Williams Cos. announced last Thursday that it has abandoned plans to sell its wholesale power business, citing the dim prospects for selling the asset in a depressed power market.

The announcement came one week after Williams CEO Steve Malcolm said that while the Tulsa, OK-based energy firm preferred to exit the power business, “I’ve grown more and more pessimistic about our ability to do so in the near term” (see NGI, Sept. 13).

A leaner Williams, which has set its sights on its three core natural gas businesses (exploration and production, midstream and interstate gas pipelines), said the power business would provide a hedge to its gas operations.

Williams’ power business primarily consists of long-term contracts for capacity to generate 7,700 megawatts of electricity for wholesale markets. The business also is a significant player in the gas market. In 2003, the unit marketed 2.7 Bcf/d of gas. The company’s power business employs about 220 people, down from about 1,000 at its peak in 2001.

Williams said it has been evaluating the benefits of keeping the power business, given the limited opportunities to sell it in a down power market. In addition, the company noted that it has made progress over the past two years in lowering the risks and increasing the certainty of cash flow from its long-term power contracts.

“We believe that retaining the power business is the best path to create additional economic value…We have learned to operate the wholesale power business in a manner that yields strong operating cash flows and still allows access to capital for our natural gas businesses,” Malcolm said.

Williams believes that keeping the power business will create a number of opportunities for the company. For one, it will contribute to cash flow. The power segment has contracts in place expected to generate cash in amounts that “substantially cover” its obligations through 2010, according to the company. Williams said it also would be positioned to benefit from any potential upswing in the bulk power markets.

In addition, it will act as a hedge to Williams’ natural gas businesses. The company’s power business, which is highly dependent on gas supplies for generation, has the capability of providing a “natural hedge” to Williams’ three core gas businesses, it said.

Williams also believes the commercial and financial capabilities retained in the power business provide an opportunity for the company to bring “additional resources to bear in its pursuit of disciplined growth in its natural gas businesses.”

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