After seeing its corporate credit rating downgraded to two levels below “junk status” and its stock skid to a low of 78 cents at one point last week, Williams Cos. Inc. got some much-needed good news Friday. First, the company announced it had reached an agreement in principle with California and a number of other parties, including Washington and Oregon, on a settlement to resolve all outstanding litigation/claims and refunds for electricity overcharges, and then FERC signaled it probably would not strip Williams of its license to sell power at unregulated rates.

However, the news of the agreement, which is to be filed at FERC by Aug. 5-6, and of the Commission’s favorable letter to Williams about its market-based rate authority came too late in the day Friday to have any measurable effect on the company’s sagging stock. It closed at $1.06 a share, up 20% for the day. Williams stock has lost 97% of its value over the past year.

In a letter Friday to William Hobbs, CEO of Williams Energy Marketing & Trading, FERC indicated it was satisfied with the company’s “supplemental responses” to its questions related to the agency’s probe of suppliers’ price-manipulation practices in western energy markets. In June, FERC had threatened to revoke the market-based rate authority of Williams and three other energy suppliers if they failed to cooperate fully with FERC’s investigation by submitting expanded information about their selling practices in California and other markets.

“By this letter, I advise you that I have reviewed all of your supplemental responses, and I conclude that they respond” to the agency’s initial request for information about Williams’ selling strategies in western markets, wrote Donald J. Gelinas of FERC’s Office of Markets, Tariffs and Rates, in the July 26 letter to Hobbs. The letter did not specifically say FERC will not revoke Williams’ market-based rate authority, but that appeared to be the implication. Observers noted that formal action, revoking its show cause order would take a vote of the full commission. The letter appeared to be an interim step that could be accomplished quickly, indicating the direction FERC will go.

Williams spokeswoman Paula Hall-Collins said the company was interpreting the letter in a positive light. “We have fulfilled what they asked us for. That’s how I read it,” she said. “We have met their bar” for the requested information.

In other action Friday, Williams said it brokered an agreement in principle with California and other parties, including Washington and Oregon, on a global settlement that is expected to result in renegotiated long-term energy contracts between Williams and California.

Hall-Collins refused to disclose the terms of the settlement, which reportedly settles California’s and other states’ outstanding litigation and claims against Williams, including claims for refunds that are in dispute at the Federal Energy Regulatory Commission. California alone has been seeking billions of dollars in refunds for overcharges on power from Williams and other energy suppliers that served western markets during the height of the state’s energy crisis.

Nor would Hall-Collins reveal any of the terms of the renegotiated energy contracts that are expected between Williams and California. She said the company and California plan to submit the terms of the settlement for the new long-term contracts to Chief Administrative Law Judge Curtis Wagner Jr. at an Aug. 5-6 settlement conference.

In the meantime, Williams and parties will work to finalize agreements necessary to resolve remaining litigation, including civil actions, as part of the global settlement, the company said. The parties include representatives of the California Department of Water Resources, the California attorney general (on its own behalf and on the behalf of Oregon, Washington and California municipalities that had brought actions against Williams), the California Public Utilities Commission, the Electricity Oversight Board, and representatives of civil litigants.

“…[W]e have designed a global settlement that will benefit all parties and bring closure to issues that have created uncertainty around Williams in the market,” said Williams Chairman and CEO Steve Malcolm. “The new long-term contracts will ensure that California consumers will have power under more flexible terms, and Williams will continue to benefit from long-term power sales in the California market.”

On Wall Street, Standard & Poor’s Ratings Services late Thursday lowered the corporate credit rating for Williams for the second time over a period of days, this time cutting it three notches to single ‘B+’ from the ‘BB+’ junk bond rating that it gave the company earlier last week (See Daily GPI, July 24).

The rating agency also sliced the other ratings of Williams and its subsidiaries, including the senior unsecured debt rating, cutting it to single ‘B’ from double ‘B.’ The company’s ratings remain on CreditWatch with “negative implications.” Moody’s Investors Service took similar action last Wednesday, clipping Williams’ credit ratings to “junk” status (Daily GPI, July 25).

“The rating action is based on the rating triggers associated with the [power generation companies] AES Ironwood LLC, AES Red Oak LLC and Georgia EMC tolling agreements, which may require Williams to provide letters of credit to each entity,” said Standard & Poor’s analyst Jeffrey Wolinsky. AES executives estimated last week the company’s exposure to Williams was about $900 million, but Williams contends it’s much lower. Williams total debt was pegged at $15 billion.

The ramifications of these requirements create significant uncertainty in Williams’ financial position, and add risk to the company’s ability to close on a potential $1.6 billion secured line of credit in the near term or to execute other options to meet liquidity needs, according to Standard & Poor’s. In addition, margin calls and other pre-payments of about $270 million have been required out of a potential of up to $600 million because of the non-investment grade rating of the company, it said.

About $800 million of debt at Williams and affiliate Transco Energy Co. mature late this month and early August, and $186 million is due from other ratings triggers, Standard & Poor’s said. To meet these cash requirements, Williams plans to fully draw on the existing $700 million revolver and execute asset sales of about $120 million.

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