Mirant to pay $460m to settle California energy crisis claims

Bankrupt Atlanta-based energy marketer Mirant will pay $460 million to California power utilities and public agencies to resolve claims related to the state’s energy crisis in 2000 and 2001. The California utilities and agencies in the settlement were asserting claims against Mirant and its subsidiaries for billions of dollars of undelivered electricity.

Under the settlement, Mirant subsidiary Mirant Americas Energy Marketing (MAEM) will assign $283 million of unpaid receivables to the California parties. The parties involved are PG&E, Southern California Edison, San Diego Gas & Electric, the California Attorney General, the California Public Utilities Commission (CPUC), the California Department of Water Resources (DWR) and the California Electricity Oversight Board.

The amount will be divided among the parties and any other market participants that choose to opt into the settlement.

The California parties will also receive an unsecured claim of $175 million against MAEM, and DWR will receive an additional unsecured claim of $2.25 million. When Mirant emerges from Chapter 11 bankruptcy protection, those claims will be compensated on the same basis as other claims against MAEM.

PG&E will receive proceeds of $63 million under Mirant’s plan of reorganisation. Mirant will also either transfer ownership of the partially completed 530-megawatt gas-fired Contra Costa Unit 8 power plant and associated turbines to PG&E; or PG&E will receive an additional amount of up to $85 million.

Mirant and PG&E will also enter into long-term power purchase agreements under which PG&E will dispatch and receive the output of certain Mirant power plants in north California.

The agreement will release Mirant from liability for claims related to all transactions in the western energy markets from January 1, 1998 to July 14, 2003.

The CPUC approved the settlement yesterday. However, the Federal Energy Regulatory Commission has not yet approved it, nor have the two respective bankruptcy courts overseeing the Chapter 11 proceedings of Mirant and PG&E.

Mirant said the agreement removes significant financial uncertainty that could have affected its Chapter 11 reorganisation plan, which it is due to file with the Bankruptcy Court by the end of January.

Mirant said it will file its reorganisation plan later this month and plans to emerge from Chapter 11 in mid-2005. It was originally due to file the plan by December 31, but obtained an extension to the deadline – its third such postponement.