California officials late Friday afternoon announced they had reached a $749.7 million proposed settlement with bankrupt Mirant Corp. to resolve allegations of manipulating wholesale energy prices during the western energy crisis of 2000-2001. Chapter 11-bound Mirant, the California Attorney General’s Office and the California Public Utilities Commission all issued separate announcements on the culmination of the deal.

Mirant’s COO Curt Morgan said this should allow the company to put the allegations behind it 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.

The settlement still must be approved by the Federal Energy Regulatory Commission and the bankruptcy court in which Mirant is under Chapter 11 protections.

Although they both used different figures to quantify the upside value of the proposed settlement, the California AG and CPUC agreed the deal should resolve claims for overcharges in the western electric and natural gas markets, including the FERC refund proceeding, related appeals, along with the CPUC’s litigation over a long-term contract between Mirant and the California Department of Water Resources (DWR). The AG called it a nearly $750 million deal; the CPUC put a “conservative value of $519 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,” California AG Bill Lockyer said, adding that he hoped the reorganized Mirant management will “work constructively with California to make sure history does not repeat itself.”

Morgan said that 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.

The funds from these payments essentially would resolve the state’s and utilities’ claims for refunds now pending before FERC, the AG 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 reliability-must-run (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, CA plant after Mirant retires those facilities in the east San Francisco Bay, 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.,” the state AG said.

In addition to the CPUC, AG 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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