggered by a valid claim from Commonwealth Edison. Except as discussed below, EME has not recorded a liability related to this indemnity.

        Midwest Generation entered into a supplemental agreement with Commonwealth Edison and Exelon Generation Company LLC on February 20, 2003 to resolve a dispute regarding interpretation of its reimbursement obligation for asbestos claims under the environmental indemnities set forth in the Asset Sale Agreement. Under this supplemental agreement, Midwest Generation agreed to reimburse Commonwealth Edison and Exelon Generation for 50% of specific asbestos claims pending as of February 2003 and related expenses less recovery of insurance costs, and agreed to a sharing arrangement for liabilities and expenses associated with future asbestos-related claims as specified in the agreement. As a general matter, Commonwealth Edison and Midwest Generation apportion responsibility for future asbestos-related claims based upon the number of exposure sites that are Commonwealth Edison locations or Midwest Generation locations. The obligations under this agreement are not subject to a maximum liability. The supplemental agreement had an initial five-year term with an automatic renewal provision for subsequent one-year terms (subject to the right of either party to terminate); pursuant to the automatic renewal provision, it has been extended until February 2009. Payments are made under this indemnity upon tender by Commonwealth Edison of appropriate proof of liability for an asbestos-related settlement, judgment, verdict, or expense. There were approximately 211 cases for which Midwest Generation was potentially liable and that had not been

13

settled and dismissed at March 31, 2008. Midwest Generation had recorded a $54 million liability at March 31, 2008 related to this matter.

        The amounts recorded by Midwest Generation for the asbestos-related liability are based upon a number of assumptions. Future events, such as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs to be higher or lower than projected.

Indemnity Provided as Part of the Acquisition of the Homer City Facilities

        In connection with the acquisition of the Homer City facilities, EME Homer City agreed to indemnify the sellers with respect to specific environmental liabilities before and after the date of sale. Payments would be triggered under this indemnity by a claim from the sellers. EME guaranteed the obligations of EME Homer City. Due to the nature of the obligation under this indemnity provision, it is not subject to a maximum potential liability and does not have an expiration date. EME has not recorded a liability related to this indemnity.

Indemnities Provided under Asset Sale Agreements

        The asset sale agreements for the sale of EME's international assets contain indemnities from EME to the purchasers, including indemnification for taxes imposed with respect to operations of the assets prior to the sale and for pre-closing environmental liabilities. Not all indemnities under the asset sale agreements have specific expiration dates. Payments would be triggered under these indemnities by valid claims from the sellers or purchasers, as the case may be. At March 31, 2008, EME had recorded a liability of $108 million related to these matters.

        In connection with the sale of various domestic assets, EME has from time to time provided indemnities to the purchasers for taxes imposed with respect to operations of the asset prior to the sale. EME has also provided indemnities to purchasers for items specified in each agreement (for example, specific pre-existing litigation matters and/or environmental conditions). Due to the nature of the obligations under these indemnity agreements, a maximum potential liability cannot be determined. Not all indemnities under the asset sale agreements have specific expiration dates. Payments would be triggered under these indemnities by valid claims from the sellers or purchasers, as the case may be. At March 31, 2008, EME had recorded a liability of $13 million related to these matters.

Capacity Indemnification Agreements

        EME has guaranteed, jointly and severally with Texaco Inc., the obligations of March Point Cogeneration Company under its project power sales agreements to repay capacity payments to the project's power purchaser in the event that the power sales agreements terminate, March Point Cogeneration Company abandons the project, or the project fails to return to normal operations within a reasonable time after a complete or partial shutdown, during the term of the power sales agreements. The obligations under this indemnification agreement as of March 31, 2008, if payment were required, would be $67 million. EME has not recorded a liability related to this indemnity.

Contingencies

FERC Notice Regarding Investigatory Proceeding against EMMT

        In October 2006, EMMT was advised by the enforcement staff at the FERC that it is prepared to recommend that the FERC initiate a formal investigatory proceeding and seek monetary sanctions against EMMT for alleged violation of the Energy Policy Act of 2005 and the FERC's rules regarding market behavior, all with respect to certain bidding practices previously employed by EMMT. EMMT is engaged in discussions with the staff to explore the possibility of resolution of this matter. Discussions

14

to date have been constructive and may lead to a settlement agreement acceptable to both parties. Should these discussions not result in a settlement and a formal proceeding commenced, EMMT will be entitled to contest any alleged violations before the FERC and an appropriate court. EME believes that EMMT has complied with all applicable laws and regulations in the bidding practices that it employed, and intends to contest vigorously any allegation of violation.

Midwest Generation Potential Environmental Proceeding

        On August 3, 2007, Midwest Generation received an NOV from the US EPA alleging that, beginning in the early 1990's and into 2003, Midwest Generation or Commonwealth Edison performed repair or replacement projects at six Illinois coal-fired electric generating stations in violation of the Prevention of Significant Deterioration requirements and of the New Source Performance Standards of the Clean Air Act, including alleged requirements to obtain a construction permit and to install best available control technology at the time of the projects. The US EPA also alleges that Midwest Generation and Commonwealth Edison violated certain operating permit requirements under Title V of the Clean Air Act. Finally, the US EPA alleges violations of certain opacity and particulate matter standards at the Illinois Plants. The NOV does not specify the penalties or other relief that the US EPA seeks for the alleged violations. Midwest Generation, Commonwealth Edison, the US EPA, and the United States Department of Justice (DOJ) are in talks designed to explore the possibility of a settlement. If the settlement talks fail and the DOJ files suit, litigation could take many years to resolve the issues alleged in the NOV. As a result, Midwest Generation is investigating the claims made by the US EPA in the NOV and has identified several defenses which it will raise if the government files suit. At this early stage in the process, Midwest Generation cannot predict the outcome of this matter or estimate the impact on its facilities, its results of operations, financial position or cash flows.

        On August 13, 2007, Midwest Generation and Commonwealth Edison received a letter signed by several Chicago-based environmental action groups stating that, in light of the NOV, the groups are examining the possibility of filing a citizen suit against Midwest Generation and Commonwealth Edison based presumably on the same or similar theories advanced by the US EPA in the NOV.

        By letter dated August 8, 2007, Commonwealth Edison advised EME that Commonwealth Edison believes it is entitled to indemnification for all liabilities, costs, and expenses that it may be required to bear as a result of the NOV. By letter dated August 16, 2007, Commonwealth Edison tendered a request for indemnification to EME for all liabilities, costs, and expenses that Commonwealth Edison may be required to bear if the environmental groups were to file suit. Midwest Generation and Commonwealth Edison are cooperating with one another in responding to the NOV.

Insurance

        At March 31, 2008, Midwest Generation had recorded an $11 million receivable related to insurance claims from unplanned outages, of which $6 million relates to business interruption insurance coverage and has been reflected in other income (expense), net in EME's consolidated statements of income.

Environmental Matters and Regulations

        The construction and operation of power plants are subject to environmental regulation by federal, state and local authorities. EME believes that it is in substantial compliance with existing environmental regulatory requirements. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, future proceedings that may be initiated by environmental and other regulatory authorities, cases in which new theories of liability are recognized, and settlements agreed to by other companies that establish precedent or expectations for the power industry, could affect the costs and the manner in which EME and its subsidiaries conduct their businesses and could

15

require substantial additional capital or operational expenditures or the ceasing of operations at certain of their facilities. There is no assurance that EME's financial position and results of operations would not be materially adversely affected. EME is unable to predict the precise extent to which additional laws and regulations may affect its future operations and capital expenditure requirements.

        Typically, environmental laws and regulations require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction, operation or modification of a project or generating facility. Meeting all the necessary requirements can delay or sometimes prevent the completion of a proposed project, as well as require extensive modifications to existing projects, which may involve significant capital or operational expenditures. If EME fails to comply with applicable environmental laws, it may be subject to injunctive relief or penalties and fines imposed by federal and state regulatory authorities.

        With respect to EME's potential liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as CERCLA, or similar laws for the investigation and remediation of contaminated property, EME accrues a liability to the extent the costs are probable and can be reasonably estimated. Midwest Generation had accrued approximately $4 million at March 31, 2008 for estimated environmental investigation and remediation costs for the Illinois Plants. This estimate is based upon the number of sites, the scope of work and the estimated costs for investigation and/or remediation where such expenditures could be reasonably estimated. Future estimated costs may vary based on changes in regulations or requirements of federal, state, or local governmental agencies, changes in technology, and actual costs of disposal. In addition, future remediation costs will be affected by the nature and extent of contamination discovered at the sites that requires remediation. Given the prior history of the operations at its facilities, EME cannot be certain that the existence or extent of all contamination at its sites has been fully identified. However, based on available information, management believes that future costs in excess of the amounts disclosed on all known and quantifiable environmental contingencies will not be material to EME's financial position. See "Note 12. Commitments and Contingencies—Environmental Matters and Regulations" in EME's financial statements included in its annual report on Form 10-K for the year ended December 31, 2007 for a more complete discussion of EME's environmental contingencies.

Note 9. Supplemental Cash Flows Information

		Three Months Ended March 31,
		2008		2007
		(in millions)
Cash paid
	Interest (net of amount capitalized)	$	47	$	12
	Income taxes		60		5
	Cash payments under plant operating leases		92		92
Details of assets acquired
	Fair value of assets acquired	$	—	$	23
	Liabilities assumed		—		—

        In connection with certain wind projects acquired during March 2007, the purchase price included payments that were due upon the start and/or completion of construction. Accordingly, EME accrued for estimated payments during the first quarter of 2007 which were due upon commencement of construction in 2007 and/or completion of construction scheduled during 2008.

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

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

•

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

•

the cost and availability of fuel and fuel transportation services;

•

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

•

the cost and availability of emission credits or allowances;

•

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

•

governmental, statutory, regulatory or administrative changes or initiatives affecting EME or the electricity industry generally, including the market structure rules applicable to each market;

•

environmental laws and regulations at both state and federal levels, that could require additional expenditures or otherwise affect EME's cost and manner of doing business;

•

the ability of EME to successfully implement its business strategy, including development projects and future acquisitions;

•

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

•

the ability of EME to borrow funds and access capital markets on favorable terms;

•

the difficulty of predicting wholesale prices, transmission congestion, energy demand, and other aspects of the complex and volatile markets in which EME and its subsidiaries participate;

•

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

•

project development risks, including those related to siting, financing, construction, permitting, and governmental approvals;

•

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

17

•

general political, economic and business conditions;

•

weather conditions, natural disasters and other unforeseen events; and

•

EME's continued participation and the continued participation by EME's subsidiaries in tax-allocation and payment agreements with EME's respective affiliates.

Additional information about risks and uncertainties, including more detail about the factors described above, is contained throughout this MD&A and in the "Risk Factors" section included in Part I, Item 1A of EME's annual report on Form 10-K for the year ended December 31, 2007. Readers are urged to read this entire quarterly report on Form 10-Q and carefully consider the risks, uncertainties and other factors that affect EME's business. Forward-looking statements speak only as of the date they are made, and EME is not obligated to publicly update or revise forward-looking statements. Readers should review future reports filed by EME with the Securities and Exchange Commission.

This MD&A discusses material changes in the results of operations, financial condition and other developments of EME since December 31, 2007, and as compared to the first quarter ended March 31, 2007. This discussion presumes that the reader has read or has access to the MD&A included in Item 7 of EME's annual report on Form 10-K for the year ended December 31, 2007.

        This MD&A is presented in four sections:

	Page
Management's Overview; Critical Accounting Policies	18
Results of Operations	20
Liquidity and Capital Resources	28
Market Risk Exposures	33

MANAGEMENT'S OVERVIEW; CRITICAL ACCOUNTING POLICIES

Management's Overview

Net Income Summary

        Net income is comprised of the following components:

	Three Months Ended March 31,
	2008			2007
	(in millions)
Income from continuing operations	$	150		$	153
Income (loss) from discontinued operations		(5	)		3
Net Income	$	145		$	156

        EME's decrease in income from continuing operations in the first quarter of 2008, compared to the first quarter of 2007 was primarily attributable to higher net interest expense, lower income from the Homer City facilities and the Big 4 projects and higher costs associated with EME's growth activities. These decreases were mostly offset by higher gross margin and the buyout of a coal contract at the Illinois Plants together with higher energy trading income.

        See "Results of Operations" for further discussion of EME's operating results.

18

Growth Activities

Renewable Energy

        At March 31, 2008, EME had 566 MW of wind projects in service and another 447 MW of wind projects under construction, with scheduled completion dates during 2008. As of the same date, EME had a development pipeline of potential wind projects with an estimated installed capacity of approximately 5,000 MW. The development pipeline represents potential projects with respect to which EME either owns the project rights or has exclusive acquisition rights. This development pipeline is supported by turbine purchase commitments and turbines in storage totaling 1,166 MW for new wind projects. The majority of the turbines are scheduled to be delivered before the end of 2009.

        During the first quarter of 2008, EME commenced pre-construction activities (approximately $55 million committed to date) for a 240 MW planned wind project in Illinois, referred to as the Big Sky project. The project plans to sell electricity into the PJM market as a merchant generator. Pre-construction activities will be limited to equipment purchases, site development and interconnection activities, pending resolution of wind turbine performance issues noted below. Commercial operations of the Forward wind project (29 MW) and Phase I of the Goat Mountain wind project (80 MW) commenced during April 2008.

