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

Form 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2002

or

For the transition period from                              to                             

Commission file number 333-59348

MIDWEST GENERATION, LLC
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (312) 583-6000

        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

        Number of units outstanding of the registrant's Membership Interests as of August 9, 2002: 100 units (all units held by an affiliate of the registrant).

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MIDWEST GENERATION, LLC

BALANCE SHEETS

(In thousands)

The accompanying notes are an integral part of these financial statements

1

MIDWEST GENERATION, LLC

BALANCE SHEETS

(In thousands)

The accompanying notes are an integral part of these financial statements

2

MIDWEST GENERATION, LLC

STATEMENTS OF OPERATIONS

(In thousands)

The accompanying notes are an integral part of these financial statements

3

MIDWEST GENERATION, LLC

STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

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

4

MIDWEST GENERATION, LLC

STATEMENTS OF CASH FLOWS

(In thousands)

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

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MIDWEST GENERATION, LLC

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands)

Note 1. General

        All adjustments, including recurring accruals, have been made that are necessary to present fairly the financial position and results of operations for the periods covered by this report. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the operating results for the full year.

        Our significant accounting policies are described in Note 2 to our financial statements as of December 31, 2001, included in our 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002. We follow the same accounting policies for interim reporting purposes. This quarterly report should be read in connection with such financial statements.

        Certain prior period amounts have been reclassified to conform to the current period financial statement presentation.

Industry Developments

        A number of recent significant developments have adversely affected not only those companies primarily focused on the trading of electricity but also those independent power producers who sell a sizable portion of their generation, not pursuant to long-term contracts, but rather into the wholesale energy market. Often referred to as merchant generators, the financial performance of these companies has been affected by one or more of the following:

•

a decline in the wholesale prices of energy caused, in part, by a substantial addition of new generating capacity, as well as weak growth in near term demand for electricity, creating oversupply in many regions of the United States;



•

the bankruptcy of Enron and the subsequent disclosure of its having engaged in questionable trading strategies;



•

the disclosure by a number of major energy companies of having engaged in wash trading (generally referring to two countervailing trades between the same counterparties at the same time for the same quantity and price), and the subsequent investigation of these activities by the United States Congress and various federal agencies;



•

the deterioration of the credit ratings and stock valuations of a number of the major merchant generators and energy trading companies; and



•

the decline of liquidity in the energy markets as a result of tightening credit and increasing concern about the ability of counterparties to perform against longer term obligations.

        As a result, many merchant generators and power trading firms have announced plans to improve their financial position through asset sales, the cancellation or deferral of substantial new development, decreases in capital expenditures, reductions in operating costs and the issuance of equity.

Our Situation

        Our plants have been largely unaffected by these developments this year, because Exelon Generation is under contract with us to buy substantially all of the capacity of our units for the balance of 2002. However, as permitted by the contracts governing our coal-fired units, Exelon Generation has advised us that they will not exercise their right to purchase 2,684 MW of the capacity of these units for 2003 and 2004. As a result, beginning in 2003, the portion of our generation to be sold into the

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wholesale markets will significantly increase, thereby increasing our merchant risk. See "Management's Discussion and Analysis of Results of Operations and Financial Condition—Market Risk Exposures."

        In addition, our credit rating and the credit ratings of our parent, Edison Mission Midwest Holdings, our indirect parent, Edison Mission Energy, and our marketing affiliate, Edison Mission Marketing & Trading, are under review for possible downgrade below investment grade by Moody's and Standard & Poor's due to industry developments, lower wholesale energy prices and the increase in our merchant risk beginning in 2003, as described above. See "Management's Discussion and Analysis of Results of Operations and Financial Condition—Credit Ratings."

        Against this background, we have:

•

initiated a review of our capital expenditure program to determine whether individual projects appropriately can be delayed or cancelled;



•

announced that beginning in January 2003 operations will be suspended at Units 1 and 2 of our Will County plant; and



•

initiated a company-wide review of our organization and related costs.

        For a discussion of our current financial condition, see "Management's Discussion and Analysis of Results of Operations and Financial Condition—Liquidity and Capital Resources."

