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CA Governor Lauds Mirant Settlement as Consumer 'Victory'

CA Governor Lauds Mirant Settlement as Consumer 'Victory'

California Gov. Arnold Schwarzenegger issued an impassioned statement declaring "another victory" with the proposed settlement for up to $750 million with Chapter 11 bankruptcy-immersed Mirant Corp. The governor promised that any net paybacks from this and other earlier settlements will be used to lower electric rates for private-sector utility customers.

The settlement, which must be approved by the Federal Energy Regulatory Commission and federal bankruptcy court, does not cover pending ratepayer class action lawsuits against Mirant, or claims by the California Independent System Operator (CAISO), or the now-defunct California Power Exchange (Cal-PX), which still has more than a billion dollars in collateral and other funds to eventually distribute.

"This is yet another victory for California electricity ratepayers who were overcharged during the energy crisis by energy companies," said Schwarzenegger in a prepared statement in which the governor took credit for approving similar multi-million-dollar settlements with Dynegy and Duke Energy last year.

"I will continue to seek justice from those who unfairly profited. One of my chief energy goals is to create lower prices for residents and businesses across California. Today's settlement is another small step in achieving that goal and in moving beyond energy crisis to achieve energy stability."

California now has reached nine power crisis-related settlements, totaling $3.38 billion, with $2.57 billion of that amount representing the potential ratepayer relief, according to state officials. Schwarzenegger's office says the state will continue to seek settlement with companies its feels overcharged California, and it has posted the latest settlement details on the Department of Water Resources (DWR) web site (www.cers.water.ca.gov).

Including its various qualifiers, the settlement covers a broad period -- all of the transactions with Mirant, Mirant Americas Energy Marketing LP, and all of Mirant's California subsidiaries -- releasing the energy suppliers from liability for claims related to western energy market transactions from Jan. 1, 1998 to July 14, 2003, including all claims for refunds asserted by the California parties in proceedings pending before the FERC.

Mirant stressed in its prepared statement on the settlement that a bankruptcy court ruling last month, given orally by the judge, indicated the court "would deny class status with respect to the claims filed in the bankruptcy proceedings by plaintiffs in the ratepayer suits, which would substantially reduce the potential exposure of Mirant and its subsidiaries with respect to those claims by limiting the claims to the damages, if any, incurred by the individual plaintiffs."

The California Attorney General's (AG) Office in its reaction clarified that the settlement resolves the refund and reliability-must-run (RMR) contract claims, and in addition ends two lawsuits filed by the AG: (1) alleged violations of federal antitrust laws and (2) state commodities fraud laws. "The settlement would preserve the AG's right to pursue claims based on fraud or criminal conduct," said the office's spokesperson, who noted this is the ninth settlement tied to the 2000-2001 energy crisis that the AG's energy task force has produced over the past four years.

Mirant's COO Curt Morgan said this should allow the company to put the allegations behind and focus on emerging from Chapter 11 bankruptcy proceedings. "We expect this settlement will provide the foundation for a positive relationship between Mirant and the State of California," Morgan said in the company's prepared statement issued in Atlanta.

Although they both used different figures to quantify the upside value of the proposed settlement, the California AG and CPUC agreed that the deal should resolve claims for overcharges in the western electric and natural gas markets, including the FERC refund proceeding and related appeals, along with the CPUC's litigation over a long-term contract between Mirant and the California DWR. The AG called it a nearly $750 million deal; the CPUC put a "conservative value of $519 [million] to $559 million."

The ultimate value of the bankruptcy claim will not be known until Mirant's Chapter 11 proceeding is completed, the AG's spokesperson said.

"Given Mirant's bankruptcy, this is an excellent settlement for Californians because we will recover more than $320 million wrongfully taken from our pockets," Attorney General Bill Lockyer said, adding that he hoped the reorganized Mirant's management will "work constructively with California to make sure history does not repeat itself."

Morgan said Mirant "continues to believe that it did not violate any laws in its power sales transactions in California; however, the parties in this settlement were asserting claims against Mirant and its subsidiaries for billions of dollars."

The proposed settlement calls for Mirant to pay $320 million as an offset to unpaid bills "owed" the energy supplier by western utilities, which California officials maintained were amounts the company gouged from the utilities with inflated wholesale prices. California parties also will be able to claim up to $175 million against Mirant in the Chapter 11 case, the AG's spokesperson said.

Pacific Gas and Electric Co. also would receive about $250 million in power, generation assets and other considerations to resolve allegations that Mirant overcharged for electricity provided to the PG&E utility customers during the emergencies.

"As settlement of the RMR litigation, PG&E's utility will receive either the uncompleted 540 MW combined-cycle generation facility (along with equipment, permits and contracts necessary to complete it) or $70 million to $85 million," the CPUC said in its announcement. PG&E also will get a distribution of about $63 million from the Mirant bankruptcy.

PG&E and Mirant also agreed to an RMR rate settlement through 2008 and additional agreements that will allow PG&E's utility to fully dispatch Mirant generation units from now through the end of 2012, and the utility has an option to buy Mirant's Delta power plants at the Contra Costa and Pittsburg plants after Mirant retires those facilities in the east San Francisco Bay area, the CPUC spokesperson said.

"Mirant's payments to resolve the refund claims would cover its liability for overcharges both before and after Oct. 2, 2000," Lockyer said.

In addition to the CPUC, Lockyer and PG&E, also signing the proposed settlement are California's Electricity Oversight Board, DWR, Southern California Edison Co. and San Diego Gas and Electric Co.

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