The Williams Companies was hit hard in the second quarter likemany other energy trading companies, posting a $58 million drop innet income from 2Q97. But a large portion of its trouble stemmedfrom a FERC ruling that challenged the rate-making methodology insome markets served by the company’s petroleum products pipeline.Williams took a $15.5 million charge to cover customer refundsordered by FERC, but said it plans to appeal the July 15 ruling.Williams also still is suffering from merger-related charges. Ittook a $6.1 million MAPCO merger-related charge and recordedanother $3.4 million in costs as general corporate expenses relatedto the merger.

The company reported net income of $60.7 million, or 14cents/share compared with $118.5 million, or 28 cents/share, for2Q97.

Natural gas trading profits and per-unit natural gas liquidsmargins also were significantly less than the same period a yearago. The energy services group reported $106.3 million in operatingprofit compared with $115.2 million in the second quarter of 1997.For the first six months of 1998, energy services reportedoperating profit of $199.1 million compared with operating profitof $275.9 million during the same period last year.

With the exception of market volatility, the second quarter ofthis year saw many of the same energy market conditions thatnegatively impacted the first quarter-such as low natural gasliquids prices and relatively high natural gas prices, Williamsnoted.

“While there are bright spots due to our growth in scale fromthe acquisition of MAPCO, conditions in segments of the unregulatedenergy market remain difficult,” said CEO Keith E. Bailey. “Our gaspipeline business continues to perform very well, which istestimony to our aggressive attention to fully serving existingcustomers while attacking new markets in the most cost efficientmanner possible.”

The gas pipeline segment reported operating profit of $153million compared with $131.2 million in 2Q97. Williams attributedthe increase to the impact of expansion projects on Transco,increased short-term firm transportation at Northwest andadjustments relating to new rates placed into effect at Transcolast year.

Williams communications business reported a second quarteroperating loss of $10.5 million, compared with an operating profitof $3.3 million in the same quarter of 1997.

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