Note 2. Accumulated Other Comprehensive Income

        Accumulated other comprehensive income consisted of the following:

        Unrealized gains on cash flow hedges at June 30, 2002 include forward energy sales contracts that did not meet the normal sales and purchases exception under SFAS No. 133. These gains arise because current forecasts of future electricity prices are lower than our contract prices. As our hedged positions are realized, approximately $0.4 million, after tax, of the net unrealized gains on cash flow hedges will be reclassified into earnings during the next twelve months. The maximum period over which we have designated a cash flow hedge is two years.

Note 3. Commitments and Contingencies

Commercial Commitments

        The following table summarizes our commercial commitments as of June 30, 2002.

Capital Expenditures

        The Company's capital expenditures for the remainder of 2002 are estimated to be $50.3 million. The Company has anticipated that upgrades to its environmental controls to reduce nitrogen oxide emissions will result in expenditures of approximately $317.5 million for the periods 2003 - 2005. As a

7

result of changes in the merchant energy marketplace, the Company is evaluating its capital expenditure program, including environmental improvements. At June 30, 2002, the Company has capitalized $33.5 million as construction in progress related to environmental improvements. The Company is currently updating its capital expenditure program and evaluating whether to proceed, delay or cancel individual projects. The Company expects to complete the update of its capital expenditure program by the end of 2002.

        On August 9, 2002, the Company exercised its option to purchase the Illinois peaker power units that were subject to a lease with a third-party lessor. As disclosed in "Off-Balance Sheet Transactions" in the Company's 2001 Annual Report on Form 10-K, this operating lease was structured to maintain a minimum amount of equity (3% of the acquisition price) for the duration of the lease term in accordance with existing guidance for leases involving special purpose entities (sometimes referred to as synthetic leases). This transaction represents the only synthetic lease that the Company had outstanding at June 30, 2002. In order to effect the exercise of the Company's purchase option, it obtained repayment of its $300 million loan plus interest from Edison Mission Energy and paid $300 million plus outstanding amounts due under the lease to the owner-lessor. The purchase of these peaker units will be recorded as an asset and depreciated over their estimated useful life.

Power Purchase Agreements

        Electric power generated at the Company's power generation plants is sold under three power purchase agreements with Exelon Generation, under which Exelon Generation purchases capacity and has the right to purchase energy generated by the power generation plants. The Company initially entered into agreements with Commonwealth Edison, which we refer to as ComEd, on December 15, 1999, which were assigned to Exelon Generation in January 2001. The power purchase agreements have a term of up to five years and provide for capacity and energy payments. Exelon Generation is obligated to make capacity payments for the power generation plants under contract and energy payments for the electricity produced by these plants and taken by Exelon Generation. The capacity payments provide the power generation plants revenue for fixed charges, and the energy payments compensate the power generation plants for variable costs of production.

        Under the power purchase agreement related to our coal-fired generation units, Exelon Generation had the option, exercisable not later than 180 days prior to January 1, 2003, to retain under the terms of the agreement for 2003 the capacity of certain option units having a capacity of 3,949 MW, with any such capacity not retained being released after January 1, 2003 from the terms of the agreement. Exelon Generation continues to have a similar option, exercisable not later than 180 days prior to January 1, 2004, to retain or release for 2004 all or a portion of the option units retained for 2003. It remains committed to purchase the capacity of certain committed units having 1,696 MW of capacity for both 2003 and 2004.

        In July 2002, Exelon Generation notified us of its exercise of its option to purchase 1,265 MW of capacity and energy during 2003 (of a possible total of 3,949 MW subject to option) from the option units. As a result, 2,684 MW of capacity of the Will County 1 and 2, Joliet 6 and 7, and Powerton 5 and 6 units will no longer be subject to the power purchase agreement after January 1, 2003. We plan to sell the energy and capacity from the released units through a combination of bilateral agreements, forward sales and spot market sales. The notification received from Exelon Generation has no effect on its commitments to purchase capacity from these units for the balance of 2002.