Thermal Energy

        During the first quarter of 2008, a subsidiary of EME was awarded through a competitive bidding process a ten-year power sales contract with Southern California Edison Company for the output of a 479 MW gas-peaking facility located in the City of Industry, California, which is referred to as the Walnut Creek project. The power sales agreement is subject to approval of the California Public Utilities Commission (CPUC) which Southern California Edison Company requested on April 4, 2008. CPUC approval is expected to be granted by late 2008. As an affiliate transaction, the contract is also subject to FERC approval, which was requested on May 2, 2008. Deliveries under the power sales agreement are expected to commence in 2013. Subsequent to March 31, 2008, EME and its subsidiary entered into an agreement to purchase major equipment for the project and, subsequently made equipment deposits of $21 million. The total project costs, excluding interest during construction, are estimated in the range of $500 million to $600 million.

Wind Turbines Performance Issues

        Included as part of the wind projects or turbine purchase commitments described above, EME has purchased 475 turbines from Suzlon Wind Energy Corporation (Suzlon) and 71 turbines from Clipper Turbine Works, Inc. (Clipper). Rotor blade cracks were identified on certain Suzlon wind turbines, and rotor blade and gearbox problems were identified on certain Clipper wind turbines. Clipper has commenced its remediation plans that are designed to correct the current deficiencies, at its cost. EME is continuing to work with Suzlon to analyze the root causes of the performance issues and address commercial matters that result from the impact of these issues on EME and its projects. For further discussion, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources—Capital Expenditures—Wind Turbine Performance Issues" of EME's annual report on Form 10-K for the year ended December 31, 2007.

Critical Accounting Policies

        For a discussion of EME's critical accounting policies, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies" of EME's annual report on Form 10-K for the year ended December 31, 2007.

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RESULTS OF OPERATIONS

Introduction

        This section discusses operating results for the first quarters of 2008 and 2007, and is organized under the following headings:

	Page
Results of Continuing Operations	20
Results of Discontinued Operations	27
New Accounting Pronouncements	27

Results of Continuing Operations

Overview

        EME operates in one line of business, independent power production. Operating revenues are primarily derived from the sale of energy and capacity from the Illinois Plants and the Homer City facilities. Intercompany interest expense and income between EME and its consolidated subsidiaries have been eliminated in the following project results, except as described below with respect to loans provided to EME from a wholly owned subsidiary, Midwest Generation, and loans from Midwest Generation to EMMT. Equity in income from unconsolidated affiliates relates to energy projects accounted for under the equity method. EME recognizes its proportional share of the income or loss of such entities.

EME uses the words "earnings" or "losses" in this section to describe income or loss from continuing operations before income taxes.

20

        The following section provides a summary of the operating results for the first quarters of 2008 and 2007 together with discussions of the contributions by specific projects and of other significant factors affecting these results.

		Three Months Ended March 31,
		2008			2007
		(in millions)
Project Earnings (Losses) Before Income Taxes(1)
	Consolidated operations
	Illinois Plants	$	253		$	189
	Homer City		55			64
	Energy Trading(2)		41			26
	San Juan Mesa		2			2
	Minnesota Wind projects		1			1
	Storm Lake		2			2
	Wildorado		4			—
	Other		(2	)		1
	Unconsolidated affiliates
	Big 4 projects		8			18
	Sunrise		(1	)		(2	)
	Doga		—			4
	Other		4			5
			367			310
	Corporate interest income		7			20
	Corporate interest expense		(90	)		(55	)
	Corporate administrative and general		(40	)		(32	)
	Other income (expense), net		(3	)		(1	)
		$	241		$	242

(1)

Project earnings are equal to income from continuing operations before income taxes, except with respect to wind projects, which also include production tax credits. Wind project earnings, including the production tax credits set forth in the table below, were $7 million and $5 million for the first quarters of 2008 and 2007, respectively. The project earnings for the wind projects include $9 million and $5 million of production tax credits for the first quarters of 2008 and 2007, respectively. Production tax credits are recognized as wind energy is generated based upon a per kilowatt-hour rate prescribed in applicable federal and state statutes. Under GAAP, production tax credits generated by the wind projects are recorded as a reduction in income taxes. Accordingly, project earnings represent a non-GAAP performance measure which may not be comparable to those of other companies. Management believes that inclusion of production tax credits in project earnings for wind projects is more meaningful for investors as federal and state subsidies are an integral part of the economics of these projects. The following table reconciles the total project earnings as shown above with income from continuing operations before income taxes and minority interest under GAAP:

	Three Months Ended March 31,
	2008			2007
	(in millions)
Project earnings	$	241		$	242
Less: Production tax credits		(9	)		(5	)
Income from continuing operations before income taxes	$	232		$	237

(2)

Income from energy trading represents the gains recognized from price changes related to contracts for electricity, fuels and transmission congestion. The overhead cost of energy trading is included in administrative and general expenses.

21

Earnings from Consolidated Operations

Illinois Plants

			Three Months Ended March 31,
			2008			2007
			(in millions)
Operating Revenues			$	468		$	431
Operating Expenses
	Fuel			118			109
	Gain on sale of emission allowances(1)			(2	)		(4	)
	Plant operations			94			89
	Plant operating leases			19			19
	Depreciation and amortization			25			25
	Gain on buyout of contract and disposal of assets			(16	)		—
	Administrative and general			6			5
	Total operating expenses			244			243
Operating Income				224			188
Other Income (Expense)
	Interest income on note receivable from EME			28			28
	Interest income (expense) and other			1			(27	)
	Total other income (expense)			29			1
Income Before Taxes			$	253		$	189
Statistics
	Generation (in GWh):
		Energy only contracts		6,538			6,698
		Load requirements services contracts		1,845			1,932
		Total		8,383			8,630
	Aggregate plant performance:
		Equivalent availability(2)		82.5%			88.0%
		Capacity factor(3)		70.3%			71.2%
		Load factor(4)		85.3%			80.9%
		Forced outage rate(5)		11.8%			5.9%
	Average realized price/MWh:
		Energy only contracts(6)	$	53.16		$	49.06
		Load requirements services contracts(7)	$	62.35		$	61.89
	Capacity revenue only (in millions)		$	9		$	2
	Average fuel costs/MWh		$	14.08		$	12.63

(1)

The Illinois Plants sold excess SO₂ emission allowances to the Homer City facilities at fair market value. Sales to the Homer City facilities were $2 million during the first quarter of 2008. These sales reduced operating expenses. EME recorded $1 million and eliminated $1 million of intercompany profit during the first quarter of 2008 on emission allowances sold. The amount eliminated represents emission allowances not yet used by the Homer City facilities at March 31, 2008. In addition, EME recorded $2 million and $4 million of intercompany profit during the first quarters of 2008 and 2007, respectively, on emission allowances sold by the Illinois Plants to the Homer City facilities in the fourth quarters of 2007 and 2006, respectively, but not used by the Homer City facilities until the first quarters of 2008 and 2007, respectively.

(2)

The equivalent availability factor is defined as the number of MWh the coal plants are available to generate electricity divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period. Equivalent availability reflects the impact of the unit's inability to achieve full load, referred to as derating, as well as outages which

22

result in a complete unit shutdown. The coal plants are not available during periods of planned and unplanned maintenance.

(3)

The capacity factor is defined as the actual number of MWh generated by the coal plants divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period.

(4)

The load factor is determined by dividing capacity factor by the equivalent availability factor.

(5)

Midwest Generation refers to unplanned maintenance as a forced outage.

(6)

The average realized energy price reflects the average price at which energy is sold into the market including the effects of hedges, real-time and day-ahead sales and PJM fees and ancillary services. It is determined by dividing (i) operating revenue less (plus) unrealized SFAS No. 133 gains (losses) and other non-energy related revenue by (ii) generation. Revenue related to capacity sales are excluded from the calculation of average realized energy price.

		Three Months Ended March 31,
		2008			2007
		(in millions)
Operating revenues		$	468		$	431
Less (plus):
	Load requirements services contracts		(115	)		(119	)
	Unrealized losses		5			22
	Other revenues		(10	)		(5	)
Realized revenues		$	348		$	329
Generation (in GWh)			6,538			6,698
Average realized energy price/MWh		$	53.16		$	49.06

(7)

The average realized price reflects the contract price for sales to Commonwealth Edison under load requirements services contracts that include energy, capacity and ancillary services. It is determined by dividing (i) contract revenue less PJM operating and ancillary charges by (ii) generation.

        Earnings from the Illinois Plants increased $64 million in the first quarter of 2008, compared to the first quarter of 2007. The 2008 increase in earnings was primarily attributable to higher gross margin as compared to 2007, a gain of $15 million recorded in 2008 related to the buyout of a fuel contract (see "Liquidity and Capital Resources—Contractual Obligations—Fuel Supply Contracts" for further discussion), and estimated insurance recovery of approximately $6 million primarily related to the outages at the Powerton Station described below. In addition, Midwest Generation had lower interest expense in 2008 due to repayment of debt in May 2007. The increase in gross margin was affected by the following factors: (1) lower unrealized losses in 2008 related to hedge contracts described below, (2) higher average realized energy and capacity prices due to higher market prices, (3) lower generation from unplanned outages, and (4) higher coal and transportation costs per megawatt hour in 2008 mainly due to cost escalations included in the transportation contracts.

        Included in operating revenues were unrealized losses of $5 million and $22 million for the first quarters of 2008 and 2007, respectively. Unrealized losses are primarily due to power contracts that did not qualify for hedge accounting under SFAS No. 133 (sometimes referred to as economic hedges). These energy contracts were entered into to hedge the price risk related to projected sales of power. During 2008, power prices increased, resulting in mark-to-market losses on economic hedges. At March 31, 2008, unrealized losses of $23 million were recognized from economic hedges and from the ineffective portion of cash flow hedges related to subsequent periods. The ineffective portion of hedge contracts at the Illinois Plants was primarily attributable to changes in the difference between energy prices at NiHub (the settlement point under forward contracts) and the energy prices at the Illinois Plants busbars (the delivery point where power generated by the Illinois Plants is delivered into the transmission system) resulting from marginal losses. See "Market Risk Exposures—Commodity Price Risk" for more information regarding forward market prices.

23

        The earnings of the Illinois Plants included interest income of $28 million for each of the first quarters of 2008 and 2007, related to loans to EME. In August 2000, Midwest Generation, which owns or leases the Illinois Plants, entered into a sale-leaseback transaction of the Powerton-Joliet facilities. The proceeds from the sale of these facilities were loaned to EME, which also provided a guarantee of the related lease obligations of Midwest Generation. The Powerton-Joliet sale-leaseback is recorded as an operating lease for accounting purposes.

Powerton Station Outage—

        On December 18, 2007, Unit 6 at the Powerton Station had a duct failure resulting in a suspension of operations at this unit through February 12, 2008. Scheduled maintenance work for the spring of 2008 was accelerated to minimize the aggregate impact of the outage. The duct failure resulted in claims under Midwest Generation's property and business interruption insurance policies. At March 31, 2008, Midwest Generation had recorded an $11 million receivable primarily related to these claims.

Homer City

		Three Months Ended March 31,
		2008		2007
		(in millions)
Operating Revenues		$	185	$	198
Operating Expenses
	Fuel(1)		72		72
	Plant operations		29		34
	Plant operating leases		25		25
	Depreciation and amortization		4		3
	Administrative and general		1		1
	Total operating expenses		131		135
Operating Income			54		63
Other Income (Expense)
	Interest and other income		1		2
	Interest expense		—		(1	)
	Total other income		1		1
Income Before Taxes		$	55	$	64
Statistics
	Generation (in GWh)		3,192		3,293
	Equivalent availability(2)		87.5%		86.5%
	Capacity factor(3)		77.5%		80.8%
	Load factor(4)		88.5%		93.3%
	Forced outage rate(5)		9.5%		5.8%
	Average realized energy price/MWh(6)	$	55.94	$	57.86
	Capacity revenue only (in millions)	$	8	$	6
	Average fuel costs/MWh	$	22.57	$	21.81

(1)

Included in fuel costs were $5 million and $6 million during the quarters ended March 31, 2008 and 2007, respectively, related to the net cost of SO₂ emission allowances. See "Market Risk Exposures—Commodity Price Risk—Emission Allowances Price Risk" for more information regarding the price of SO₂ allowances.

(2)

The equivalent availability factor is defined as the number of MWh the coal plants are available to generate electricity divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period. Equivalent

24

availability reflects the impact of the unit's inability to achieve full load, referred to as derating, as well as outages which result in a complete unit shutdown. The coal plants are not available during periods of planned and unplanned maintenance.

(3)

The capacity factor is defined as the actual number of MWh generated by the coal plants divided by the product of the capacity of the coal plants (in MW) and the number of hours in the period.

(4)

The load factor is determined by dividing capacity factor by the equivalent availability factor.

(5)

Homer City refers to unplanned maintenance as a forced outage.

(6)

The average realized energy price reflects the average price at which energy is sold into the market including the effects of hedges, real-time and day-ahead sales and PJM fees and ancillary services. It is determined by dividing (i) operating revenue less (plus) unrealized SFAS No. 133 gains (losses) and other non-energy related revenue by (ii) total generation. Revenue related to capacity sales are excluded from the calculation of average realized energy price.

		Three Months Ended March 31,
		2008			2007
		(in millions)
Operating revenues		$	185		$	198
Less (plus):
	Unrealized losses (gains)		1			(1	)
	Other revenues		(8	)		(6	)
Realized revenues		$	178		$	191
Generation (in GWh)			3,192			3,293
Average realized energy price/MWh		$	55.94		$	57.86

        Earnings from Homer City decreased $9 million for the first quarter of 2008, compared to the first quarter of 2007. The 2008 decrease was primarily attributable to lower operating revenues attributable to lower average realized energy prices and lower generation (particularly off-peak) as compared to 2007. Higher forced outages in 2008 contributed to lower generation.

