Electricity Seller to Settle State Suit

California officials said Friday that they had reached a settlement with Mirant Corp. worth up to $750 million to resolve alleged overcharges and other disputes from the 2000-01 energy crisis.

The tentative pact with the power wholesaler follows a court ruling last year that cleared the way for larger refunds and gave greater leverage to negotiators for California and its utilities.

The proposed deal’s value dwarfs recent settlements with other energy companies and is second in size only to a $1.7-billion agreement with El Paso Corp. in early 2003. That accord put to rest allegations the Houston company manipulated natural gas supplies.

Including the Mirant deal, the state has extracted about $3.4 billion from various energy firms, with more than $2.5 billon earmarked for ratepayer relief, California Atty. Gen. Bill Lockyer said.

Atlanta-based Mirant denied wrongdoing. Nonetheless, the company, which filed for Chapter 11 bankruptcy protection in July 2003, will pay the state and others $320 million in cash and award them a $175-million claim in Bankruptcy Court, Lockyer said.

In addition, the proposed settlement calls for Mirant to give PG&E; Corp.’s Bay Area utility an additional $63 million, power services, rights to a generation plant and other items that are together worth as much as $187 million, Lockyer said.

Mirant’s net income for 2000 and 2001 combined was $739 million.

“Given Mirant’s bankruptcy, this is an excellent settlement for Californians because we will recover more than $320 million wrongfully taken from our pockets,” Lockyer said.

The money will be distributed to the Department of Water Resources and the three largest investor-owned utilities: Pacific Gas & Electric Co., Edison International’s Southern California Edison Co. and Sempra Energy’s San Diego Gas & Electric Co.

Consumers may benefit indirectly through lower utility rates or fees.

Mirant was accused of price gouging and other conduct aimed at driving power costs to record heights in California during the energy meltdown, which brought blackouts and utility insolvency. Lockyer sued the company, alleging it turned off power plants, evaded price caps and profited from bogus electricity traffic jams.

The state was joined in the settlement by the Public Utilities Commission, the Department of Water Resources and the Electricity Oversight Board, along with the three utilities.

Mirant General Counsel Doug Miller said the company “continues to believe that it did not violate any laws in its power sales transactions in California.” But by settling the claims, he said, “we have removed significant financial uncertainty from Mirant’s economic future.”

In exchange for the settlement, the California group will drop lawsuits against Mirant and will stop pursuing about $800 million in refunds that it had sought through the Federal Energy Regulatory Commission.

Lockyer said he retained the right to press claims if criminal conduct was uncovered.

The Mirant settlement is the first since state advocates got a boost in September from the U.S. 9th Circuit Court of Appeals. The court rejected FERC’s contention that it was powerless to order refunds for the first phase of the electricity meltdown in the summer of 2000.

In its ruling, the three-judge panel chastised FERC for “abdicating its regulatory responsibility” and cleared the way for refund claims covering that part of the crisis.

“That favorable Court of Appeals decision definitely was in the minds of everyone,” said Erik Saltmarsh, executive director and chief counsel of the state’s Electricity Oversight Board.

Other power sellers that have reached settlements with the state group include Duke Energy Corp., a joint venture of Dynegy Inc. and NRG Energy Inc.; Calpine Corp.; Constellation Energy Group Inc.; Williams Cos.; Portland General Electric; and El Paso Electric.

The Mirant settlement must be approved by FERC, as well as the bankruptcy judge handling the company’s Chapter 11 case.