        Exelon Generation also has the option, which it may exercise on or before October 2, 2002, to terminate the power purchase agreements related to the Collins Station and the peaker plants effective as of January 1, 2003. We are unable to predict whether Exelon will exercise this option as to any of the Collins or peaker units. The exercise of these options will have no effect on Exelon's commitments to purchase capacity from these units for the remainder of 2002.

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        In July 2002, we and Exelon Generation amended the power purchase agreement related to our peaker plants to reinstate, as of July 1, 2002, within the terms of that agreement four of the oil peaker units at our Fisk Station with a capacity of 160 MW. These units had been released from the terms of that agreement by Exelon Generation's previous exercise of its options.

        If Exelon Generation does not fully dispatch the power generation plants under contract, the power generation plants may sell, subject to specified conditions, the excess energy at market prices to neighboring utilities, municipalities, third-party electric retailers, large consumers and power marketers on a spot basis. A bilateral trading infrastructure already exists with access to the Mid-America Interconnected Network and the East Central Area Reliability Council.

Additional Gas-Fired Generation

        Pursuant to the acquisition documents for the purchase of generating assets from Commonwealth Edison, the Company committed to install one or more gas-fired electric generating units having an additional gross dependable capacity of 500 MW at or adjacent to an existing power plant site in Chicago. The acquisition documents require that commercial operation of this project commence by December 15, 2003. Due to additional capacity for new gas-fired generation in the Mid-America Interconnected Network, generally referred to as the MAIN Region, and the improved reliability of power generation in the Chicago area, we have undertaken preliminary discussions with Commonwealth Edison, Exelon Generation, and the City of Chicago regarding alternatives to construction of 500 MW of capacity, which we do not believe is needed at this time. If the Company were to install this additional capacity, the Company estimates that the cost could be as much as $320 million.

Environmental Matters

        The Company is subject to environmental regulation by federal, state and local authorities in the United States. The Company believes that, as of the date of this report, it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial position or results of operations. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, and future proceedings which may be taken by environmental authorities, could affect the costs and the manner in which the Company conducts its business and could cause the Company to make substantial additional capital expenditures. There is no assurance that the Company would be able to recover these increased costs from its customers or that its financial position and results of operations would not be materially adversely affected.

Interconnection Agreements

        The Company has entered into interconnection agreements with Commonwealth Edison to provide interconnection services necessary to connect its Illinois Plants with their transmission systems. Unless terminated earlier in accordance with the terms thereof, the interconnection agreements will terminate on a date mutually agreed to by both parties. This date may not exceed the retirement date of the Illinois Plants. The Company is required to compensate Commonwealth Edison for all reasonable costs associated with any modifications, additions or replacements made to the interconnection facilities or transmission systems in connection with any modification, addition or upgrade to its Illinois Plants.

Guaranty of Debt of Edison Mission Midwest Holdings and Pledge of Ownership Interests

        The Company has guaranteed Edison Mission Midwest Holdings' (its parent) third-party debt in the amount of $1.7 billion at June 30, 2002. The Company's parent also pledged the membership interests in the Company to the lenders in connection with the third-party debt arrangements.

9

Collective Bargaining Agreement

        Approximately 72% of the Company's workforce was covered by a collective bargaining agreement at June 30, 2002. The collective bargaining agreement is due to expire on December 31, 2005. The Company also has a retirement health care and other benefits plan related to its represented employees that expired on June 15, 2002. While negotiations are ongoing, the Company will continue to provide the same level of benefits until changes are made through the negotiation process.

        As described in the Company's 2001 Annual Report on Form 10-K, it has accounted for postretirement benefits obligations on the basis of a substantive plan under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." A substantive plan means that the Company is assuming for accounting purposes that it will provide for postretirement benefits to union-represented employees following conclusion of negotiations to replace the current benefits agreement, even though it has no legal obligation to do so. If no postretirement benefits are provided, the Company would treat this as a plan termination under SFAS No. 106 and record a gain. The negotiations regarding these benefits plans are in progress and the Company expects to finalize an agreement prior to the end of 2002, although it cannot provide any assurance that these negotiations will be completed on this schedule.