        Included in operating revenues were unrealized gains (losses) from hedging activities of $(1) million and $1 million for the first quarters of 2008 and 2007, respectively. Unrealized gains (losses) were primarily attributable to the ineffective portion of forward and futures contracts which are derivatives that qualify as cash flow hedges under SFAS No. 133. The ineffective portion of hedge contracts at Homer City was primarily attributable to changes in the difference between energy prices at PJM West Hub (the settlement point under forward contracts) and the energy prices at the Homer City busbar (the delivery point where power generated by the Homer City facilities is delivered into the transmission system). At March 31, 2008, unrealized losses of $22 million were recognized primarily from the ineffective portion of cash flow hedges related to subsequent periods. See "Market Risk Exposures—Commodity Price Risk" for more information regarding forward market prices.

Seasonal Disclosure

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

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Energy Trading

        EME seeks to generate profit by utilizing its subsidiary, EMMT, to engage in trading activities in those markets in which it is active as a result of its management of the merchant power plants of Midwest Generation and Homer City. EMMT trades power, fuel and transmission congestion primarily in the eastern power grid using products available over the counter, through exchanges and from independent system operators. Earnings from energy trading activities were $41 million and $26 million for the first quarters ended March 31, 2008 and 2007, respectively. The 2008 increase in earnings from energy trading activities was primarily attributable to increased revenues from energy trading in the over-the-counter markets and power sales into New York.

Wildorado

        Earnings from the Wildorado wind project were $4 million for the first quarter of 2008. EME had no comparable results from the Wildorado wind project for the first quarter of 2007. Commercial operation of the Wildorado wind project commenced during April 2007.

Earnings from Unconsolidated Affiliates

Big 4 Projects

        Earnings from the Big 4 projects decreased $10 million for the first quarter of 2008, compared to the first quarter of 2007. The 2008 decrease in earnings was primarily due to lower earnings from the Sycamore and Watson projects due to lower pricing and, for the Kern River project, due to a planned outage in 2008. For further discussion regarding power sales from the Sycamore and Watson projects, refer to "Item 1. Business—Overview of Facilities—Big 4 Projects" of EME's annual report on Form 10-K for the year ended December 31, 2007.

        Earnings from the Watson project are based on revised pricing effective January 1, 2008. Watson Cogeneration and Southern California Edison Company have disputed the commencement date of the prior contract which in turn affected the expiration date (Watson Cogeneration's position is April 2008 whereby Southern California Edison Company's position is December 2007). Watson is considering filing a claim for recovery of lost profits due to the early expiration date.

Doga

        Earnings from the Doga project decreased $4 million for the first quarter of 2008, compared to the first quarter of 2007. The decrease in earnings was attributable to EME accounting for its ownership in the Doga project, effective March 31, 2007, on the cost method (earnings are recognized when cash is distributed from the project).

Seasonal Disclosure

        EME's third quarter equity in income from its energy projects is materially higher than equity in income related to other quarters of the year due to warmer weather during the summer months and because a number of EME's energy projects located on the West Coast have power sales contracts that provide for higher payments during the summer months.

Corporate Interest Income

        EME corporate interest income decreased $13 million for the first quarter of 2008, compared to the first quarter of 2007. The decrease was primarily attributable to lower average short-term investment balances and lower interest rates in 2008 compared to 2007.

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Corporate Interest Expense

	Three Months Ended March 31,
	2008		2007
	(in millions)
Interest expense to third parties	$	61	$	26
Interest expense to Midwest Generation(1)		29		29
Total corporate interest expense	$	90	$	55

(1)

Includes interest expense of EMMT related to loans from Midwest Generation for margining.

Interest Expense to Third Parties

        EME's interest expense to third parties, before capitalized interest, increased $37 million for the first quarter of 2008, compared to the first quarter of 2007. The increase primarily resulted from EME's refinancing activities in May 2007. Capitalized interest increased $2 million for the first quarter of 2008, compared to the first quarter of 2007, due to wind projects under construction.

Corporate Administrative and General Expenses

        Administrative and general expenses increased $8 million for the first quarter of 2008, compared to the first quarter of 2007. The increase was primarily due to higher labor costs and consulting expenses resulting from EME's growth activities.

Income Taxes

        EME's income tax provision from continuing operations was $82 million and $84 million for the three months ended March 31, 2008 and 2007, respectively. Income tax benefits are recognized pursuant to a tax-allocation agreement with Edison International. See "Liquidity and Capital Resources—EME's Liquidity as a Holding Company—Intercompany Tax-Allocation Agreement." During the three months ended March 31, 2008 and 2007, EME recognized $9 million and $5 million, respectively, of production tax credits related to wind projects and $2 million during each of the first quarters of 2008 and 2007 related to estimated state income tax benefits allocated from Edison International.

Results of Discontinued Operations

        Income (loss) from discontinued operations, net of tax, was $(5) million and $3 million for the first quarters of 2008 and 2007, respectively. The loss in 2008 was primarily due to adjustments for foreign exchange losses and interest expense associated with contract indemnities related to EME's sale of its international projects in December 2004. The income in 2007 was largely attributable to distributions received from the Lakeland project. For further discussion regarding the Lakeland project, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Results of Discontinued Operations" of EME's annual report on Form 10-K for the year ended December 31, 2007.

New Accounting Pronouncements

        For a discussion of new accounting pronouncements affecting EME, see "Edison Mission Energy and Subsidiaries Notes to Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—New Accounting Pronouncements."

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LIQUIDITY AND CAPITAL RESOURCES

Introduction

        The following discussion of liquidity and capital resources is organized in the following sections:

	Page
EME's Liquidity	28
Capital Expenditures	28
EME's Historical Consolidated Cash Flow	29
Credit Ratings	30
Margin, Collateral Deposits and Other Credit Support for Energy Contracts	30
EME's Liquidity as a Holding Company	31
Dividend Restrictions in Major Financings	31
Contractual Obligations	32
Off-Balance Sheet Transactions	32
Environmental Matters and Regulations	32

        For a complete discussion of these issues, read this quarterly report on Form 10-Q in conjunction with EME's annual report on Form 10-K for the year ended December 31, 2007.

EME's Liquidity

        At March 31, 2008, EME and its subsidiaries had cash and cash equivalents and short-term investments of $1.2 billion, EME had a total of $515 million of available borrowing capacity under its $600 million corporate credit facility, and Midwest Generation had a total of $422 million of available borrowing capacity under its $500 million working capital facility. EME's consolidated debt at March 31, 2008 was $3.9 billion. In addition, EME's subsidiaries had $3.8 billion of long-term lease obligations related to the sale-leaseback transactions that are due over periods ranging up to 27 years.

Capital Expenditures

        At March 31, 2008, the estimated capital expenditures through 2010 by EME's subsidiaries related to existing projects, corporate activities and turbine commitments were as follows:

		April through December 2008		2009		2010
		(in millions)
Illinois Plants
	Plant capital expenditures	$	56	$	73	$	44
	Environmental expenditures		53		58		246
Homer City Facilities
	Plant capital expenditures		25		34		26
	Environmental expenditures		12		9		8
New Projects
	Projects under construction		142		4		—
	Turbine commitments		484		651		117
Other capital expenditures			45		14		8
Total		$	817	$	843	$	449

28

Expenditures for Existing Projects

        Plant capital expenditures relate to non-environmental projects such as upgrades to boiler and turbine controls, railroad interconnection, replacement of major boiler components, mill inerting projects and ash site disposal development. Environmental expenditures relate to environmental projects such as mercury emission monitoring and control and a selenium removal system at the Homer City facilities and various projects at the Illinois Plants to achieve specified emissions reductions such as installation of mercury controls. EME plans to fund these expenditures with debt financings, cash on hand or cash generated from operations. For further discussion regarding these and possible additional capital expenditures, including environmental control equipment at the Homer City facilities, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Management's Overview—Significant Industry and EME Developments—Environmental Regulations Affecting Coal Plants," "Management's Overview—Significant Industry and EME Developments—Increase in Equipment and Construction Costs," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Environmental Matters and Regulations—Air Quality Regulation—Clean Air Interstate Rule—Illinois," and "—Environmental Matters and Regulations—Air Quality Regulation—Mercury Regulation" of EME's annual report on Form 10-K for the year ended December 31, 2007.

Expenditures for New Projects

        EME expects to make substantial investments in new projects during the next several years. At March 31, 2008, EME had committed to purchase turbines (as reflected in the above table of capital expenditures) for wind projects that aggregate 1,076 MW. The turbine commitments generally represent approximately two-thirds of the total capital costs of EME's wind projects. As of March 31, 2008, EME had a development pipeline of potential wind projects with projected installed capacity of approximately 5,000 MW. The development pipeline represents potential projects with respect to which EME either owns the project rights or has exclusive acquisition rights. Completion of development of a wind project may take a number of years due to factors that include local permit requirements, willingness of local utilities to purchase renewable power at sufficient prices to earn an appropriate rate of return, and availability and prices of equipment. Furthermore, successful completion of a wind project is dependent upon obtaining permits, an interconnection agreement(s) or other agreements necessary to support an investment. There is no assurance that each project included in the development pipeline currently or added in the future will be successfully completed.

EME's Historical Consolidated Cash Flow

Consolidated Cash Flows from Operating Activities

        Cash provided by operating activities from continuing operations increased $11 million in the first quarter of 2008, compared to the first quarter of 2007. The increase was due to timing of cash receipts and disbursements related to working capital items.

Consolidated Cash Flows from Financing Activities

        Cash provided by financing activities from continuing operations increased $130 million in the first quarter of 2008, compared to the first quarter of 2007. The 2008 increase was primarily attributable to increased borrowings under Midwest Generation's credit facility and lower debt and dividend payments made in 2008, compared to 2007.

Consolidated Cash Flows from Investing Activities

        Cash used in investing activities from continuing operations decreased $8 million in the first quarter of 2008, compared to the first quarter of 2007. The 2008 decrease was primarily due to lower

29

capital expenditures and turbine deposits in 2008, compared to 2007. Partially offsetting this decrease was lower net maturities and sales of marketable securities in 2008, compared to 2007.

Credit Ratings

Overview

        Credit ratings for EME, Midwest Generation and EMMT, at March 31, 2008, were as follows:

	Moody's Rating	S&P Rating	Fitch Rating
EME	B1	BB-	BB-
Midwest Generation	Baa3	BB+	BBB-
EMMT	Not Rated	BB-	Not Rated

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

        EME does not have any "rating triggers" contained in subsidiary financings that would result in it being required to make equity contributions or provide additional financial support to its subsidiaries.

Credit Rating of EMMT

        The Homer City sale-leaseback documents restrict EME Homer City's ability to enter into trading activities, as defined in the documents, with EMMT to sell forward the output of the Homer City facilities if EMMT does not have an investment grade credit rating from S&P or Moody's or, in the absence of those ratings, if it is not rated as investment grade pursuant to EME's internal credit scoring procedures. These documents include a requirement that the counterparty to such transactions, and EME Homer City, if acting as seller to an unaffiliated third party, be investment grade. EME currently sells all the output from the Homer City facilities through EMMT, which has a below investment grade credit rating, and EME Homer City is not rated. Therefore, in order for EME to continue to sell forward the output of the Homer City facilities, either: (1) EME must obtain consent from the sale-leaseback owner participant to permit EME Homer City to sell directly into the market or through EMMT; or (2) EMMT must provide assurances of performance consistent with the requirements of the sale-leaseback documents. EME has obtained a consent from the sale-leaseback owner participant that will allow EME Homer City to enter into such sales, under specified conditions, through December 31, 2008. EME Homer City continues to be in compliance with the terms of the consent. EME is permitted to sell the output of the Homer City facilities into the spot market at any time. See "Market Risk Exposures—Commodity Price Risk—Energy Price Risk Affecting Sales from the Homer City Facilities."

Margin, Collateral Deposits and Other Credit Support for Energy Contracts

        In connection with entering into contracts in support of EME's hedging and energy trading activities (including forward contracts, transmission contracts and futures contracts), EME's subsidiary, EMMT, has entered into agreements to mitigate the risk of nonperformance. EME has entered into guarantees in support of EMMT's hedging and trading activities; however, because the credit ratings of EMMT and EME are below investment grade, EME has historically also provided collateral in the form of cash and letters of credit for the benefit of counterparties related to accounts payable and unrealized losses in connection with these hedging and trading activities. At March 31, 2008, EMMT had deposited $32 million in cash with brokers in margin accounts in support of futures contracts and had deposited $79 million with counterparties in support of forward energy and transmission contracts.

30

In addition, EME had issued letters of credit of $17 million in support of commodity contracts at March 31, 2008.

        Future cash collateral requirements may be higher than the margin and collateral requirements at March 31, 2008, if wholesale energy prices increase or the amount hedged increases. EME estimates that margin and collateral requirements for energy contracts outstanding as of March 31, 2008 could increase by approximately $470 million over the remaining life of the contracts using a 95% confidence level.

        Midwest Generation has cash on hand and a $500 million working capital facility to support margin requirements specifically related to contracts entered into by EMMT related to the Illinois Plants. At March 31, 2008, Midwest Generation had available $422 million of borrowing capacity under this credit facility. As of March 31, 2008, Midwest Generation had $105 million in loans receivable from EMMT for margin advances. In addition, EME has cash on hand and $515 million of borrowing capacity available under a $600 million working capital facility to provide credit support to subsidiaries. See "—EME's Liquidity as a Holding Company" for further discussion.

