Chapter 11-mired Mirant Corp. last Thursday said that it filed a motion with the U.S. Bankruptcy Court to reject an out-of-market agreement to purchase power from Pepco. Mirant forecasts it would cost the company and its stakeholders “hundreds of millions of dollars” over the duration if this agreement if it were to remain in effect. The obligations under this agreement will run out over time and end in 2021.

Mirant is also seeking to renegotiate the terms of two out-of-market agreements to sell power to Pepco. The filing was made by Mirant in the U.S. Bankruptcy Court for the Northern District of Texas, which is overseeing the company’s Chapter 11 case.

In order to protect the court’s control over the rejection process, Mirant also obtained an injunction preventing Pepco and the Federal Energy Regulatory Commission from initiating any conflicting proceedings pending the resolution of the motion.

Under the agreement Mirant is seeking to reject, the company is obligated to purchase power from Pepco at prices that are “significantly out-of-line with market prices for power, requiring Mirant to pay substantially more than market rates,” Mirant said.

“Mirant has filed this motion with the court to fulfill legally-mandated obligations to its stakeholders,” said Mirant CEO Marce Fuller. “Importantly, the rejection will have no effect on Mirant’s ongoing generation and sale of power into the PJM marketplace. These actions will not affect Pepco’s ability to purchase power and provide reliable electric service to its customers in the District of Columbia and Maryland.”

Mirant said that the two power sales agreements that it is seeking to renegotiate with Pepco require Mirant to sell power for substantially less than current market rates. From today through their expiration — one agreement expires in June 2004 and the other in January 2005 — these agreements would cost Mirant tens of millions of dollars, the company said.

“Although these power sales agreements are due to expire in a relatively short time, our strong desire is to renegotiate — not reject — these agreements,” said Fuller. “However, if we are unable to renegotiate, Mirant may only be able to fulfill its Chapter 11 duties by rejecting these agreements, as well.”

Officials with Pepco have previously said that if Mirant attempted to cancel power contracts it has with Pepco and proved successful, Pepco would be able to make a claim in the bankruptcy courts to as much as $700 million in higher power costs it may be facing as a result of the termination of those agreements (see Power Market Today, July 28).

Mirant’s filing marks the latest move by bankrupt generating companies to cancel power contracts previously entered into with electric utilities and other power-related entities.

FERC this summer rejected a complaint filed by Vermont Public Power Supply Authority (VPPSA) asking the Commission to order PG&E Energy Trading-Power LP to resume supplying power to it after PG&E Energy Trading last month filed for Chapter 11 protection and suspended delivery of electricity to VPPSA.

FERC in June ordered NRG Power Marketing to continue providing power to Connecticut Light & Power (CL&P) until the Commission decides whether NRG Power Marketing’s efforts to cancel the power contract with CL&P meet the Mobile-Sierra “public interest” standard.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.