Williams on Tuesday said that it has completed its settlement with California resolving most of the company’s outstanding litigation and civil claims related to natural gas and power markets with the states of California, Oregon and Washington.

The settlement also restructures Williams’ energy contracts with California (see Daily GPI, Nov. 12). Under the terms of the settlement, the restructured energy contracts may be assigned to California utilities at some point in the future.

“This agreement removes significant uncertainty from our company and preserves substantial value in our California energy contracts,” said Steve Malcolm, Williams’ chairman, on Tuesday. “This is a practical solution for an important customer like California and improves Williams’ opportunity for selling or doing a joint venture for this part of our business. The agreement is an important step toward our goal of reducing the financial risk and liquidity requirements related to our energy marketing and risk management business.

“This has been one of the most difficult years in Williams’ history. Ending the year with a finalized, favorable agreement with California is a major achievement for our company. This agreement, combined with significant financial progress, provides momentum for us to move forward in 2003. We will continue to focus on strengthening our finances and concentrating our business around finding, producing, gathering, processing and transporting natural gas.”

California is poised to benefit from the deal since it will get more control of its long-term power contracts going forward and up to $417 million in separate payments from the energy company. At the time of the original deal announcement, state officials said its value to California could be characterized as being worth more than $1.6 billion, but because there was a $180 million overlap between a lower contract value and settlement amounts on pending litigation, $1.4 billion was established as a net total for the benefits.

In return, Williams gets to remove the uncertainty and pall hanging over it surrounding all civil actions regarding its dealings in California, including prices charged to the state during the western energy crisis, and has the opportunity to sell the state additional power supplies at the same $62.50/MWh to $87/MWh prices in its original long-term contract going forward.

As part of the renegotiated remaining eight-year power deal, Williams has agreed to increase maximum supplies through 2010 from 1,400 MW to 1,875 MW; given the state more flexibility on when power is dispatched; signed a long-term natural gas agreement through 2010 for 1.2 to 1.8 million MMBtu/month; and is released from any future refund determinations as they relate to the state.

In addition to the states of California, Oregon and Washington, private class-action plaintiffs joined the agreement as expected. While the settlement is now effective with the states, various court orders must be obtained to finalize the settlement with the private class-action plaintiffs.

Tuesday’s announcement came on the heels of a FERC order issued Dec. 30 that dismissed Williams Energy Marketing & Trading Co. from the agency’s ongoing proceedings to determine the level of refunds owed to California for high-priced power sold during the state’s energy crisis in 2000-2001. The decision satisfied a condition included in the settlement hammered out between Williams and California, but doesn’t mean that the federal agency is making a call one way or another as to the merits of the deal.

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