EME's Liquidity as a Holding Company

Overview

        At March 31, 2008, EME had corporate cash and cash equivalents and short-term investments of $822 million to meet liquidity needs. See "—EME's Liquidity." Cash distributions from EME's subsidiaries and partnership investments and unused capacity under its corporate credit facility represent EME's major sources of liquidity to meet its cash requirements. The timing and amount of distributions from EME's subsidiaries may be affected by many factors beyond its control. See "—Dividend Restrictions in Major Financings."

Dividend Restrictions in Major Financings

General

        Each of EME's direct or indirect subsidiaries is organized as a legal entity separate and apart from EME and its other subsidiaries. Assets of EME's subsidiaries are not available to satisfy EME's obligations or the obligations of any of its other subsidiaries. However, unrestricted cash or other assets that are available for distribution may, subject to applicable law and the terms of financing arrangements of the parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to EME or to its subsidiary holding companies.

Key Ratios of EME's Principal Subsidiaries Affecting Dividends

        Set forth below are key ratios of EME's principal subsidiaries required by financing arrangements at March 31, 2008 or for the 12 months ended March 31, 2008:

Subsidiary	Financial Ratio	Covenant	Actual
Midwest Generation (Illinois Plants)	Debt to Capitalization Ratio	Less than or equal to 0.60 to 1	0.23 to 1
EME Homer City (Homer City facilities)	Senior Rent Service Coverage Ratio	Greater than 1.7 to 1	3.79 to 1

        For a more detailed description of the covenants binding EME's principal subsidiaries that may restrict the ability of those entities to make distributions to EME directly or indirectly through the other holding companies owned by EME, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dividend

31

Restrictions in Major Financings" of EME's annual report on Form 10-K for the year ended December 31, 2007.

Contractual Obligations

Fuel Supply Contracts

        In connection with the acquisition of the Illinois Plants, Midwest Generation had assumed a long-term coal supply contract and recorded a liability to reflect the fair value of this contract. In March 2008, Midwest Generation entered into an agreement to buyout its coal obligations for the years 2009 through 2012 under this contract with a one-time payment to be made in January 2009. Midwest Generation recorded a pre-tax gain of $15 million ($9 million, after tax) during the first quarter of 2008. The remaining payments due under this contract are $20 million.

Off-Balance Sheet Transactions

        For a discussion of EME's off-balance sheet transactions, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Off-Balance Sheet Transactions" of EME's annual report on Form 10-K for the year ended December 31, 2007. There have been no significant developments with respect to EME's off-balance sheet transactions that affect disclosures presented in EME's annual report.

Environmental Matters and Regulations

        For a discussion of EME's environmental matters, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Environmental Matters and Regulations" of EME's annual report on Form 10-K for the year ended December 31, 2007 and the notes to the consolidated financial statements set forth therein. There have been no significant developments with respect to environmental matters specifically affecting EME since the filing of EME's annual report, except as follows:

Air Quality Regulation

        On March 12, 2008, the US EPA signed a final rule that implements revisions to the primary and secondary national ambient air quality standards for ozone, originally proposed on July 11, 2007. With regard to the primary standard for ozone, the US EPA has reduced the 8-hour standard to 0.075 parts per million (ppm) from the current standard of 0.84 ppm. The rule is expected to become effective during the second quarter of 2008. Attainment dates for the new standards range between 2013 and 2030, depending on the severity of the non-attainment. Based on 2005-2007 data, Chicago is likely to be in non-attainment with the new standard. Available data indicates that the area in which the Homer City facilities are located is likely to be in attainment. EME intends to consider the new standards as part of its overall plan for environmental compliance.

Climate Change

        On February 28, 2008, the Native Village of Kivalina and the City of Kivalina, located off the coast of Alaska, filed a complaint in federal court in California against 23 corporate defendants, including Edison International and several electric generating, oil and gas, and coal mining companies. Although EME is not named as a defendant, the complaint identifies EME as a direct or indirect operating subsidiary of Edison International through which Edison International engages in electric power generation. The complaint contends that the alleged global warming impacts of the greenhouse gas emissions associated with the defendants' business activities are destroying the plaintiffs' village through the melting of Arctic ice that had previously protected the village from winter storms. The plaintiffs further allege that the village will soon need to be abandoned or relocated at a cost of between $95 million and $400 million. EME cannot predict the outcome of this lawsuit.

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MARKET RISK EXPOSURES

Introduction

        EME's primary market risk exposures are associated with the sale of electricity and capacity from, and the procurement of fuel for, its merchant power plants. These market risks arise from fluctuations in electricity, capacity and fuel prices, emission allowances, and transmission rights. Additionally, EME's financial results can be affected by fluctuations in interest rates. EME manages these risks in part by using derivative financial instruments in accordance with established policies and procedures.

        This section discusses these market risk exposures under the following headings:

	Page
Commodity Price Risk	33
Accounting for Energy Contracts	41
Fair Value of Financial Instruments	42
Credit Risk	43
Interest Rate Risk	45
Regulatory Matters	45

        For a complete discussion of these issues, read this quarterly report on Form 10-Q in conjunction with EME's annual report on Form 10-K for the year ended December 31, 2007.

Commodity Price Risk

Introduction

        EME's merchant operations expose it to commodity price risk, which represents the potential loss that can be caused by a change in the market value of a particular commodity. Commodity price risks are actively monitored by a risk management committee to ensure compliance with EME's risk management policies. Policies are in place which define risk management processes, and procedures exist which allow for monitoring of all commitments and positions with regular reviews by EME's risk management committee. Despite this, there can be no assurance that all risks have been accurately identified, measured and/or mitigated.

        In addition to prevailing market prices, EME's ability to derive profits from the sale of electricity will be affected by the cost of production, including costs incurred to comply with environmental regulations. The costs of production of the units vary and, accordingly, depending on market conditions, the amount of generation that will be sold from the units is expected to vary.

        EME uses "earnings at risk" to identify, measure, monitor and control its overall market risk exposure with respect to hedge positions of the Illinois Plants, the Homer City facilities, and the merchant wind projects, and "value at risk" to identify, measure, monitor and control its overall risk exposure in respect of its trading positions. The use of these measures allows management to aggregate overall commodity risk, compare risk on a consistent basis and identify the risk factors. Value at risk measures the possible loss, and earnings at risk measures the potential change in value of an asset or position, in each case over a given time interval, under normal market conditions, at a given confidence level. Given the inherent limitations of these measures and reliance on a single type of risk measurement tool, EME supplements these approaches with the use of stress testing and worst-case scenario analysis for key risk factors, as well as stop-loss limits and counterparty credit exposure limits.

Hedging Strategy

        To reduce its exposure to market risk, EME hedges a portion of its merchant portfolio risk through EMMT, an EME subsidiary engaged in the power marketing and trading business. To the extent that EME does not hedge its merchant portfolio, the unhedged portion will be subject to the

33

risks and benefits of spot market price movements. Hedge transactions are primarily implemented through:

•

the use of contracts cleared on the Intercontinental Trading Exchange and the New York Mercantile Exchange,



•

forward sales transactions entered into on a bilateral basis with third parties, including electric utilities and power marketing companies,



•

full requirements services contracts or load requirements services contracts for the procurement of power for electric utilities' customers, with such services including the delivery of a bundled product including, but not limited to, energy, transmission, capacity, and ancillary services, generally for a fixed unit price, and



•

participation in capacity auctions.

        The extent to which EME hedges its market price risk depends on several factors. First, EME evaluates over-the-counter market prices to determine whether the types of hedge transactions set forth above at forward market prices are sufficiently attractive compared to assuming the risk associated with fluctuating spot market sales. Second, EME's ability to enter into hedging transactions depends upon its and Midwest Generation's credit capacity and upon the forward sales markets having sufficient liquidity to enable EME to identify appropriate counterparties for hedging transactions.

        In the case of hedging transactions related to the generation and capacity of the Illinois Plants, Midwest Generation is permitted to use its working capital facility and cash on hand to provide credit support for these hedging transactions entered into by EMMT under an energy services agreement between Midwest Generation and EMMT. Utilization of this credit facility in support of hedging transactions provides additional liquidity support for implementation of EME's contracting strategy for the Illinois Plants. In addition, Midwest Generation may grant liens on its property in support of hedging transactions associated with the Illinois Plants. In the case of hedging transactions related to the generation and capacity of the Homer City facilities, credit support is provided by EME pursuant to intercompany arrangements between it and EMMT. See "—Credit Risk" below.

Energy Price Risk Affecting Sales from the Illinois Plants

        All the energy and capacity from the Illinois Plants is sold under terms, including price and quantity, arranged by EMMT with customers through a combination of bilateral agreements (resulting from negotiations or from auctions), forward energy sales and spot market sales. As discussed further below, power generated at the Illinois Plants is generally sold into the PJM market.

        Midwest Generation sells its power into PJM at spot prices based upon locational marginal pricing. Hedging transactions related to the generation of the Illinois Plants are generally entered into at the Northern Illinois Hub in PJM, and may also be entered into at other trading hubs, including the AEP/Dayton Hub in PJM and the Cinergy Hub in the Midwest Independent Transmission System Operator (MISO). These trading hubs have been the most liquid locations for hedging purposes. See "—Basis Risk" below for further discussion.

        PJM has a short-term market, which establishes an hourly clearing price. The Illinois Plants are situated in the PJM control area and are physically connected to high-voltage transmission lines serving this market.

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        The following table depicts the average historical market prices for energy per megawatt-hour during the first three months of 2008 and 2007.

	24-Hour Northern Illinois Hub Historical Energy Prices(1)
	2008		2007
January	$	47.09	$	35.75
February		54.46		56.64
March		58.58		42.04
Quarterly Average	$	53.38	$	44.81

(1)

Energy prices were calculated at the Northern Illinois Hub delivery point using hourly real-time prices as published by PJM.

        Forward market prices at the Northern Illinois Hub fluctuate as a result of a number of factors, including natural gas prices, transmission congestion, changes in market rules, electricity demand (which in turn is affected by weather, economic growth, and other factors), plant outages in the region, and the amount of existing and planned power plant capacity. The actual spot prices for electricity delivered by the Illinois Plants into these markets may vary materially from the forward market prices set forth in the table below.

        The following table sets forth the forward market prices for energy per megawatt-hour as quoted for sales into the Northern Illinois Hub at March 31, 2008:

		24-Hour Northern Illinois Hub Forward Energy Prices(1)
2008
	April	$	55.70
	May		49.49
	June		55.06
	July		65.11
	August		63.23
	September		50.13
	October		47.39
	November		45.89
	December		51.86
2009 Calendar "strip"(2)		$	55.48

(1)

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

(2)

Market price for energy purchases for the entire calendar year, as quoted for sales into the Northern Illinois Hub.

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        The following table summarizes Midwest Generation's hedge position (primarily based on prices at the Northern Illinois Hub) at March 31, 2008:

		2008		2009		2010
Energy Only Contracts(1)
	MWh		7,746,450		7,692,290		3,471,950
	Average price/MWh(2)	$	60.85	$	62.38	$	62.58
Load Requirements Services Contracts
	Estimated MWh(3)		3,689,269		1,571,182		—
	Average price/MWh(4)	$	64.21	$	63.65		—
Total estimated MWh			11,435,719		9,263,472		3,471,950

(1)

Primarily at Northern Illinois Hub.

(2)

The energy only contracts include forward contracts for the sale of power and futures contracts during different periods of the year and the day. Market prices tend to be higher during on-peak periods and during summer months, although there is significant variability of power prices during different periods of time. Accordingly, the above hedge position at March 31, 2008 is not directly comparable to the 24-hour Northern Illinois Hub prices set forth above.

(3)

Under a load requirements services contract, the amount of power sold is a portion of the retail load of the purchasing utility and thus can vary significantly with variations in that retail load. Retail load depends upon a number of factors, including the time of day, the time of the year and the utility's number of new and continuing customers. Estimated MWh have been forecast based on historical patterns and on assumptions regarding the factors that may affect retail loads in the future. The actual load will vary from that used for the above estimate, and the amount of variation may be material.

(4)

The average price per MWh under a load requirements services contract (which is subject to a seasonal price adjustment) represents the sale of a bundled product that includes, but is not limited to, energy, capacity and ancillary services. Furthermore, as a supplier of a portion of a utility's load, Midwest Generation will incur charges from PJM as a load-serving entity. For these reasons, the average price per MWh under a load requirements services contract is not comparable to the sale of power under an energy only contract. The average price per MWh under a load requirements services contract represents the sale of the bundled product based on an estimated customer load profile.

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Energy Price Risk Affecting Sales from the Homer City Facilities

        All the energy and capacity from the Homer City facilities is sold under terms, including price and quantity, arranged by EMMT with customers through a combination of bilateral agreements (resulting from negotiations or from auctions), forward energy sales and spot market sales. Electric power generated at the Homer City facilities is generally sold into the PJM market. PJM has a short-term market, which establishes an hourly clearing price. The Homer City facilities are situated in the PJM control area and are physically connected to high-voltage transmission lines serving both the PJM and NYISO markets.

        The following table depicts the average historical market prices for energy per megawatt-hour at the Homer City busbar and in PJM West Hub (EME Homer City's primary trading hub) during the first three months of 2008 and 2007:

	Historical Energy Prices(1) 24-Hour PJM
	Homer City				West Hub
	2008		2007		2008		2007
January	$	54.32	$	40.30	$	66.80	$	44.63
February		61.74		64.27		68.29		73.93
March		65.37		55.00		70.48		61.02
Quarterly Average	$	60.48	$	53.19	$	68.52	$	59.86

(1)

Energy prices were calculated at the Homer City busbar (delivery point) and PJM West Hub using historical hourly real-time prices provided on the PJM web-site.

