Mirant Corp., which made a Chapter 11 bankruptcy filing on July 14, reported a first quarter net loss of $28 million, or a loss of 7 cents/share, which was substantially larger than its restated net loss of $10 million, or 6 cents/share, for the first quarter 2002. In addition, Mirant restated prior financial results in amended 10-Qs for each of the first, second and third quarters of 2002, as well as an amended 2002 Form 10-K for its Mirant Americas Generation LLC subsidiary.

“Our financial performance in 2003 and 2002 has been adversely impacted by a number of industry factors such as lower spark spreads, milder weather, reduced credit and diminished liquidity in the marketplace due to the reduced number of competitors,” the company said in its quarterly 10-Q filed with the Securities and Exchange Commission. “Comparatively, our losses increased by $18 million for the three months ended March 31, 2003 compared to the same period in 2002.”

The company reported significantly lower cash flow than in 1Q2002, which was largely a result of its deteriorating credit standing. It required $286 million of additional cash to be used to support various commodity positions as of March 31.

“Our available cash and unused credit facilities has declined due to unfavorable working capital swings related to accelerated payments to vendors while receiving cash from customers under normal credit terms,” the company explained. “Since March 31 through Aug. 15, our total available cash and unused credit facilities have declined by an additional $258 million. We used cash subsequent to March 31 for construction, turbine cancellation fees and working capital purposes.”

The company reported reduced profitability from California operations due primarily to the expiration of a power sales agreement with the California Department of Water Resources (DWR) in December 2002. In 2003, it converted some of its generation units (1,700 MW out of 2,000 MW) that were contracted under the DWR agreement to Reliability-Must-Run (RMR) condition 2 units. Revenues under the sales agreement with DWR were based on market prices of about $150/MWh. Under the RMR contracts, revenues are based on a fixed rate of return and the units’ operating costs. As a result, revenues are much lower, Mirant noted.

Meanwhile, the company filed a motion with the U.S. Bankruptcy Court last week to reject an out-of-market agreement to purchase power from Pepco. Mirant said the deal will cost the company and its stakeholders hundreds of millions of dollars if it were to remain in effect. The deal runs through 2021. Mirant also is seeking to renegotiate the terms of two out-of-market agreements to sell power to Pepco (see related story).

Meanwhile, the company said that spark spreads in February 2003 were sharply lower than in February 2002. Forced outages and transmission line problems in the Northeast also required Mirant to purchase power at higher prices to deliver power under contractual agreements to economically hedge sales of power from the generation assets.

Mirant’s 2003 first quarter results include a $15 million loss from discontinued operations and a $28 million charge primarily related to the adoption of the provisions of the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) Issue 02-03.

Income from continuing operations was $15 million, or 4 cents per diluted share. Gross margin for the first quarter 2003 was $520 million compared to $587 million for the first quarter 2002. Total operating revenue for first quarter 2003 was $1.5 billion compared to $959 million for 2002, reflecting increased power sales volumes and higher market prices for power. Cost of fuel, electricity and other products for the first quarter of 2003 was $978 million, compared to $372 million for 2002.

“This increase reflects significantly increased prices paid for natural gas, oil and purchased power, unfavorable power price fluctuations related to power sales agreements in the Mid-Atlantic region, hedging losses related to the company’s risk management activities and lower trading results,” the company said. “Additionally, Mirant experienced unplanned plant outages and transmission interruptions, which increased purchased power requirements.”

As of Aug. 15, Mirant had $1.29 billion in total cash and cash equivalents, $226 million of which is legally restricted and $125 million of which is held for operating, working capital or other purposes at various subsidiaries. The total cash and cash equivalents is $220 million lower than the $1.51 billion the company had at March 31.

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