Progress Energy’s subsidiary Progress Energy Ventures is paying $188 million in cash to Williams Energy Marketing and Trading to acquire a full-requirements, long-term power supply agreement with Jackson Electric Membership Corp., which is located in Jefferson, GA. Jackson is one of the largest electric cooperatives in the United States, serving more than 171,000 residential, commercial and industrial customers in 10 metro Atlanta and northeast Georgia counties.

The power supply agreement runs through 2015 and includes the use of 640 MW of Georgia system generation comprised of nuclear, coal, gas and pumped-storage hydro resources. Progress expects to supplement the acquired resources with its own intermediate and peaking assets in Georgia to serve Jackson’s forecasted 1,100 MW peak demand in 2005 growing to a 1,700 MW demand by 2015.

Tom Kilgore, president of Progress Energy Ventures, said the company is “uniquely positioned through our power generation assets in Georgia, which include both combined-cycle and combustion-turbine generation, to provide a source of efficient, reliable power to Jackson. This is a significant step in having customer commitments for the output of our Georgia generation assets.”

Progress said its purchase will be temporarily funded with short-term debt. Permanent equity financing will replace the short-term financing, consistent with the company’s previously announced plans for funding investments in Progress Ventures. The transaction is expected to be neutral to earnings in 2003 and 2004 and accretive thereafter, Progress said. The sale is expected to close by May 30 following regulatory approvals.

Williams CEO Steve Malcolm said, “With Jackson being one of the largest electric cooperatives in the U.S., it was important to us that the new power and risk management provider could step in and seamlessly ensure reliability for its 170,000-plus consumers. Progress can do that.”

Under the terms of the agreement, Williams will receive $175 million at closing and an additional $13 million as requirements related to the transitioning of operations are met by Aug. 15. In addition to the cash received from Progress, Williams said the Progress Energy transaction eliminates a parental credit guarantee and releases a letter of credit associated with the full-requirements agreement. The sale will be reflected in Williams’ second-quarter financial results.

Williams still has full-requirements contracts with four other cooperatives in Georgia and will continue supplying and managing their needs of 1,050 MW as part of its energy marketing and risk management portfolio.

This sale of this contract is one small step in Williams’ effort to downsize, streamline and possibly sell off its merchant energy business. It is the second significant sale associated with the energy marketing and risk management portfolio in the past 45 days. On Feb. 4, Williams announced the sale of its Worthington power facility and termination of its Hoosier full-requirements contract for a total of $67 million cash.

“Today’s agreement reflects progress in our comprehensive strategy to manage liquidity and run our company,” said Malcolm. “This transaction demonstrates what we’ve said all along — that our portfolio is valuable, risk-appropriate and saleable. We further reduced the role of our energy marketing and risk management business, which is consistent with our plans to substantially exit that business.”

Williams also has decided to sell off an additional $2.25 billion in other gas transmission assets, a share of its midstream master limited partnership and a portion of its gas reserves this year in order to meet debt maturity obligations and fund operations.

The company warned last Tuesday in its annual report with the Securities and Exchange Commission (SEC) that limited access to capital due to its non-investment-grade credit status and insufficient cash flow from operations to pay debt obligations make it imperative that the company sell its previously announced $2.25 billion in additional assets this year. “If the realized cash proceeds are insufficient or are materially delayed, we might not have sufficient funds on hand to pay maturing indebtedness or to implement our strategy,” company officials said.

In addition to the sale of its ethanol business, which was announced late last month for $75 million, Williams also has put Texas Gas Transmission on the auction block along with its stake in Williams Energy Partners and 20% of the gas reserves in its exploration and production unit. Analysts broke down the asset values like this: Texas Gas at $1.1 billion, the WEG shares at about $700 million and the 20% stake in Williams’ E&P unit reserves at another $700 million.

As of Dec. 31, 2002, Williams had debt obligations of $3.8 billion (including certain contractual fees and deferred interest related to underlying debt) that will mature between now and March 2004. Proceeds from asset sales are necessary to meet those maturing obligations, the company said. With additional asset sales and financings, it expects to have cash of $2.8 billion at year-end 2003 and $1.6 billion at year-end 2004. It also expects year-end debt to be $11 billion in 2003 and $9.5 billion in 2004. However, those financial improvements are contingent on successfully completing the sales.

Williams also said in the filing that it has received and is responding to subpoenas and information requests from the U.S. Attorney’s Office in Houston relating to a Houston grand jury inquiry. The subpoenas and inquiries concern gas and power trading activities already under investigation by the SEC. The company also is under a grand jury investigation regarding commodity pricing information provided to publications.

Earlier last week, the company’s Transcontinental Gas PipeLine subsidiary agreed to pay a civil penalty of $20 million to the Federal Energy Regulatory Commission over the next four years, beginning with a $4 million payment as early as mid-May for violating laws and agency regulations that prohibit interstate natural gas pipelines from giving preferential treatment to marketing affiliates and other sister companies (see related story).

The impact of the Transco settlement on Williams’ financial results is an additional $8 million charge to fourth-quarter 2002 segment profit for its gas pipeline business. The settlement also calls for the company’s Transco pipeline to discontinue firm sales services by April 1, 2005, and places additional restrictions on the Williams energy marketing and trading unit’s ability to transport gas on affiliated pipelines.

Williams said it will continue to have the capability to transport gas through its affiliated pipelines to meet the needs of its exploration and production, midstream and power businesses. Since the company is continuing to pursue a strategy to substantially exit the energy marketing and trading business through sales or joint venture, it said that it does not expect these new requirements from the FERC to have a significant impact on the company’s future business.

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