        Forward market prices at the PJM West Hub fluctuate as a result of a number of factors, including natural gas prices, transmission congestion, changes in market rules, electricity demand (which in turn is affected by weather, economic growth and other factors), plant outages in the region, and the amount of existing and planned power plant capacity. The actual spot prices for electricity delivered by the Homer City facilities into these markets may vary materially from the forward market prices set forth in the table below.

        The following table sets forth the forward market prices for energy per megawatt-hour as quoted for sales into the PJM West Hub at March 31, 2008:

		24-Hour PJM West Hub Forward Energy Prices(1)
2008
	April	$	72.25
	May		70.35
	June		77.56
	July		94.04
	August		96.78
	September		74.43
	October		72.40
	November		67.70
	December		75.35
2009 Calendar "strip"(2)		$	75.55

(1)

Energy prices were determined by obtaining broker quotes and information from other public sources relating to the PJM West Hub delivery point. Forward prices at PJM West Hub are generally higher than the prices at the Homer City busbar.

(2)

Market price for energy purchases for the entire calendar year, as quoted for sales into the PJM West Hub.

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        The following table summarizes EME Homer City's hedge position at March 31, 2008:

	2008		2009		2010
MWh		5,434,350		2,867,200		1,022,400
Average price/MWh(1)	$	60.84	$	73.84	$	77.80

(1)

The above hedge positions include forward contracts for the sale of power during different periods of the year and the day. Market prices tend to be higher during on-peak periods and during summer months, although there is significant variability of power prices during different periods of time. Accordingly, the above hedge position at March 31, 2008 is not directly comparable to the 24-hour PJM West Hub prices set forth above.

        The average price/MWh for EME Homer City's hedge position is based on PJM West Hub. Energy prices at the Homer City busbar have been lower than energy prices at the PJM West Hub. See "—Basis Risk" below for a discussion of the difference.

Capacity Price Risk

        On June 1, 2007, PJM implemented the RPM for capacity. The purpose of the RPM is to provide a long-term pricing signal for capacity resources. The RPM provides a mechanism for PJM to satisfy the region's need for generation capacity, the cost of which is allocated to load-serving entities through a locational reliability charge.

        The following table summarizes the status of capacity sales for Midwest Generation and EME Homer City at March 31, 2008:

		Fixed Price Capacity Sales
		Through RPM Auction, Net				Non-unit Specific Capacity Sales			Variable Capacity Sales
		MW	Price per MW-day			MW	Price per MW-day		MW	Price per MW-day
April 1, 2008 to May 31, 2008
	Midwest Generation	2,629	$	37.27		500	$	21.31	—		—
	EME Homer City	786		40.80		—		—	925	$	70.37	(1)
June 1, 2008 to May 31, 2009
	Midwest Generation	2,978		123.77	(3)	880		64.35	—		—
	EME Homer City	820		113.22	(3)	—		—	905		63.96	(2)
June 1, 2009 to May 31, 2010
	Midwest Generation	4,614		102.04		715		71.46	—		—
	EME Homer City	1,670		191.32		—		—	—		—
June 1, 2010 to May 31, 2011
	Midwest Generation	4,929		174.29		—		—	—		—
	EME Homer City	1,813		174.29		—		—	—		—

(1)

Actual contract price is a function of NYISO capacity auction clearing prices for April 2008, and forward over-the-counter NYISO capacity prices on March 31, 2008 for May 2008.

(2)

Expected price per MW-day is based on forward over-the-counter NYISO prices on March 31, 2008.

(3)

During the first quarter of 2008, PJM updated capacity prices for the period June 1, 2008 to May 31, 2009 to reflect the final incremental auction for this planning year. The adjusted price for capacity per MW-day is $113.22 compared to the original price of $111.92. In addition, the price was affected by Midwest Generation's participation in a supplemental RPM auction which resulted in purchasing certain capacity amounts at a price of $10 per MW-day, thereby reducing the aggregate forward capacity sales for this period and increasing the effective capacity price to $123.77.

        Revenues from the sale of capacity from Midwest Generation and EME Homer City beyond the periods set forth above will depend upon the amount of capacity available and future market prices either in PJM or nearby markets if EME has an opportunity to capture a higher value associated with

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those markets. Under PJM's RPM system, the market price for capacity is generally determined by aggregate market-based supply conditions and an administratively set aggregate demand curve. Among the factors influencing the supply of capacity in any particular market are plant forced outage rates, plant closings, plant delistings (due to plants being removed as capacity resources and/or to export capacity to other markets), capacity imports from other markets, and the CONE.

        Midwest Generation entered into hedge transactions in advance of the RPM auctions with counterparties that are settled through PJM. In addition, the load service requirements contracts entered into by Midwest Generation with Commonwealth Edison include energy, capacity and ancillary services (sometimes referred to as a "bundled product"). Under PJM's business rules, Midwest Generation sells all of its available capacity (defined as unit capacity less forced outages) into the RPM and is subject to a locational reliability charge for the load under these contracts. This means that the locational reliability charge generally offsets the related amounts sold in the RPM, which Midwest Generation presents on a net basis in the table above.

        Prior to the RPM auctions for the relevant delivery periods, EME Homer City sold a portion of its capacity to an unrelated third party for the delivery periods from June 1, 2007 through May 31, 2008 and June 1, 2008 through May 31, 2009. EME Homer City is not receiving the RPM auction clearing price for this previously sold capacity. The price EME Homer City is receiving for these capacity sales is a function of NYISO capacity clearing prices resulting from separate NYISO capacity auctions.

Basis Risk

        Sales made from the Illinois Plants and the Homer City facilities in the real-time or day-ahead market receive the actual spot prices or day-ahead prices, as the case may be, at the busbars (delivery points) of the individual plants. In order to mitigate price risk from changes in spot prices at the individual plant busbars, EME may enter into cash settled futures contracts as well as forward contracts with counterparties for energy to be delivered in future periods. Currently, a liquid market for entering into these contracts at the individual plant busbars does not exist. A liquid market does exist for a settlement point at the PJM West Hub in the case of the Homer City facilities and for a settlement point at the Northern Illinois Hub in the case of the Illinois Plants. EME's hedging activities use these settlement points (and, to a lesser extent, other similar trading hubs) to enter into hedging contracts. EME's revenues with respect to such forward contracts include:

•

sales of actual generation in the amounts covered by the forward contracts with reference to PJM spot prices at the busbar of the plant involved, plus,



•

sales to third parties at the price under such hedging contracts at designated settlement points (generally the PJM West Hub for the Homer City facilities and the Northern Illinois Hub for the Illinois Plants) less the cost of power at spot prices at the same designated settlement points.

        Under PJM's market design, locational marginal pricing, which establishes market prices at specific locations throughout PJM by considering factors including generator bids, load requirements, transmission congestion and losses, can cause the price of a specific delivery point to be higher or lower relative to other locations depending on how the point is affected by transmission constraints. Effective June 1, 2007, PJM implemented marginal losses which adjust the algorithm that calculates locational marginal prices to include a component for marginal transmission losses in addition to the component included for congestion. To the extent that, on the settlement date of a hedge contract, spot prices at the relevant busbar are lower than spot prices at the settlement point, the proceeds actually realized from the related hedge contract are effectively reduced by the difference. This is referred to as "basis risk." During the three months ended March 31, 2008 and 2007, transmission congestion in PJM has resulted in prices at the Homer City busbar being lower than those at the PJM West Hub by an average of 12% and 11%, respectively. The monthly average difference during the 12 months ended March 31, 2008 ranged from 7% to 24%. In contrast to the Homer City facilities, during the past

39

12 months, the prices at the Northern Illinois Hub were substantially the same as those at the individual busbars of the Illinois Plants, although the implementation of marginal losses on June 1, 2007 has lowered energy prices at the Illinois Plants busbars.

        By entering into cash settled futures contracts and forward contracts using the PJM West Hub and the Northern Illinois Hub (or other similar trading hubs) as settlement points, EME is exposed to basis risk as described above. In order to mitigate basis risk, EME may purchase financial transmission rights and basis swaps in PJM for EME Homer City. A financial transmission right is a financial instrument that entitles the holder to receive the difference of actual spot prices for two delivery points in exchange for a fixed amount. Accordingly, EME's hedging activities include using financial transmission rights alone or in combination with forward contracts and basis swap contracts to manage basis risk.

Coal and Transportation Price Risk

        The Illinois Plants and the Homer City facilities purchase coal primarily obtained from the Southern PRB of Wyoming and from mines located near the facilities in Pennsylvania, respectively. Coal purchases are made under a variety of supply agreements extending through 2011. The following table summarizes the amount of coal under contract at March 31, 2008 for the remainder of 2008 and the following three years.

	Amount of Coal Under Contract in Millions of Tons(1)
	April through December 2008	2009	2010	2011
Illinois Plants	12.3	11.7	11.7	—
Homer City facilities	4.3	4.4	0.4	0.1

(1)

The amount of coal under contract in tons is calculated based on contracted tons and applying an 8,800 Btu equivalent for the Illinois Plants and 13,000 Btu equivalent for the Homer City facilities.

        EME is subject to price risk for purchases of coal that are not under contract. Prices of Northern Appalachian coal, which are related to the price of coal purchased for the Homer City facilities, increased substantially during the first quarter of 2008 from 2007 year-end prices. The price of Northern Appalachian coal (with 13,000 Btu per pound heat content and <3.0 pounds of SO₂ per MMBtu sulfur content) increased to $110.00 per ton at March 28, 2008 from $55.25 per ton at December 21, 2007, as reported by the Energy Information Administration. Prices of PRB coal (with 8,800 Btu per pound heat content and 0.8 pounds of SO₂ per MMBtu sulfur content) purchased for the Illinois Plants increased during the first quarter of 2008 from 2007 year-end prices. The price of PRB coal increased to $14.55 per ton at March 28, 2008 from $11.50 per ton at December 21, 2007, as reported by the Energy Information Administration. The 2008 increases in coal prices were primarily attributable to: 1) increased Asian coal demand primarily driven by China and India, 2) port and rail infrastructure problems and monsoon flooding in Australia, 3) a record cold winter in China, and 4) an energy crisis in South Africa.

        EME has contractual agreements for the transport of coal to its facilities. The primary contract is with Union Pacific Railroad (and various delivering carriers), which extends through 2011. EME is exposed to price risk related to higher transportation rates after the expiration of its existing transportation contracts. Current transportation rates for PRB coal are higher than the existing rates under contract (transportation costs are more than 50% of the delivered cost of PRB coal to the Illinois Plants).

Emission Allowances Price Risk

        The federal Acid Rain Program requires electric generating stations to hold SO₂ allowances, and Illinois and Pennsylvania regulations implemented the federal NO_X SIP Call requirement. As part of

40

the acquisition of the Illinois Plants and the Homer City facilities, EME obtained the rights to the emission allowances that have been or are allocated to these plants. EME purchases (or sells) emission allowances based on the amounts required for actual generation in excess of (or less than) the amounts allocated under these programs.

        The average price of purchased SO₂ allowances decreased to $343 per ton during the first quarter of 2008 from $512 per ton during 2007. The price of SO₂ allowances, determined by obtaining broker quotes and information from other public sources, was $340 per ton as of March 31, 2008.

        For a discussion of environmental regulations related to emissions, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Environmental Matters and Regulations" of EME's annual report on Form 10-K for the year ended December 31, 2007.

Accounting for Energy Contracts

        EME uses a number of energy contracts to manage exposure from changes in the price of electricity, including forward sales and purchases of physical power and forward price swaps which settle only on a financial basis (including futures contracts). EME follows SFAS No. 133, and under this Standard these energy contracts are generally defined as derivative financial instruments. Importantly, SFAS No. 133 requires changes in the fair value of each derivative financial instrument to be recognized in earnings at the end of each accounting period unless the instrument qualifies for hedge accounting under the terms of SFAS No. 133. For derivatives that do qualify for cash flow hedge accounting, changes in their fair value are recognized in other comprehensive income until the hedged item settles and is recognized in earnings. However, the ineffective portion of a derivative that qualifies for cash flow hedge accounting is recognized currently in earnings. For further discussion of derivative financial instruments, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Management's Overview; Critical Accounting Policies—Critical Accounting Policies—Derivative Financial Instruments and Hedging Activities" of EME's annual report on Form 10-K for the year ended December 31, 2007.

        SFAS No. 133 affects the timing of income recognition, but has no effect on cash flow. To the extent that income varies under SFAS No. 133 from accrual accounting (i.e., revenue recognition based on settlement of transactions), EME records unrealized gains or losses. EME classifies unrealized gains and losses from energy contracts as part of operating revenues. The results of derivative activities are recorded as part of cash flows from operating activities in the consolidated statements of cash flows. The following table summarizes unrealized gains (losses) from non-trading activities for the first quarters of 2008 and 2007:

		Three Months Ended March 31,
		2008			2007
		(in millions)
Non-qualifying hedges
	Illinois Plants	$	—		$	(22	)
	Homer City		1			(1	)
Ineffective portion of cash flow hedges
	Illinois Plants		(5	)		—
	Homer City		(2	)		2
Total unrealized losses		$	(6	)	$	(21	)

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        At March 31, 2008, unrealized losses of $45 million were recognized from non-qualifying hedge contracts or the ineffective portion of cash flow hedges related to subsequent periods ($26 million for the remainder of 2008, $14 million for 2009, and $5 million for 2010).

