California officials obtained a $749.7 million energy-crisis refund from a bankrupt power company Friday in an offbeat deal that includes cash, an unfinished power plant and an IOU whose true value is unknown.
The agreement with Georgia-based Mirant Corp., one of the big independent generating firms that swooped into California in the late 1990s, represents the second-largest payment so far in California’s quest for refunds of alleged overcharges. The largest was a $1.7 billion settlement with Texas-based El Paso Corp.
The money will ultimately go to ratepayers of the state’s three investor-owned utilities in the form of rate relief.
Despite the nature of the Mirant settlement, state officials said they were pleased to extract so much from a company mired in Chapter 11 bankruptcy reorganization since 2003.
“Considering that they went bankrupt, yeah, we think it’s a good settlement,” said Tom Dresslar, spokesman for state Attorney General Bill Lockyer.
As part of the state’s deregulation plan, Mirant bought several power plants from California’s big electric utilities and sold power back to the utilities in a daily auction. Mirant and its brethren generated big profits when prices soared in 2000 and 2001. But many suppliers got hurt when prices collapsed and Enron Corp. went bust, drying up the financial markets.
The Mirant settlement means California has obtained refunds totaling $3.38 billion, Lockyer said in a statement.
Throw in additional refunds tentatively ordered by the Federal Energy Regulatory Commission, and the state has gotten roughly half the $9 billion it believes it was overcharged by Mirant and other energy suppliers, said Erik Saltmarsh, executive director of the California Electricity Oversight Board.
Mirant said it did nothing wrong but wanted to put the matter behind it. “What this allows the company to do is remove a significantly large uncertainty from our financial future,” said Anne Cleary, vice president for its western region.
Consumer advocate Doug Heller said the settlement “is certainly not enough money in the scheme of things” but isn’t a bad payout considering FERC’s longstanding reluctance to force generators to make refunds to California. The state has been pushing FERC for years to order refunds and has even taken the federal agency to court.
FERC “has made it very difficult for California to get what it is due,” said Heller, executive director of the Foundation for Taxpayer & Consumer Rights in Santa Monica.
The state still has unresolved claims against other power companies, Dresslar said.
Roughly half the Mirant settlement will be in cash. Saltmarsh said Mirant agreed to pay a total of $320 million to Pacific Gas and Electric Co., Southern California Edison, San Diego Gas & Electric and the state’s water agency, which stepped in to buy power after high prices drained the utilities financially.
The money won’t come out of Mirant’s pocketbook. The California purchasers paid Mirant for the electricity; the money is sitting in a trust account. Mirant is forfeiting claim to the money.
Beyond that, Mirant agreed to allow the California entities to put in a claim for $175 million in its still-pending bankruptcy case. In effect, the Californians will stand in line with Mirant’s other unsecured creditors – those who don’t hold any collateral and usually get paid least in a bankruptcy settlement.
But Saltmarsh said the bankruptcy claim is far from worthless. He said state officials estimate California will get “very real tens of millions of dollars.”
The claim still must be approved by the judge overseeing Mirant’s bankruptcy.
Mirant made an additional side settlement with PG&E that includes, among other things, a contract for relatively inexpensive power from Mirant’s plants, plus an unfinished Mirant plant. PG&E – itself driven into bankruptcy protection during the energy crisis – said the side settlement is worth about $250 million.
Mirant started building the 530-megawatt plant in Antioch in the summer of 2001, before the industry went sour. Mirant says it spent $175 million on the plant and figures it will take another $200 million to finish it.
The side settlement is in addition to the funds PG&E would get from the larger settlement.
Dates and largest amounts obtained by the state over claims Californians were overcharged during the energy crisis:
* $1.7 billion: El Paso Corp., March 2003
* $749.7 million: Mirant Corp., January 2005
* $557 million: Williams Cos., February 2004 and November 2002
* $281.5 million: Dynegy Inc., April 2004
* $207.5 million: Duke Energy Corp., July 2004
Sources: California attorney general’s office; Bee research
The Bee’s Dale Kasler can be reached at (916) 321-1066 or [email protected]