Note 4. Supplemental Statements of Cash Flows Information

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

        The following discussion contains forward-looking statements that reflect our current expectations and projections about future events based on our knowledge of present facts and circumstances and our assumptions about future events. In this discussion, the words "expects," "believes," "anticipates," "estimates," "intends," "plans" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements necessarily involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Important factors that could cause differences are set forth under "—Credit Ratings" and "—Market Risk Exposures" below, and under "—Risk Factors" in the Management's Discussion and Analysis of Results of Operations and Financial Condition included in Item 7 of Midwest Generation, LLC's Annual Report on Form 10-K for the year ended December 31, 2001. The information contained in this discussion is subject to change without notice. Unless otherwise indicated, the information presented in this section is with respect to Midwest Generation, LLC.

        The Management's Discussion and Analysis of Results of Operations and Financial Condition of this Form 10-Q discusses material changes in the results of operations, financial condition and other developments of Midwest Generation, LLC since December 31, 2001, and as compared to the second quarter and six months ended June 30, 2001. This discussion presumes that the reader has read or has access to the Management's Discussion and Analysis of Results of Operations and Financial Condition included in Item 7 of Midwest Generation, LLC's Annual Report on Form 10-K for the year ended December 31, 2001.

General

        We are a special-purpose Delaware limited liability company formed on July 12, 1999 for the purpose of owning or leasing, making improvements to and operating the power generation assets we purchased from Commonwealth Edison. We are a wholly-owned subsidiary of Edison Mission Midwest Holdings Co., an indirect wholly-owned subsidiary of Edison Mission Energy and an indirect wholly-owned subsidiary of Edison International.

        In connection with the acquisition of the power generation assets, we entered into three five-year power purchase agreements for the coal-fired stations, the Collins Station, and the peaker stations, with Commonwealth Edison. Subsequently, Commonwealth Edison, which we refer to as ComEd, assigned its rights and obligations under these power purchase agreements to Exelon Generation. We currently derive virtually all of our energy and capacity revenues from Exelon Generation under these power purchase agreements. For more information on these power purchase agreements, including Exelon Generation's notice of amount of capacity and energy purchases for 2003, see "—Market Risk Exposures."

        We have entered into a contract with a marketing affiliate for scheduling and related services and to market energy that has not been committed to be sold under the power purchase agreements with Exelon Generation and to engage in hedging activities. The marketing affiliate also purchases fuel, other than coal, and enters into fuel hedging arrangements on our behalf.

        Under the terms of the power purchase agreements with Exelon Generation, we receive significantly higher capacity payments during June through September, the summer months. Accordingly, our operating results are substantially higher during these months and lower, including expected losses, during non-summer months.

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Industry Developments

        A number of significant recent developments have adversely affected not only those companies primarily focused on the trading of electricity but also those independent power producers who sell a sizable portion of their generation, not pursuant to long-term contracts, but rather into the wholesale energy market. Often referred to as merchant generators, the financial performance of these companies has been affected by one or more of the following:

•

a decline in the wholesale prices of energy caused, in part, by a substantial addition of new generating capacity, as well as weak growth in near term demand for electricity, creating oversupply in many regions of the United States;



•

the bankruptcy of Enron and the subsequent disclosure of its having engaged in questionable trading strategies;



•

the disclosure by a number of major energy companies of having engaged in wash trading (generally referring to two countervailing trades between the same counterparties at the same time for the same quantity and price), and the subsequent investigation of these activities by the United States Congress and various federal agencies;



•

the deterioration of the credit ratings and stock valuations of a number of the major merchant generators and energy trading companies; and



•

the decline of liquidity in the energy markets as a result of tightening credit and increasing concern about the ability of counterparties to perform against longer term obligations.

        As a result, many merchant generators and power trading firms have announced plans to improve their financial position through asset sales, the cancellation or deferral of substantial new development, decreases in capital expenditures, reductions in operating costs and the issuance of equity.