Fair Value of Financial Instruments

Non-Trading Derivative Financial Instruments

        The following table summarizes the fair values for outstanding derivative financial instruments used in EME's continuing operations for purposes other than trading, by risk category:

		March 31, 2008			December 31, 2007
		(in millions)
Commodity price:
	Electricity contracts	$	(388	)	$	(137	)

        In assessing the fair value of EME's non-trading derivative financial instruments, EME uses quoted market prices and forward market prices adjusted for credit risk. The fair value of commodity price contracts takes into account quoted market prices, time value of money, volatility of the underlying commodities and other factors. The decrease in fair value of electricity contracts at March 31, 2008 as compared to December 31, 2007 is attributable to an increase in the average market prices for power as compared to contracted prices at March 31, 2008, which is the valuation date. The following table summarizes the maturities and the related fair value, based on actively traded prices, of EME's commodity derivative assets and liabilities as of March 31, 2008:

	Total Fair Value			Maturity <1 year			Maturity 1 to 3 years			Maturity 4 to 5 years		Maturity >5 years
	(in millions)
Prices actively quoted	$	(388	)	$	(271	)	$	(117	)	$	—	$	—

        Prices actively quoted in the preceding table includes derivatives whose fair value is based on quoted market prices and forward market prices adjusted for credit risk.

Energy Trading Derivative Financial Instruments

        The fair value of the commodity financial instruments related to energy trading activities as of March 31, 2008 and December 31, 2007, are set forth below:

	March 31, 2008				December 31, 2007
	Assets		Liabilities		Assets		Liabilities
	(in millions)
Electricity contracts	$	134	$	17	$	141	$	9
Other		—		1		—		—
Total	$	134	$	18	$	141	$	9

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        The change in the fair value of trading contracts for the quarter ended March 31, 2008, was as follows:

	(in millions)
Fair value of trading contracts at January 1, 2008	$	132
Net gains from energy trading activities		42
Amount realized from energy trading activities		(51	)
Other changes in fair value		(7	)
Fair value of trading contracts at March 31, 2008	$	116

        EME adopted SFAS No. 157 effective January 1, 2008. The standard established a hierarchy for fair value measurements. See "Edison Mission Energy and Subsidiaries Notes to Consolidated Financial Statements—Note 2. Fair Value Measurements," for further discussion of EME's adoption of SFAS No. 157.

        In the table below, prices actively quoted includes both exchange traded derivatives and non-exchange traded derivatives which are priced based on forward market prices adjusted for credit risk. Also in the table, fair value based on models and other valuation methods includes illiquid firm transmission rights and over-the-counter derivatives at illiquid locations and long-term power agreements which would be considered Level 3 derivative positions. For illiquid firm transmission rights, EME determines fair value based on the hypothetical sale of illiquid positions. For long-term power agreements, EME's subsidiary recorded these agreements at fair value based upon a discounting of future electricity prices derived from a proprietary model using the risk free discount rate for a similar duration contract, adjusted for credit and liquidity.

        The following table summarizes the maturities, the valuation method and the related fair value of energy trading assets and liabilities (as of March 31, 2008):

	Total Fair Value			Maturity <1 year			Maturity 1 to 3 years		Maturity 4 to 5 years		Maturity >5 years
	(in millions)
Prices actively quoted	$	(1	)	$	(19	)	$	18	$	—	$	—
Prices based on models and other valuation methods		117			45			14		23		35
Total	$	116		$	26		$	32	$	23	$	35

Credit Risk

        In conducting EME's hedging and trading activities, EME contracts with a number of utilities, energy companies, financial institutions, and other companies, collectively referred to as counterparties. In the event a counterparty were to default on its trade obligation, EME would be exposed to the risk of possible loss associated with re-contracting the product at a price different from the original contracted price if the non-performing counterparty were unable to pay the resulting liquidated damages owed to EME. Further, EME would be exposed to the risk of non-payment of accounts receivable accrued for products delivered prior to the time a counterparty defaulted.

        To manage credit risk, EME looks at the risk of a potential default by counterparties. Credit risk is measured by the loss that would be incurred if counterparties failed to perform pursuant to the terms of their contractual obligations. EME measures, monitors and mitigates credit risk to the extent possible. To mitigate credit risk from counterparties, master netting agreements are used whenever possible and counterparties may be required to pledge collateral when deemed necessary. EME also

43

takes other appropriate steps to limit or lower credit exposure. Processes have also been established to determine and monitor the creditworthiness of counterparties. EME manages the credit risk on the portfolio based on credit ratings using published ratings of counterparties and other publicly disclosed information, such as financial statements, regulatory filings, and press releases, to guide it in the process of setting credit levels, risk limits and contractual arrangements, including master netting agreements. A risk management committee regularly reviews the credit quality of EME's counterparties. Despite this, there can be no assurance that these efforts will be wholly successful in mitigating credit risk or that collateral pledged will be adequate.

        The credit risk exposure from counterparties of merchant energy activities (excluding load requirements services contracts) are measured as either: (i) the sum of 60 days of accounts receivable, current fair value of open positions, and a credit value at risk, or (ii) the sum of delivered and unpaid accounts receivable and the current fair value of open positions. EME's subsidiaries enter into master agreements and other arrangements in conducting hedging and trading activities which typically provide for a right of setoff in the event of bankruptcy or default by the counterparty. Accordingly, EME's credit risk exposure from counterparties is based on net exposure under these agreements. At March 31, 2008, the amount of exposure as described above, broken down by the credit ratings of EME's counterparties, was as follows:

S&P Credit Rating	March 31, 2008
	(in millions)
A or higher	$	14
A-		35
BBB+		86
BBB		15
BBB-		4
Below investment grade		—
Total	$	154

        EME's plants owned by unconsolidated affiliates in which EME owns an interest sell power under power purchase agreements. Generally, each plant sells its output to one counterparty. Accordingly, a default by a counterparty under a power purchase agreement, including a default as a result of a bankruptcy, would likely have a material adverse effect on the operations of such power plant.

        In addition, coal for the Illinois Plants and the Homer City facilities is purchased from suppliers under contracts which may be for multiple years. A number of the coal suppliers to the Illinois Plants and the Homer City facilities do not currently have an investment grade credit rating and, accordingly, EME may have limited recourse to collect damages in the event of default by a supplier. EME seeks to mitigate this risk through diversification of its coal suppliers and through guarantees and other collateral arrangements when available. Despite this, there can be no assurance that these efforts will be successful in mitigating credit risk from coal suppliers.

        EME's merchant plants sell electric power generally into the PJM market by participating in PJM's capacity and energy markets or transact capacity and energy on a bilateral basis. Sales into PJM accounted for approximately 48% of EME's consolidated operating revenues for the three months ended March 31, 2008. Moody's rates PJM's senior unsecured debt Aa3. PJM, an independent system operator with over 300 member companies, maintains its own credit risk policies and does not extend unsecured credit to non-investment grade companies. Any losses due to a PJM member default are shared by all other members based upon a predetermined formula. At March 31, 2008, EME's account receivable due from PJM was $100 million.

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        EME also derived a significant source of its revenues from the sale of energy, capacity and ancillary services generated at the Illinois Plants to Commonwealth Edison under load requirements services contracts. Sales under these contracts accounted for 16% of EME's consolidated operating revenues during the three months ended March 31, 2008. Commonwealth Edison's senior unsecured debt ratings are BBB- by S&P and Ba1 by Moody's. At March 31, 2008, EME's account receivable due from Commonwealth Edison was $17 million. For the three months ended March 31, 2008, a third customer accounted for 11% of EME's consolidated operating revenues.

Interest Rate Risk

        Interest rate changes can affect earnings and the cost of capital for capital improvements or new investments in power projects. EME mitigates the risk of interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps, interest rate options or other hedging mechanisms for a number of its project financings. The fair market values of long-term fixed interest rate obligations are subject to interest rate risk. The fair market value of EME's consolidated long-term obligations (including current portion) was $3.9 billion at March 31, 2008, compared to the carrying value of $3.9 billion.

Regulatory Matters

        For a discussion of EME's regulatory matters, refer to "Item 1. Business—Regulatory Matters" of EME's annual report on Form 10-K for the year ended December 31, 2007. There have been no significant developments with respect to regulatory matters specifically affecting EME since the filing of EME's annual report on Form 10-K for the year ended December 31, 2007, except as follows:

        On April 4, 2008, the FERC issued an order rejecting PJM's request to revise its RPM to reflect PJM's claimed rise in its CONE values. CONE is one of the two components used by PJM to determine its Variable Resource Requirement curve for the RPM auction. PJM also proposed to add a new section to its tariff permitting PJM to unilaterally request a CONE increase for use in its May 2008 RPM auction for the 2011/2012 delivery year. In rejecting the proposal, the FERC found that PJM had not met timing provisions in its existing tariff to provide sufficient time for stakeholder review of the analysis and advance planning and that it had also failed to establish that its proposal to revise that provision was necessary on a one-time emergency basis to ensure reliable service.

        The effect of FERC's actions on future RPM auctions cannot be determined at this time. The CONE as established for the May 2008 RPM auction for the 2011/2012 delivery year is lower than the PJM request.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        For a discussion of market risk sensitive instruments, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk Exposures" of EME's annual report on Form 10-K for the year ended December 31, 2007. Refer to "Market Risk Exposures" in Item 2 of this quarterly report on Form 10-Q for an update to that disclosure.

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ITEM 4T.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        EME's management, with the participation of the company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of EME's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period, EME's disclosure controls and procedures are effective.

Internal Control Over Financial Reporting

        There were no changes in EME's internal control over financial reporting (as that term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, EME's internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        For a discussion of EME's legal proceedings, refer to "Item 3. Legal Proceedings" of EME's annual report on Form 10-K for the year ended December 31, 2007. There have been no significant developments with respect to legal proceedings specifically affecting EME since the filing of EME's annual report on Form 10-K for the year ended December 31, 2007.

ITEM 1A.    RISK FACTORS

        For a discussion of the risks, uncertainties, and other important factors which could materially affect EME's business, financial condition, or future results, refer to "Item 1A. Risk Factors" of EME's annual report on Form 10-K for the year ended December 31, 2007. The risks described in EME's annual report on Form 10-K are not the only risks facing EME. Additional risks and uncertainties that are not currently known, or that are currently deemed to be immaterial, also may materially adversely affect EME's business, financial condition or future results.

ITEM 6.    EXHIBITS

Exhibit No.	Description
3.2	Amended and Restated By-Laws of Edison Mission Energy.
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32	Statement Pursuant to 18 U.S.C. Section 1350.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EDISON MISSION ENERGY
By:	/s/ W. JAMES SCILACCI W. James Scilacci Senior Vice President and Chief Financial Officer
Date:	May 8, 2008

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TABLE OF CONTENTS
GLOSSARY

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, Unaudited)
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions, Unaudited)
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, Unaudited)
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions, Unaudited)
EDISON MISSION ENERGY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 (Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S OVERVIEW; CRITICAL ACCOUNTING POLICIES
Management's Overview

LIQUIDITY AND CAPITAL RESOURCES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4T. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 6. EXHIBITS

SIGNATURES

EX-3.2

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Exhibit 3.2

AMENDED

BY-LAWS

OF

EDISON MISSION ENERGY

AS OF APRIL 1, 2008

EDISON MISSION ENERGY

INDEX

Article I—Offices
	Section 1.1	Principal Executive Office	1
	Section 1.2	Other Offices	1
Article II—Stockholders
	Section 2.1	Meeting Locations	1
	Section 2.2	Annual Meetings	1
	Section 2.3	Special Meetings	1
	Section 2.4	Notice of Annual or Special Meeting	2
	Section 2.5	Quorum; Adjournment	2
	Section 2.6	Adjourned Meeting and Notice Thereof	3
	Section 2.7	Voting	3
	Section 2.8	Record Date	4
	Section 2.9	Consent of Absentees; Waiver of Notice	4
	Section 2.10	Action Without Meeting	4
	Section 2.11	Proxies	5
Article III—Directors
	Section 3.1	Powers	5
	Section 3.2	Number of Directors	5
	Section 3.3	Election and Term of Office	5
	Section 3.4	Vacancies	6
	Section 3.5	Place of Meeting	6
	Section 3.6	Organization Meeting	6
	Section 3.7	Special Meetings	6
	Section 3.8	Quorum	7
	Section 3.9	Participation in Meetings by Conference Telephone	7
	Section 3.10	Waiver of Notice	7
	Section 3.11	Adjournment	7
	Section 3.12	Fees and Compensation	7
	Section 3.13	Action Without Meeting	7
	Section 3.14	Independent Director
	Section 3.15	Actions Requiring Unanimous Approval
Article IV—Officers
	Section 4.1	Officers	8
	Section 4.2	Election	8
	Section 4.3	Eligibility of Chairman of the Board, Vice Chairman of the Board or President	8
	Section 4.4	Removal and Resignation	8
	Section 4.5	Appointment of Other Officers	9
	Section 4.6	Vacancies	9
	Section 4.7	Salaries	9
	Section 4.8	Chairman of the Board	9
	Section 4.9	Vice Chairman of the Board	9
	Section 4.10	President	9
	Section 4.11	Vice President	9
	Section 4.12	Chief Operating Officer	10
	Section 4.13	General Manager	10
	Section 4.14	Chief Financial Officer	10
	Section 4.15	General Counsel	10

	Section 4.16	Assistant General Counsel	10
	Section 4.17	Controller	10
	Section 4.18	Secretary	10
	Section 4.19	Assistant Secretary	11
	Section 4.20	Secretary Pro Tempore	11
	Section 4.21	Treasurer	11
	Section 4.22	Assistant Treasurer	11
	Section 4.23	Performance of Duties	11
Article V—Other Provisions
	Section 5.1	Inspection of By-laws	11
	Section 5.2	Contracts and Other Instruments, Loans, Notes and Deposit of Funds	11
	Section 5.3	Representation of Shares of Other corporations	12
	Section 5.4	Fiscal Year and Subdivisions	12
	Section 5.5	Record Owners	12
	Section 5.6	Construction and Definitions	12
Article VI—Indemnification
	Section 6.1	Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the corporation	12
	Section 6.2	Power to Indemnify in Actions, Suibts or Proceedings by or in the Right of the Corporation	13
	Section 6.3	Authorization of Indemnification	13
	Section 6.4	Good Faith Defined	13
	Section 6.5	Indemnification by a Court	14
	Section 6.6	Expenses Payable in Advance	14
	Section 6.7	Indemnification of Employees and Agents	14
	Section 6.8	Right of Directors and Officers to Bring Suit	14
	Section 6.9	Successful Defense	15
	Section 6.10	Nonexclusivity of Rights	15
	Section 6.11	Survival of Indemnification and Advancement of Expenses	15
	Section 6.12	Limitation on Indemnification	15
	Section 6.13	Insurance	16
	Section 6.14	Expenses as a Witness	16
	Section 6.15	Indemnity Agreements	16
	Section 6.16	Severability	16
	Section 6.17	Certain Definitions	16
	Section 6.18	Effect of Repeal or Modification	17
Article VII—Amendments
	Section 7.1	Amendments	17

BY-LAWS

By-laws for the regulation, except
as otherwise provided by statute
or its Certificate of Incorporation

of

EDISON MISSION ENERGY

ADOPTED AS OF MAY 3, 2004

Article I—Offices

Section 1.1  Principal Executive Office.

