Preview | Settlement Agreement and Release |

This Settlement Agreement and Release (this ?Agreement?) is dated as of May 30, 2006, by and among (i) Potomac Electric Power Company (?Pepco?); Conectiv Energy Supply, Inc.; Pepco Energy Services, Inc.; Pepco Gas Services, Inc.; Pepco Holdings, Inc.; and Potomac Capital Investment Corporation (Pepco and the other entities identified in this clause (i) are referred to herein collectively as the ?Pepco Settling Parties?) and (ii) Mirant Corporation (?New Mirant?); Mirant Power Purchase, LLC, f/k/a Mirant Oregon, LLC (?MPP?); MC 2005, LLC, f/k/a Mirant Corporation (?Old Mirant?); Mirant Mid-Atlantic, LLC; Mirant Potomac River, LLC; Mirant Chalk Point, LLC; Mirant Piney Point, LLC; Mirant MD Ash Management, LLC; Mirant Energy Trading, LLC; Mirant Services, LLC; and the MC Plan Trust (as defined in Schedule 1) (New Mirant and the other entities identified in this clause (ii) are referred to herein collectively as the ?Mirant Settling Parties?).

WHEREAS, on June 7, 2000, Old Mirant, f/k/a Southern Energy, Inc., and Pepco executed and delivered an Asset Purchase and Sale Agreement for Generating Plants and Related Assets (collectively, with its attachments, schedules and exhibits, as amended from time to time, the ?APSA?);

WHEREAS, under the terms of the APSA, Pepco and Old Mirant entered into a back-to-back arrangement (the ?Back-to-Back Arrangement?) under which, among other rights and obligations as set out in Section II of Schedule 2.4 to the APSA, Pepco was to sell to Old Mirant and Old Mirant was to purchase, at Pepco?s cost, all capacity, energy, ancillary services and other benefits Pepco was entitled to receive under certain existing power purchase agreements that Pepco had entered into with third parties, as identified in a letter dated December 19, 2000, between Pepco and Old Mirant;

WHEREAS, as of the date of this Agreement, the only power purchase agreements subject to the Back-to-Back Arrangement that remain in effect are the Co-Generation and Small Plant Production Services Agreement by and between Pepco and Prince George?s County, Maryland, dated June 1, 1990, and the Power Purchase Agreement by and between Pepco and Panda-Brandywine L.P., effective October 24, 1997 (the ?Panda PPA?);

WHEREAS, under the terms of the APSA, certain of the Mirant Settling Parties entered into Ancillary Agreements or other contracts or leases with Pepco or other Pepco Settling Parties;

WHEREAS, on December 11, 2000, Old Mirant and certain affiliates of Old Mirant (including Mirant Mid-Atlantic, LLC, f/k/a Southern Energy Mid-Atlantic, Inc.; Mirant Potomac River, LLC, f/k/a Southern Energy Potomac River, LLC; Mirant Chalk Point, LLC, f/k/a Southern Energy Chalk Point, LLC, and the successor in interest to Mirant Peaker, LLC, f/k/a Southern Energy Peaker, LLC; Mirant Piney Point, LLC, f/k/a Southern Energy Piney Point, LLC, and f/k/a/ Southern Energy Dickerson, LLC; Mirant MD Ash Management, LLC, f/k/a Southern Energy MD Ash Management, LLC, and the successor in interest to Mirant D.C. O&M, LLC, f/k/a Southern Energy D.C. O&M, LLC, and f/k/a Southern Energy Morgantown, LLC; and Mirant Mid-Atlantic Services, LLC, f/k/a Southern Energy PJM Management, LLC, which affiliates of Old Mirant are collectively referred to herein as the ?Other Mirant Entities?)) executed and delivered an Assignment and Assumption Agreement under which Old Mirant

assigned its rights to certain Auctioned Assets to specified Other Mirant Entities and the specified Other Mirant Entities assumed Old Mirant?s Assumed Obligations pertaining to the assets assigned to them (the ?December 11, 2000 Agreement?);

WHEREAS, pursuant to the December 11, 2000 Agreement, Old Mirant assigned its rights and obligations under the APSA with respect to a Facility and Capacity Credit Agreement, dated March 21, 1989, by and between Southern Maryland Electric Cooperative, Inc. (?SMECO?) and Pepco (?FCC Agreement?) to Mirant Chalk Point, LLC, successor in interest to Mirant Peaker, LLC, f/k/a Southern Energy Peaker, LLC, and assigned its rights and obligations under the APSA with respect to a Site Lease Agreement, dated March 21, 1989, by and between SMECO and Pepco (?Site Lease,? and together with the FCC Agreement, the ?SMECO Agreements?), to Mirant Chalk Point, LLC, f/k/a Southern Energy Chalk Point, LLC.