Our Situation

        Our plants have been largely unaffected by these developments this year, because Exelon Generation is under contract with us to buy substantially all of the capacity of our units for the balance of 2002. However, as permitted by the contracts governing our coal-fired units, Exelon Generation has advised us that they will not exercise their right to purchase 2,684 MW of the capacity of these units for 2003 and 2004. As a result, beginning in 2003, the portion of our generation to be sold into the wholesale markets will significantly increase, thereby increasing our merchant risk. See "—Market Risk Exposures."

        In addition, our credit rating and the credit ratings of our parent, Edison Mission Midwest Holdings, our indirect parent, Edison Mission Energy, and our marketing affiliate, Edison Mission Marketing & Trading, are under review for possible downgrade below investment grade by Moody's and Standard & Poor's due to industry developments, lower wholesale energy prices and the increase in our merchant risk beginning in 2003, as described above. See "Management's Discussion and Analysis of Results of Operations and Financial Condition—Credit Ratings."

        Against this background, we have:

•

initiated a review of our capital expenditure program to determine whether individual projects appropriately can be delayed or cancelled;



•

announced that beginning in January 2003 operations will be suspended at Units 1 and 2 of our Will County plant; and



•

initiated a company-wide review of our organization and related costs.

        For a discussion of our current financial condition, see "—Liquidity and Capital Resources."

12

Results of Operations

Operating Revenues

        Operating revenues increased $26.9 million and $15.4 million in the second quarter and six months ended June 30, 2002, respectively, compared to the corresponding periods of 2001. The second quarter increase is primarily due to higher capacity revenue from our Collins and coal stations, higher energy revenue from scheduled price increases, and lower losses from price risk management. The increase during the six months ended June 30, 2002 is primarily due to higher capacity revenue from our Collins and coal stations and lower losses from price risk management, partially offset by lower generation overall. For both of the first six months of 2002 and 2001, 98% of our total capacity and energy revenues were derived under our three power purchase agreements with Exelon Generation.

        Our coal stations generated 6,169 GWh and 12,403 GWh of electricity during the second quarter and six months ended June 30, 2002, respectively, compared to generating 6,193 GWh and 13,143 GWh of electricity in the corresponding periods of 2001. The availability factors for the first six months of 2002 and 2001 were 79.5% and 75.4%, respectively. The availability factor is determined by the number of megawatt hours we are available to generate electricity divided by the number of megawatt hours in the period. We are not available during periods of planned and unplanned maintenance. We generally refer to unplanned maintenance as a forced outage. We had forced outage rates of 6.4% and 11.9% during the six months ended June 30, 2002 and 2001, respectively. The weighted average price for energy was $18.57/MWh during the first six months of 2002, compared to $18.02/MWh in the corresponding period of 2001. The increase in the weighted average price for energy is due to scheduled price increases in our power purchase agreement.

        Loss from price risk management activities decreased $13.7 million and $5.9 million in the second quarter and six months ended June 30, 2002, respectively, compared to the corresponding periods of 2001. Income or loss from price risk management activities results from the change in market value of our futures contracts with respect to a portion of our anticipated fuel purchases that did not qualify for hedge accounting under SFAS No. 133.

Operating Expenses

        Operating expenses decreased $19.6 million and $33.5 million in the second quarter and six months ended June 30, 2002, respectively, compared to the corresponding periods of 2001. Operating expenses consist of expenses for fuel, plant operations, depreciation and amortization and administrative and general expenses. The change in the components of operating expenses is discussed below.

        Fuel expenses decreased $9.3 million and $27.1 million in the second quarter and six months ended June 30, 2002, respectively, compared to the corresponding periods of 2001. The decreases were primarily due to the consumption of natural gas in 2002 versus fuel oil in 2001 at the Collins Station, since natural gas costs were lower during the first six months of 2002 compared to the cost of fuel during the first six months of 2001.

        Plant operations expenses decreased $12.2 million and $10.6 million in the second quarter and six months ended June 30, 2002, respectively, compared to the corresponding periods of 2001. The decreases were primarily due to lower maintenance costs from fewer forced outages and lower rent expense on our Il