        The principal executive office of the corporation is hereby fixed and located at 18101 Von Karman Avenue, Suite 1700, in the City of Irvine, County of Orange, State of California. The Board of Directors ("the Board") is hereby granted full power and authority to change the principal executive office from one location to another.

Section 1.2  Other Offices.

        Branches or subordinate offices may be established at any time by the Board of Directors or the President at any place within or without the State of California.

Article II—Stockholders

Section 2.1  Meeting Locations.

        All meetings of stockholders shall be held at the principal executive office, or at such other office or places within or without the State of Delaware as may be designated by either the Board or by the person or persons giving notice of the meeting pursuant to Section 2.4.

Section 2.2  Annual Meetings.

        The annual meeting of stockholders shall be held on the 1st Tuesday in the month of May of each year, at the hour of 2:00 p.m. on said day, or at such other time on such other day as shall be fixed by the Board, to elect directors to hold office for the year next ensuing and until their successors shall be elected, and to consider and act upon such other matters as may lawfully be presented to such meeting; provided, however, that should said day fall upon a legal holiday observed by this corporation, then any such annual meeting of stockholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day.

Section 2.3  Special Meetings.

        Special meetings of the stockholders may be called at any time by the Board, the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, the Senior Vice President, or the holders of shares entitled to cast not less than ten percent of the votes at such meeting. Upon written request to the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, the Senior Vice President, the Secretary or Assistant Secretary by any person entitled to call a special meeting of stockholders, the officer forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five nor more than sixty days after the receipt of the request. If the notice is not given within twenty days after receipt of the request, the persons entitled to call the meeting may give the notice.

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Section 2.4  Notice of Annual or Special Meeting.

        Written notice of each annual or special meeting of stockholders shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat. Such notice shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and (i) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (ii) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the stockholders, but subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the name of nominees intended at the time of the notice to be presented by the Board for election.

        Notice of a stockholders' meeting or any report to the stockholders shall be given either personally to the recipient or to a person in the office of the recipient or by first-class United States mail, by private mail or messenger service, by telephone facsimile transmission, or by any other means of written communication, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Such notice or report shall be deemed to have been given at the time when delivered personally, deposited in the United States mail or sent by private mail or messenger service, by telephone facsimile transmission or sent by any other means of written or electronic communication. Notice to stockholders may also be given by a form of electronic transmission if consented to by the stockholders to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed to be revoked (i) if the corporation is unable to deliver by electronic transmission two consecutive notices by the corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or Assistant Secretary of the corporation or other person responsible for the giving of notice; provided, however, that the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given by electronic transmission shall be deemed given (i) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) by any other form of electronic transmission, when directed to the stockholder.

Section 2.5  Quorum; Adjournment.

        (a)   A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of the stockholders.

        (b)   Except as provided in subsection (c) below, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by the certificate of incorporation of the corporation, as it may be amended or restated from time to time (the "Certificate of Incorporation").

        (c)   The stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough

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stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

        (d)   In the absence of a quorum, any meeting of stockholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subsection (c) above.

Section 2.6  Adjourned Meeting and Notice Thereof.

        Any stockholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum (except as permitted by applicable law in the case of withdrawals by stockholders to reduce the number remaining to less than a quorum) no other business may be transacted at such meeting.

        Notice need not be given of any such adjourned meeting if the time and place, if any, thereof and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in the manner provided by Section 2.4.

Section 2.7  Voting.

        The stockholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.8.

        Voting shall in all cases be subject to the provisions of the Delaware General corporation Law (the "DGCL") and the Certificate of Incorporation. Without limiting the generality of the foregoing sentence:

        (a)   Shares standing in the name of another corporation, domestic or foreign, may be voted by an officer, agent, or proxyholder as the By-laws of the other corporation may prescribe or, in the absence of such provision, as the Board of the other corporation may determine or, in the absence of that determination, by the chairman of the board, president or any vice president of the other corporation, or by any other person authorized to do so by the chairman of the board, president, or any vice president of the other corporation. Shares which are purported to be voted or any proxy purported to be executed in the name of a corporation (whether or not any title of the person signing is indicated) shall be presumed to be voted or the proxy executed in accordance with the provisions of the DGCL, unless the contrary is shown.

        (b)   Shares of this corporation owned by its subsidiary shall not be entitled to vote on any matter.

        (c)   Shares of this corporation held by this corporation in a fiduciary capacity, and shares of this corporation held in a fiduciary capacity by its subsidiary, shall not be entitled to vote on any matter, except as follows: (i) to the extent that the settlor or beneficial owner possesses and exercises a right to vote or to give this corporation binding instructions as to how to vote such shares; or (ii) where there are one or more co-trustees who are not affected by the prohibition of this subsection, in which case the shares may be voted by the co-trustees as if it or they are the sole trustees.

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Section 2.8  Record Date.

        The Board may fix, in advance, a record date for the determination of the stockholders entitled to notice of any meeting or to vote, entitled to consent to corporate action in writing or by electronic transmission without a meeting, or entitled to receive payment of any dividend or other distribution, or any allotment of any rights or entitled to exercise any rights, in respect of any other lawful action. The record date so fixed shall be not more than sixty days nor less than ten days prior to the date of the meeting nor more than sixty days prior to any other action. When a record date is so fixed, only stockholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date, except as otherwise provided by law or these By-laws.

Section 2.9  Consent of Absentees; Waiver of Notice.

        The transactions of any meeting of stockholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice (or provides a waiver thereof by electronic transmission) or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this division to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of stockholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the Certificate of Incorporation or these By-laws, except as provided in the DGCL.

Section 2.10  Action Without Meeting.

        Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing or by electronic transmission, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section 2.10 to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation by delivery to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation as provided above in this section.

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Section 2.11  Proxies.

        Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a written proxy executed by such stockholder and filed with the Secretary. No proxy shall be valid after the expiration of three (3) years from the date thereof, unless otherwise provided in the proxy.

Article III—Directors

Section 3.1  Powers.

        Subject to any limitations of the Certificate of Incorporation, of these By-laws and of the DGCL relating to action required to be approved by the stockholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may delegate the management of the day-to-day operation of the business of the corporation provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Board shall have the following powers in addition to the other powers enumerated in these By-laws:

        (a)   To select and remove all the other officers, agents and employees of the corporation, prescribe the powers and duties for them as may not be inconsistent with law, with the Certificate of Incorporation or these By-laws, fix their compensation and require from them security for faithful service.

        (b)   To conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, or with the Certificate of Incorporation or these By-laws, as they may deem best.

        (c)   To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they deem best.

        (d)   To authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful.

        (e)   To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor.

Section 3.2  Number of Directors.

        The authorized number of directors shall not be less than three (3) nor more than six (6) until changed by amendment of the Certificate of Incorporation or by a By-law duly adopted by the stockholders. The exact number of directors shall be fixed, within the limits specified, by the Board of the stockholders in the same manner provided in these By-laws for the amendment thereof. The exact number of authorized directors shall be four (4) until changed as provided in these By-laws.

Section 3.3  Election and Term of Office.

        The directors shall be elected at each annual meeting of the stockholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of stockholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified, or until such director's earlier death, resignation or removal.

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Section 3.4  Vacancies.

        Any director may resign effective upon giving written notice to the Chairman of the Board, the Vice Chairman of the Board, the President, the Secretary, or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

        Unless otherwise required by law or the Certificate of Incorporation, vacancies in the Board may be filled by a majority of the remaining directors, whether or not less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director's successor has been elected and qualified.

        A vacancy or vacancies in the Board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors be increased, or if the stockholders fail, at any annual or special meeting of stockholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.

        The stockholders may elect a director or directors at any time to fill any vacancy not filled by the directors. Any such election by written consent requires the consent of holders of a majority of the outstanding capital stock entitled to vote. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board or the stockholders shall have power to elect a successor to take office when the resignation is to become effective.

        No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office.

Section 3.5  Place of Meeting.

        Regular or special meetings of the Board shall be held at any place within or without the State of Delaware which has been designated from time to time by the Board or as provided in these By-laws. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation.

Section 3.6  Organization Meeting.

        Promptly following each annual meeting of stockholders, the Board shall hold a regular meeting for the purpose of organization, election of officers and the transaction of other business.

Section 3.7  Special Meetings.

        Special meetings other than organization meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Vice Chairman of the Board, the President, any Executive Vice President, any Senior Vice President, the Secretary, an Assistant Secretary or by any two directors.

        Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone , telegram or other electronic means on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Any such notice shall be addressed or delivered to each director at such director's address as it is shown upon the records of the corporation or as may have been given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. The notice need not specify the purpose of such meeting.

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        Notice by first-class mail shall be deemed to have been given at the time a written notice is deposited in the United States mail, postage prepaid or sent by private mail or messenger service. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient, to a person in the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient, delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person, by telephone to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

Section 3.8  Quorum.

        At all meetings of the Board, one-third of the maximum number of authorized directors constitutes a quorum of the Board, except to adjourn as provided in Section 3.11 of this Article. As defined in Section 3.2 of this Article, the maximum number of authorized directors is six. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number is required by law or by the Certificate of Incorporation; provided, however, that a meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 3.9  Participation in Meetings by Conference Telephone.

        Members of the Board may participate in a meeting of the Board through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting.

Section 3.10  Waiver of Notice.

        The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice (or provides a waiver thereof by electronic transmission), a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 3.11  Adjournment.

        A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place is fixed at the meeting adjourned. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 3.12  Fees and Compensation.

        Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board.

Section 3.13  Action Without Meeting.

        Unless otherwise provided by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all of the

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members of the Board consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board. Such written consent or consents, in writing or by electronic transmission, shall have the same force and effect as a unanimous vote of the Board.

Article IV—Officers

Section 4.1  Officers.

        The officers of the corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President, a Vice President, a Chief Financial Officer, a Controller, a Secretary and a Treasurer. The corporation may also have, at the discretion of the Board, one or more additional Vice Presidents, a Chief Operating Officer, a General Manager, a General Counsel, one or more Assistant General Counsels, one or more Assistant Controllers, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 4.5 of this Article.

Section 4.2  Election.

        The officers of the corporation, except such officers as may be elected or appointed in accordance with the provisions of Section 4.5 or Section 4.6 of this Article, shall be chosen annually by, and shall serve at the pleasure of the Board, and shall hold their respective offices until their resignation, removal, or other disqualification from service, or until their respective successors shall be elected.

Section 4.3  Eligibility of Chairman of the Board, Vice Chairman of the Board or President.

        No person shall be eligible for the office of Chairman of the Board, Vice Chairman of the Board or President unless such person is a member of the Board of the corporation; any other officer may or may not be a director.

Section 4.4  Removal and Resignation.

        Any officer may be removed, either with or without cause, by the Board at any time or by any officer upon whom such power of removal may be conferred by the Board. Any such removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer.

        Any officer may resign at any time by giving written notice to the corporation, but without prejudice to the rights, if any, of the corporation under any contract of employment to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

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Section 4.5  Appointment of Other Officers.

        The Board may appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in the By-laws or as the Board may from time to time determine. Notwithstanding the job title for such person, no employee or other representative of this corporation shall be an officer of this corporation unless elected by the Board.

Section 4.6  Vacancies.

        A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these By-laws for regular election or appointment to such office.

Section 4.7  Salaries.

        The salaries of the Chairman of the Board, Vice Chairman of the Board, President, General Manager, Vice Presidents, Controller, Treasurer and Secretary of the corporation shall be fixed by the Board. Salaries of all other officers shall be approved from time to time by the chief executive officer.

Section 4.8  Chairman of the Board.

        The Chairman of the Board, if there shall be such an officer, shall preside at all meetings of the Board, and shall exercise such powers and perform such duties as from time to time may be conferred upon or assigned to him by the Board or the By-laws.

Section 4.9  Vice Chairman of the Board.

        The Vice Chairman of the Board, if there shall be such an officer, shall perform such of the duties of the Chairman of the Board as the Chairman of the Board shall designate, and, in the absence of the Chairman of the Board, shall perform the duties of the Chairman of the Board.