WHEREAS, on December 18, 2000, Old Mirant and MRAEM, LP, f/k/a Mirant Americas Energy Marketing, LP (?MRAEM?) executed and delivered a PPA and TPA Assignment and Assumption Agreement under which, among other things, Old Mirant assigned to MRAEM, and MRAEM assumed, all of Old Mirant?s rights and obligations with respect to the Back-to-Back Arrangement;

WHEREAS, on December 19, 2000, SMECO, Pepco, and Old Mirant executed and delivered an Agreement and Consent under which SMECO consented to Pepco?s assignment of the SMECO Agreements to Old Mirant or Old Mirant?s permitted assigns;

WHEREAS, on December 19, 2000, Pepco, the Other Mirant Entities, and MRAEM (MRAEM and the Other Mirant Entities are referred to herein collectively as the ?Mirant Entities?) executed and delivered an Assignment and Assumption Agreement under which the Mirant Entities assumed liability for Old Mirant?s Assumed Obligations under the APSA on the terms set forth therein, and disputes exist between Pepco and the Mirant Entities regarding the interpretation of those terms, including disputes as to whether those terms create joint and severable liability and as to what obligations fall within the Assumed Obligations;

WHEREAS, on December 19, 2000, Old Mirant executed and delivered to Pepco a Guarantee Agreement under which Old Mirant absolutely guaranteed the payment and performance of the obligations of the Mirant Entities under the APSA, the Ancillary Agreements, and any other agreement or instrument related thereto;

WHEREAS, Old Mirant and certain of its subsidiaries and affiliates (the ?Debtors?) filed, on July 14-15, 2003, and certain dates thereafter, for protection under chapter 11 of the Bankruptcy Code, which cases are jointly administered as In re Mirant Corporation, et. al. in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the ?Bankruptcy Court?), Case No. 03-46590 (DML) (the ?Case?);

WHEREAS, Pepco filed claims in the Case seeking, in part, the following: $24,699,336.07 under the Back-to-Back Arrangement for power delivered under a power purchase agreement with Ohio Edison Company for the periods June 2003 and July 1-14, 2003; $2,697,271.00 under the Back-to-Back Arrangement for power delivered under the Panda PPA for periods prior to July 14, 2003; $670,028.84 under the FCC Agreement for the periods of June 2003 and July 1-14, 2003; $68,476.45 under various service level agreements provided pre-petition;

and $37,769.90 under Pepco?s General Terms and Conditions for Furnishing Electric Service in Maryland provided pre-petition (collectively, the ?Pre-Petition Claim?);

WHEREAS, on December 9, 2004, the United States District Court for the Northern District of Texas, Fort Worth Division (the ?District Court?), found that the Back-to-Back Arrangement was not severable from the APSA, which decision has been appealed by the Debtors to the United States Court of Appeals for the Fifth Circuit and is not yet a Final Order;

WHEREAS, on December 9, 2005, the Bankruptcy Court entered an order in the Case confirming the Debtors? Amended and Restated Second Amended Joint Chapter 11 Plan of Reorganization for Mirant Corporation and Its Affiliated Debtors (the ?Debtors? Plan?);

WHEREAS, on December 14, 2004, Mirant Mid Atlantic Services, LLC, was dissolved and Mirant D.C. O&M, LLC, f/k/a Southern Energy D.C. O&M, LLC, and f/k/a Southern Energy Morgantown, LLC, merged into Mirant MD Ash Management, LLC;

WHEREAS, on December 16, 2005, Mirant Peaker, LLC, f/k/a Southern Energy Peaker, LLC, merged into Mirant Chalk Point, LLC;

WHEREAS, the Debtors? Plan became effective on January 3, 2006;

WHEREAS, Section 10.14 of the Debtors? Plan and paragraph 123 of the Bankruptcy Court?s order approving the Debtors? Plan provide for the accrual of interest on Pepco?s Pre-Petition Claim and on any other Claims (as defined in the Debtors? Plan) of Pepco as set forth therein;

