Mirant goes bankrupt
Financial free fall and city opposition aren't deterring the company from pushing a controversial power plant expansion

By Matthew Hirsch

Mirant Corp. filed for bankruptcy July 14, raising questions about its future and its ability to build a controversial power plant in Potrero Hill. The filing came hours before a $1.13 billion loan payment was due. It capped a rocky week for Mirant that saw stocks plummet on rumors of the impending collapse and the San Francisco Board of Supervisors pass a resolution opposing the Potrero power plant expansion.

These developments present enormous challenges for Mirant as it seeks to build a 540-megawatt electric generator, a plan southeast San Francisco residents have strongly criticized.

Before the filing Mirant spokesperson Patrick Dorinson would not comment on the bankruptcy predictions, but he said Mirant would not cancel its California Energy Commission application for the Potrero project. Mirant stock, which has declined precipitously since May 2001, lost more than 15 percent of its value July 10 after a Merrill Lynch analyst advised the company's investors to sell. The bankruptcy, according to Bloomberg News, is the largest since WorldCom filed last year.

CEC spokesperson Chris Davis said with Mirant facing more than $11 billion in total debt and stock prices below $2 a share, anything could happen with the Potrero application. Should the company sell off the Potrero power plant, a buyer could inherit the CEC application, although the asset would be more valuable if it were already licensed and if the city wasn't actively opposing its expansion.

Supervisors at the July 8 meeting unanimously endorsed (with Sup. Gavin Newsom absent) the resolution calling on city officials to actively oppose the project. Advocates of the city's Electricity Resource Plan – which favors clean, renewable energy over fossil fuels – are hoping mayoral front-runner Newsom will declare his opposition to the project, but he has yet to commit and did not return Bay Guardian phone calls on the issue.

Energy activists also await a revised plan from Mirant for cooling the expanded Potrero plant. The company initially proposed acquiring one-third of the needed water from the San Francisco Bay, but the CEC rejected that proposal.

Dorinson said the company would offer an alternative plan for a cooling system to the CEC later this month. It is unlikely Mirant could implement the CEC's proposed alternative, however, because it would require use of city wastewater. The board's recent resolution makes this water unavailable for the project.

"We are disappointed that this kind of action [at the Board of Supervisors] was taken," Dorinson said. "It certainly does not deter us from seeking [to build] a plant that we think can provide cleaner energy for San Francisco."

Davis gave no indication the city resolution or Mirant's financial struggles would sink the Potrero expansion, which is estimated to cost about $300 million. He told the Bay Guardian the CEC is closely watching Mirant's negotiations with its creditors, leaving open the possibility of suspending the company's application if it lacks the resources to get the application approved. But Davis pointed to two recent licensing applications that survived heavy opposition and massive debt restructuring.

Two years ago the CEC certified a joint venture by Calpine Corp. and Bechtel Corp. to construct a 600-megawatt generator in San Jose's Coyote Valley. The details of that project bore several similarities to the Potrero expansion, as the San Jose mayor and city council led community opposition to the plant. Within a year, however, they caved under pressure from Gov. Gray Davis and the state assembly. Calpine broke ground on the plant last June and expects it to be on line next year.

Enron faced a larger obstacle in December 2001 while trying to build the 900-megawatt Roseville Energy Facility as it filed the largest bankruptcy in U.S. history. Enron eventually withdrew its CEC application, but it did so nearly one year after filing for Chapter 11.

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