Section 4.10  President.

        Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board or Vice Chairman of the Board, the President shall be the chief executive officer of the corporation and has, subject to the control of the Board, general supervision, direction, and control of the business and affairs of the corporation. The President shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board or Vice Chairman of the Board, or if there be neither, at all meetings of the Board. The President has the general powers and duties of management usually vested in the office of president of a corporation and has such other powers and duties as may be prescribed by the Board or the By-laws. The President may designate from time to time the titles which the employees or other representatives of this corporation shall use, including the appointment of agent for service of process. Without limiting the foregoing, the President may designate one or more employees as regional vice-presidents.

Section 4.11  Vice President.

        In the absence or disability of the President, the Vice Presidents in order of their rank shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon the President. The Board of Directors may establish the order of rank of the Vice Presidents. In the absence of such ranking, the Vice Presidents shall be ranked as follows: Executive Vice President (if any), Senior Vice President (if any). Vice Presidents holding identical titles shall be ranked in order of election to that office by the Board.

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Section 4.12  Chief Operating Officer.

        The Chief Operating Officer, if there shall be such an officer, must be a vice president of the corporation and shall be subject to the exercise of the general powers of supervision, direction and control of the business and officers of the corporation by the President, and supervise the operations of the corporation.

Section 4.13  General Manager.

        The General Manager, if there shall be such an officer, must be a vice president of the corporation and shall, subject to the exercise of the general powers of supervision, direction and control by the President, or the Chief Operating Officer, if any, shall manage the operations of the corporation. In the absence of the Chief Operating Officer, the General Manager shall perform all the duties of the Chief Operating Officer and when so acting shall have all the powers of, and be subject to, all the restrictions upon the Chief Operating Officer.

Section 4.14  Chief Financial Officer.

        The Chief Financial Officer of the corporation shall be the chief consulting officer in all matters of financial import, and shall have control over all financial matters concerning the corporation. If the corporation does not have a currently elected and acting Controller, the Chief Financial Officer shall also be the chief accounting officer of the corporation.

Section 4.15  General Counsel.

        The General Counsel shall be the chief consulting officer of the corporation in all legal matters and, subject to the President, shall have control over all matters of legal import concerning the corporation.

Section 4.16  Assistant General Counsel.

        One or more Assistant General Counsels, if any, shall perform such of the duties of the General Counsel as the General Counsel may designate, and in the absence or disability of the General Counsel, any Assistant General Counsel, in order of election to that office by the Board, shall perform the duties of the General Counsel.

Section 4.17  Controller.

        The Controller shall be the chief accounting officer of the corporation and shall have control over all accounting matters concerning the corporation and shall perform such other duties as the Board or the President shall designate.

Section 4.18  Secretary.

        The Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of all meetings of the stockholders, the Board, and its committees, and a share register or a duplicate share register.

        The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board and any committees thereof required by the By-laws or by law to be given, shall keep the seal of the corporation in safe custody, shall from time to time issue such corporate secretarial certificates as may be required for the business and affairs of the corporation, and shall have such other general powers and duties of management usually vested in the office of secretary of a corporation and as may be prescribed by the Board, the President or the By-laws.

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Section 4.19  Assistant Secretary.

        One or more Assistant Secretaries, if any, shall perform such of the duties of the Secretary as the Secretary shall designate, and in the absence or disability of the Secretary, any Assistant Secretary, in order of election to that office by the Board, shall perform the duties of the Secretary.

Section 4.20  Secretary Pro Tempore.

        At any meeting of the Board or of the stockholders from which the Secretary and Assistant Secretary are absent, a Secretary pro tempore may be appointed by the Board or stockholders as appropriate and act.

Section 4.21  Treasurer.

        The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The books of account shall at all times be open to inspection by any director.

        The Treasurer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board pursuant to Section 5.2. The Treasurer shall disburse or cause to be disbursed, the funds of the corporation as may be ordered by the President or the Chief Financial Officer, shall render to the President, the Chief Financial Officer or the directors, whenever they request it, an account of all transactions as Treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the By-laws.

Section 4.22  Assistant Treasurer.

        One or more Assistant Treasurers, if any, shall perform such of the duties of the Treasurer as the Treasurer shall designate, and in the absence or disability of the Treasurer, any Assistant Treasurer, in order of election to that office by the Board, shall perform the duties of the Treasurer.

Section 4.23  Performance of Duties.

        Officers shall perform the duties of their respective offices as stated in these By-laws, and such additional duties as the Board shall designate.

Article V—Other Provisions

Section 5.1  Inspection of By-laws.

        The corporation shall keep in its principal executive office the original or a copy of these By-laws, as amended to date, which shall be open to inspection by stockholders at all reasonable times during office hours.

Section 5.2  Contracts and Other Instruments, Loans, Notes and Deposit of Funds.

        The Chairman of the Board, the Vice Chairman of the Board, the President and any Vice President of this corporation, either alone or with the Secretary or an Assistant Secretary, shall execute in the name of the corporation such written instruments as may be authorized by the Board and, without special direction of the Board, such instruments as transactions of the ordinary business of the corporation may require and, such officers without the special direction of the Board may authenticate, attest or countersign any such instruments when deemed appropriate. The Board may authorize any person, persons, entity, entities, attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or agents,

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to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

        No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the Board as it may direct. Such authority may be general or confined to specific instances.

        All checks, drafts, or other similar orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as the Board, Chief Executive Officer, Chief Financial Officer or Treasurer may direct.

        Unless authorized by the Board or these By-laws, no officer, agent, employee or any other person or persons shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount.

        All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board may direct.

Section 5.3  Representation of Shares of Other corporations.

        The President or any other officer or officers authorized by the Board or the President are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officer.

Section 5.4  Fiscal Year and Subdivisions.

        The calendar year shall be the corporate fiscal year of the corporation. For the purpose of paying dividends, for making reports and for the convenient transaction of the business of the corporation, the Board may divide the fiscal year into appropriate subdivisions.

Section 5.5  Record Owners.

        The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.

Section 5.6  Construction and Definitions.

        Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the DGCL shall govern the construction of these By-laws.

Article VI—Indemnification

Section 6.1    Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation.    Subject to Section 6.3 of this Article, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of

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the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful.

Section 6.2    Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the corporation.    Subject to Section 6.3 of this Article VI, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged or found to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 6.3    Authorization of Indemnification.    Any indemnification under this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 6.1 or Section 6.2 of this Article, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the corporation. To the extent, however, that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 6.4    Good Faith Defined.    For purposes of any determination under Section 6.3 of this Article, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the corporation or another enterprise, or on information supplied to such person by the officers of the corporation or

13

another enterprise in the course of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or another enterprise. The term "another enterprise" as used in this Section 6.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 6.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 6.1 or 6.2 of this Article, as the case may be.

Section 6.5    Indemnification by a Court.    Notwithstanding any contrary determination in the specific case under Section 6.3 of this Article, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 6.1 and 6.2 of this Article. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 6.1 or 6.2 of this Article, as the case may be. Neither a contrary determination in the specific case under Section 6.3 of this Article nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 6.5 shall be given to the corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 6.6    Expenses Payable in Advance.    Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article VI.

Section 6.7  Indemnification of Employees and Agents.

        A person who was or is a party or is threatened to be made a party to or is involved in any proceeding by reason of the fact that he or she is or was an employee or agent of this corporation or is or was serving at the request of this corporation as an employee or agent of another enterprise, including service with respect to employee benefit plans, whether the basis of such action is an alleged action or inaction in an official capacity or in any other capacity while serving as an employee or agent, may, subject to the terms of any agreement between this corporation and such person, be indemnified and held harmless by this corporation to the fullest extent permitted by Delaware law and the Certificate of Incorporation, against all costs, charges, expenses, liabilities, and losses, (including attorneys' fees, judgments, fines, Employee Retirement Income Security Act excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith.

Section 6.8  Right of Directors and Officers to Bring Suit.

        If a claim under Section 6.1 or Section 6.2 of this Article is not paid in full by this corporation within thirty (30) days after a written claim has been received by this corporation, the claimant may at any time thereafter bring suit against this corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. Neither the failure of this corporation (including its Board, independent legal counsel, or its

14

stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by this corporation (including its Board, independent legal counsel, or its stockholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption for the purpose of an action that the claimant has not met the applicable standard of conduct.

Section 6.9  Successful Defense.

        Notwithstanding any other provisions of this Article, to the extent that a director or officer has been successful on the merits in defense of any proceeding referred to in Section 6.1 or in Section 6.2 or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred in connection therewith.

Section 6.10  Nonexclusively of Rights.

        The indemnification and advancement of expenses provided by or granted pursuant to this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Sections 6.1 and 6.2 of this Article shall be made to the fullest extent permitted by law. The provisions of this Article shall not be deemed to preclude the indemnification of any person who is not specified in Section 6.1 or 6.2 of this Article but whom the corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.

Section 6.11  Survival of Indemnification and Advancement of Expenses.

        The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 6.12  Limitation on Indemnification.

        Notwithstanding anything contained in this Article to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 6.5 hereof), the corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board (other than a suit permitted by Section 6.8 of this Article). Any indemnification under this Article (unless ordered by a court) to be made by the corporation is further subject to the following limitations: (A) the corporation shall indemnify any such person seeking indemnification in connection with settlement of a proceeding (or part thereof), other than a proceeding by or in the name of this corporation, to procure a judgment in its favor only if any settlement of such a proceeding is approved in writing by the corporation; and (B) that no such person shall be indemnified (i) except to the extent that the aggregate of losses to be indemnified exceeds the amount of such losses for which the director or officer is paid pursuant to any directors' and officers' liability insurance policy maintained by the corporation; (ii) on account of any suit in which judgment is rendered against such person for an accounting of profits made from the purchase or sale by such person of securities of the corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any foreign federal, state, or local statutory law or regulation; (iii) if a court of

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competent jurisdiction finally determines that any indemnification hereunder is unlawful; and (iv) as to circumstances in which indemnity is expressly prohibited by any provision of the DGCL.

Section 6.13  Insurance.

        This corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of this corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not this corporation would have the power to indemnify such person against such expense, liability, or loss under the Law.

Section 6.14  Expenses as a Witness.

        To the extent that any director, officer, employee, or agent of this corporation is, by reason of such position or a position with another entity at the request of this corporation, a witness in any action, suit, or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her on his or her behalf in connection therewith.

Section 6.15  Indemnity Agreements.

        This corporation may enter into agreements with any director, officer, employee, or agent of this corporation providing for indemnification to the fullest extent permissible under the DGCL and the Certificate of Incorporation.

Section 6.16  Severability.

        Each and every paragraph, sentence, term, and provision of this Article is separate and distinct so that if any paragraph, sentence, term, or provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of any other paragraph, sentence, term, or provision hereof. To the extent required, any paragraph, sentence, term, or provision of this Article may be modified by a court of competent jurisdiction to preserve its validity and to provide the claimant with, subject to the limitations set forth in this Article and any agreement between this corporation and claimant, the broadest possible indemnification permitted under applicable law.

Section 6.17  Certain Definitions.

        For purposes of this Article, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article , references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article.

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Section 6.18  Effect of Repeal or Modification.

        Any repeal or modification of this Article shall not adversely affect any right of indemnification of a director or officer existing at the time of such repeal or modification with respect to any action or omission occurring prior to such repeal or modification.

Article VII—Amendments

Section 7.1  Amendments.

        These By-laws may be amended or repealed, in whole or in part, or new By-laws may be adopted either by the holders of a majority of the outstanding capital stock entitled to vote thereon or by the approval of the Board; provided, however, that notice of such amendment, repeal or adoption of new By-laws be contained in the notice of such meeting of stockholders or Board, as the case may be; and provided, further, that a By-law specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable Board or vice versa may only be adopted by approval of the holders of a majority of the outstanding capital stock entitled to vote thereon. The exact number of directors within the maximum and minimum number specified in these By-laws may be amended by the Board alone.

[End of By-laws]

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Exhibit 3.2

EDISON MISSION ENERGY
INDEX
BY-LAWS
Article I—Offices
Article II—Stockholders
Article III—Directors
Article IV—Officers
Article V—Other Provisions
Article VI—Indemnification
Article VII—Amendments

EX-31.1

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Exhibit 31.1

CERTIFICATIONS

I, Ronald L. Litzinger, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Edison Mission Energy (the "quarterly report");

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;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d)

Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

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

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2008
/s/ Ronald L. Litzinger Ronald L. Litzinger
Chairman of the Board, President and
Chief Executive Officer

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Exhibit 31.1

CERTIFICATIONS

EX-31.2

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Exhibit 31.2

CERTIFICATIONS

I, W. James Scilacci, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Edison Mission Energy (the "quarterly report");

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;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d)

Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

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

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2008
/s/ W. James Scilacci W. James Scilacci
Senior Vice President and Chief
Financial Officer

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Exhibit 31.2

CERTIFICATIONS

EX-32

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Exhibit 32

STATEMENT PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the accompanying Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (the "Quarterly Report") of Edison Mission Energy (the "Company"), and pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies, to the best of his knowledge and belief, that:

1.

The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

2.

The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ronald L. Litzinger Ronald L. Litzinger
Chief Executive Officer
Edison Mission Energy

/s/ W. James Scilacci W. James Scilacci
Chief Financial Officer
Edison Mission Energy

        This statement accompanies the Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

        A signed original of this written statement required by Section 906 has been provided to Edison Mission Energy and will be retained by Edison Mission Energy and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32

STATEMENT PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002