Settlement Will Directly Benefit PG&E’s Customers

SAN FRANCISCO – Pacific Gas and Electric Company today announced a settlement agreement with Mirant resolving overcharges and market manipulation claims from the sale of electricity by Mirant’s California operations. If the settlement is approved by the Federal Energy Regulatory Commission (FERC) and the bankruptcy court overseeing Mirant’s Chapter 11 case, PG&E’s customers will receive approximately $300 million in value through cash, the transfer of Mirant’s interest in an uncompleted power plant, and other benefits.

“We are pleased to have reached this settlement with Mirant, which will provide significant value and benefits to our customers,” said Gordon R. Smith, Pacific Gas and Electric Company’s president and chief executive officer. “We hope that on-going discussions with other power generators will result in additional agreements resolving more of the market manipulation claims.”

The first part of this two-part settlement is between Mirant and the California parties – the California Attorney General’s Office, the California Department of Water Resources, the California Public Utilities Commission (CPUC), Southern California Edison, San Diego Gas & Electric, and PG&E – resolving market manipulation claims for the 2000-2001 period.

Under this portion of the agreement, Mirant will provide purchasers of electricity approximately $320 million in cash equivalents and $175 million of allowed bankruptcy claims. PG&E’s share will be about $130 million in cash and $40 million in allowed claims, respectively. The final cash value of the allowed claims will not be known until the completion of Mirant’s Chapter 11 proceeding. PG&E’s net after-tax refund amount will benefit its customers through adjustment of future revenue requirements.

This resolves Mirant’s liability for FERC refunds, penalties and civil liabilities arising out of the California energy crisis in 2000-2001. In 2004, similar settlements were reached between
the California Parties and Duke Energy, Dynegy, Inc., and The Williams Cos.

The second part of the settlement is directly with PG&E and is designed to settle claims that Mirant overcharged PG&E under Mirant’s Reliability Must Run (RMR) contracts and other disputes. RMR contracts allow the California Independent System Operator (CAISO) to meet local reliability needs by calling on power plants to run during critical times.

For the settlement of these disputes, the agreement calls for PG&E to receive substantial value from Mirant in the form of assets and allowed claims, which will directly benefit PG&E’s customers.

• Mirant has agreed to transfer to PG&E the equipment, permits and contracts for the construction of Contra Costa Unit 8, a modern 530-megawatt power plant Mirant started to build, but never completed due to the downturn in the wholesale power market. Contra Costa Unit 8 is located in Antioch, adjacent to Mirant’s existing facilities.
  • PG&E will file an application with the CPUC to seek authorization to complete and operate Contra Costa Unit 8 under a cost-of-service regulatory structure.
  • If PG&E and Mirant do not complete the necessary transfer agreement or if PG&E does not receive the necessary approvals, including CPUC authorization, Mirant will pay PG&E at least $70 million in lieu of transferring the assets.
• The settlement agreement also provides PG&E with a contract to dispatch power from certain RMR units at Mirant’s Contra Costa and Pittsburg Power Plants (that have been retrofitted with clean air technology) when the facilities are not needed by the CAISO to meet local reliability needs. The contract, which runs from 2006 through 2012, can reduce power costs for PG&E’s customers.
• PG&E will receive approximately $60 million of allowed claims, credits, offsets, and/or cash from Mirant.

“We welcome the opportunity to complete construction of and operate Contra Costa Unit 8, a modern facility that will provide low-cost, efficient power to our customers and address local reliability issues,” said Greg Rueger, Pacific Gas and Electric Company’s senior vice president for generation. “If we receive the necessary approvals to complete the power plant, we will be able to add 530 megawatts of fully dispatchable power to our area at a fraction of the cost we would incur by building a new plant from the ground up. Our customers will only be charged for our costs to complete the project, resulting in a very low cost of energy produced.”