A deal to sell gas to and market power from three Los Angelesgenerating facilities gives Williams a much larger foothold in theburgeoning California energy marketplace and boosts its position inboth gas and power marketer rankings.

Williams agreed with AES Corp. to supply fuel and market 3,954MW of power generation to the wholesale market from 14 generatingunits at three AES sites in the heart of the Los Angeles Basin. Thedeal is expected to elevate Williams into the lower half of thetop-10 North American power marketers. In the Los Angeles Basin,Williams will become the second-largest power provider behind LosAngeles Department of Water and Power, the local utility.

And while Jerry Gollnick, senior vice president for Williams’marketing and trading business, said the deal’s objective wasn’t toraise the company in the gas marketer rankings, it will do that,too. The generating sites typically use about 250 MMcf/d of gas. Atypical peak draws 650 MMcf/d, with the highest possible peak at 1Bcf/d.

“Money is still the ultimate goal here, and I’m really notinterested in pushing people to set physical volume goals. But ifthat’s the way we keep score, this certainly is a significant gasdeal. It’s the kind of a deal that unless you had gas capabilitiesand electric capabilities, you really wouldn’t want to fool withthis deal because you can get burned on both sides of it.”

“This transaction immediately adds scale and scope to Williams’energy portfolio, significantly enhancing our arbitrageopportunities,” said Stephen L. Cropper, CEO of Williams EnergyServices. Cropper said he believes the agreement is the largest ofits kind in the newly competitive energy market and will contributeto Williams’ financial performance beginning in the third quarter.Williams’ electric trading business was founded in 1995 and hasgrown at a compound rate of 181%.

“The Los Angeles Basin is an important segment of the WesternSystem Power Pool – an active marketplace, which will enableWilliams to effectively manage the risks and profitability of thistransaction,” Gollnick said. Williams will have the right to sellall of the capacity and ancillary services produced from the AESelectric generating plants in the Southern California cities ofLong Beach (2,083 MW), Huntington Beach (563 MW), and Redondo Beach(1,310 MW).

In the short term, the most lucrative aspect of the deal ispredicted by Gollnick to be selling power into the spot market andthen doing longer-term deals with utilities. Industrial users andprovision of risk management products are other profit sources, andselling ancillary services to the independent system operator (ISO)will become more important as that market develops, Gollnick said.

Williams’ strategy is to become a power marketer active in allthe North American Electric Reliability Council (NERC) regions.”What we’re trying to do is target regions where the deregulationis happening in a friendlier way and where there’s a shortage ofcapacity,” Gollnick said. “We have identified a couple where we arenegotiating in.”

AES is responsible for operating the facilities, which itacquired May 15. Williams will supply portions of the fuel via itsKern River interstate gas pipeline system, which delivers RockyMountain and Canadian gas to customers in Utah, Nevada andCalifornia. Financial terms of the agreement were not disclosed.

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