Mirant

[Joe Stocks]

Settlement with Calif.: WONDERFUL NEWS
by: finenergy 01/15/05 03:54 pm
Msg: 43028 of 43130

I had summarized the California receivables etc previously and, if I am reading the financials correctly, Mirant has settled with California WITHIN the allowances it has already booked in the financial statements. Therefore, the settlement with Calif. will actually result in an increase in income on the financial statements. Also, the entering into a long term contract with PG&E for the period 2006-2012 may have favorable terms to Mirant. No details of the contract are provided except the term.

The settlement with The Calif. parties total $645M.

There was a major dispute with CAISO and PX regarding the RMR contracts from June 1, 1999 thru basically Dec 31, 2002. During some of this time, Mirant billed CAISO and PX amounts equal to 50% of the annual fixed revenue requirement and (presumably) such amounts were paid. In June 2000, an ALJ ruled that the amount that Mirant should have charged should be 3.5%.

Accordingly, Mirant has RECOGNIZED REVENUE related the these agreements based on the 3.5% rate ruled reasonable by the ALJ. Mirant has appealed the ALJ's ruling. If Mirant lost the appeal, it would be requred to refund the amounts collected in excess of the 3.5% The excess amounts total $293M. IN addition, interest on the excess amounts totaled $42M at 12-31-03.

So, Mirant would bill (invoice) CAISO or PX the 50% and record 3.5% as revenue and record the other 46.5% as a future payable. Therefore, most of the cash received as been recored as a liability instead of income--as such, the liability is ALREADY redcorded on the financial statments.
At 12-31-03, $288M and $42M ($330M) are included in liabilities subject to compromise and $5M is included in accounts payable.

Now, let's talk about accounts receivable arising from power sales in the Calif. crises in yrs 2000 and 2001. At 12-31-03, Mirant had accounts receivable due from Calif. totaling $350M BUT the company has recorded a reserve for uncollectable accounts of $319M, therfore, Mirant expected to collect only $31M of these receivables.

TO SUMMARIZE:
Mirant has a A/R reserve ------------ $319M
Liabilities already recorded in
"Liabilities subject to compromise" -- $330M
Record Accounts Payable------------- $ 5M
Total liabilities/ reserve on FS-------$654M

If the settlement were recorded today, the net result would be an increase in income of $9M : ($654M-$645M = $9M).

GOOD JOB IN THE NEGOTIATION MIRANT!!!!!

ADDITIONALLY, in 2003, Mirant recorded an impairment loss against the Western generataion assets of $694M. This impairment probably is hugely overstated --for economic purposes I think it should be reversed. More on this in a separate post.

Finenenrgy