WHEREAS, pursuant to Section 8.3 of the Debtors? Plan, the MC Plan Trust has become the sole member of Old Mirant and, through various wholly-owned subsidiaries, the successor in interest to MRAEM and MRAREM, LP, f/k/a Mirant Americas Retail Energy Marketing, LP (?MRAREM?), both of which were dissolved on March 2, 2006;

WHEREAS, Section 14.5 of the Debtors? Plan provides that, pending a determination by Final Order of the disputes regarding the Debtors? right to reject the Back-to-Back Arrangement and the APSA and the claims of Pepco thereunder, (i) the Debtors? obligations under the Back-to-Back Arrangement, the APSA, and the Assumption/Assignment Agreements shall be interim obligations of MPP and unconditionally guaranteed by New Mirant, and no other subsidiary of New Mirant shall have any liability with respect to such interim performance, and (ii) any Debtor?s obligations under any other agreement with Pepco or its subsidiaries (including, without limitation, the Ancillary Agreements) shall be interim obligations of such Debtor and unconditionally guaranteed by New Mirant, and no other subsidiary of New Mirant shall have any liability with respect to such interim performance;

WHEREAS, the Pepco Settling Parties and the Mirant Settling Parties have certain disputes with respect to the foregoing matters, including disputes which are currently the subject of litigation, and the Pepco Settling Parties and the Mirant Settling Parties desire to settle, on the terms and conditions described herein, such disputes.

NOW THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Pepco Settling Parties and the Mirant Settling Parties hereby agree as follows:

1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings set forth for such terms in Schedule 1 attached hereto.

2. SETTLEMENT OBLIGATIONS GENERALLY.

(a) Mirant Obligations Regarding Certain Contracts. On (or prior to but effective as of) the Effective Date:

(i) Assumed APSA. Pursuant to Section 365 of the Bankruptcy Code, Old Mirant hereby assumes the APSA, excepting the Back-to-Back Arrangement, which is not assumed (the ?Assumed APSA?), and assigns the Assumed APSA to MPP. The Assumed APSA shall not include any Other Assumed Agreement or SMECO Agreement. MPP hereby accepts the assignment of the Assumed APSA, agrees to cure all defaults under the Assumed APSA (other than defaults that constitute Released Claims Against Mirant) and agrees to discharge and otherwise perform when due, without recourse against Pepco, all obligations and liabilities due to or for the benefit of Pepco thereunder (other than obligations that constitute Released Claims Against Mirant), provided that MPP shall have no liability under any Other Assumed Agreement or SMECO Agreement that is assumed pursuant to Section 2(a)(v) or Section 2(a)(vii) or for any Assumed Obligation that arises under any Other Assumed Agreement or SMECO Agreement that is assumed pursuant to Section 2(a)(v) or Section 2(a)(vii).

(ii) Panda PPA Consent. Old Mirant and MPP hereby acknowledge and agree that, by execution of this Agreement, each of Old Mirant and MPP are deemed to have provided each of the consents contemplated by paragraphs 3(a)(2), 3(a)(3), 3(a)(4) and 5(a) of the January 8, 2004, letter agreement by and between Panda-Brandywine L.P. and Pepco. Notwithstanding the foregoing, none of the Mirant Settling Parties shall be liable to Pepco for any of the sums paid or payable by Pepco to Panda-Brandywine, L.P. pursuant to paragraphs 1, 4 or 8 of the letter agreement.

(iii) Unwind Agreement. The parties hereto agree and acknowledge that the Unwind Agreement for the Panda PPA, as set out in paragraph 3 of the December 19, 2000, letter agreement by and between Pepco and Old Mirant regarding ?Settlement of Outstanding Issues,? as subsequently modified, has expired and that no purchase price adjustment is owed.

(iv) Guaranty of Assumed APSA. New Mirant shall unconditionally guarantee MPP?s performance of all obligations due to or for the benefit of Pepco under the Assumed APSA pursuant to, and on or prior to the Effective Date shall enter into, a guaranty agreement substantially in the form attached hereto as Exhibit 2(a)(iv).

(v) Other Assumed Agreements. Pursuant to Section 365 of the Bankruptcy Code, each Mirant Settling Party that is a party to an Ancillary Agreement or other executory contract or unexpired lease identified on Schedule 2(a)(v) attached hereto (collectively, the ?Other Assumed Agreements?) hereby assumes each Other Assumed Agreement to which it is a party and, unless such Mirant Settling Party is identified next to the name of such agreement on

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