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Attorney General Lockyer Announces $749.7 Million Settlement With Mirant In Energy Price Gouging Case

Settlement Resolves Refund and PG&E Claims, and Antitrust and Commodities Lawsuits
Thursday, June 30, 2005
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced a $749.7 million proposed settlement with Mirant Corporation (Mirant) to resolve allegations of price gouging and other unlawful conduct by Mirant during the California Energy Crisis of 2000-01.

“Given Mirant’s bankruptcy, this is an excellent settlement for Californians because we will recover more than $320 million wrongfully taken from our pockets,” said Lockyer. “I’m pleased we have resolved our disputes with Mirant, and I hope the reorganized company’s new management will work constructively with California to make sure history does not repeat itself.”

The proposed settlement calls for Mirant to pay $320 million as an offset to unpaid bills “owed” Mirant by the utilities Mirant gouged during the Energy Crisis. California parties to the agreement also would be allowed a claim for up to $175 million against Mirant in its bankruptcy proceeding.

Funds from the two payments would resolve the state’s and utilities’ claims for refunds now pending before the Federal Energy Regulatory Commission (FERC). The money would compensate businesses and individuals for overcharges, reduce the financial burden of Pacific Gas and Electric (PG&E) ratepayers under the utility’s bankruptcy settlement, and reduce utility ratepayers’ obligation to retire bonds sold by the state to finance power purchases at the height of the Energy Crisis.

The ultimate value of the bankruptcy claim will not be known until Mirant’s Chapter 11 proceeding is completed.

PG&E also would receive approximately $250 million in power, generation assets and other consideration to resolve allegations that Mirant overcharged for electricity provided to the utility’s customers during emergencies. Mirant provided that power from certain plant units under “reliability must run” (RMR) contracts entered with the state’s electricity grid manager, the California Independent System Operator. “These provisions of the settlement will benefit PG&E’s customers by providing them cheaper, more efficient and more reliable power,” said Lockyer.

Mirant also would pay $4.75 million to California parties to cover costs. Of the total, Lockyer’s office would receive $2.5 million.

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Mirant Settlement
Page 2

The proposed settlement was reached with: Mirant Corporation; Mirant Americas, Inc.; Mirant California Investments, Inc.; Mirant California, LLC; Mirant Americas Development, Inc.; Mirant Americas Energy Marketing, LP; Mirant Delta, LLC; and Mirant Potrero, LLC.

Besides Lockyer, who represented the people, and PG&E, other California parties to the proposed settlement include: the California Department of Water Resources (CDWR), the California Public Utilities Commission (CPUC), the Electricity Oversight Board (EOB), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E). Before it becomes final, the settlement must be approved by FERC and the Mirant bankruptcy court.

Aside from resolving the refund and RMR claims, the proposed settlement would end two lawsuits filed by Lockyer against Mirant. The enforcement actions alleged violations of federal antitrust laws and California’s commodities fraud statute. The settlement would preserve the Attorney General’s right to pursue claims based on fraud or criminal conduct.

Mirant’s payments to resolve the refund claims would cover its liability for overcharges both before and after October 2, 2000. FERC had denied refunds for pre-October 2, 2000 overcharges. But the U.S. Ninth Circuit Court of Appeals on September 9, 2004 ruled FERC had improperly denied refunds for that period and ordered FERC to revisit the issue. FERC did not appeal the ruling, but has yet to make a decision on the pre-October 2, 2000 refunds.

The proposed settlement also covers Mirant’s liability for refunds owed CDWR for overcharges incurred when CDWR was forced to buy power directly from Mirant in so-called “out-of-market” transactions. FERC has denied CDWR refunds for those transactions.

Mirant’s payments to resolve the refund claims would go to CDWR and the three utilities which are parties to the proposed settlement, but ultimately would accrue to ratepayers’ benefit. Officials from the four entities estimate their respective allocations would be as follows: CDWR, $172.65 million; PG&E, $170 million; SCE, $101 million; and SDG&E, $23.8 million.

The Mirant settlement is the ninth produced by Lockyer’s Energy Task Force, working in cooperation with the CPUC, EOB, Governor’s Office, CDWR, PG&E and SCE. The nine settlements have a combined value of $3.38 billion. Of that total, some $2.57 billion represents ratepayer relief.

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