State Nearing Deals to Redo Power Pacts

California will drop its lawsuits and demands for refunds from Williams Cos. under a settlement announced Friday by the troubled energy trading company.

Without releasing details, Williams said it had reached an agreement in principle to rework its $3.8 billion worth of long-term electricity contracts with California. In return, Williams would get relief from the state’s demand that it give back profits earned during the electricity crisis of 2000 and 2001.

Gov. Gray Davis refused to confirm an agreement.

“We have made it our policy never to comment on negotiations until all the terms have been agreed upon and a renegotiated contract has been signed by the parties,” said Steven Maviglio, the governor’s press secretary.

But the federal mediator trying to make peace between California and energy companies said that a deal had been struck and could be in writing by next week.

“They have made a settlement in principle,” said Curtis L. Wagner Jr., chief of the Federal Energy Regulatory Commission’s office of administrative law. “They’ll start the hard work of trying to reduce it to writing.”

“It’s good for the state and good for Williams,” Wagner said. “I’m very pleased.”

Four other energy companies have struck tentative agreements with the state, he said, but do not want to make public announcements until the commitments are in writing.

The Williams agreement would be the second major power contract renegotiation achieved by the state. In April, Davis announced the overhaul of eight long-term energy contracts to save California roughly $3.5 billion, or 23%. Those amended contracts include four major deals with Calpine Corp.

In a sharp turnabout from a year and a half ago, when energy companies such as Williams appeared to be raking in cash from California utilities, the company is on the verge of bankruptcy. Its shares traded at $1.06 on Friday, down from a high of $34 earlier this year.

The Tulsa, Okla.-based company markets natural gas, other energy products and the output of three Southern California power plants. Williams Cos. has roughly $1 billion in cash and credit available and a $650-million payment on debt due next week, said Carol Coale, an analyst with Prudential Securities.

Settling with California, she said, would help eliminate some uncertainty for a potential buyer of Williams’ trading operation.

“Every power supplier out in California is probably going to have to renegotiate their deals with [the state] and it’s probably better to just go ahead and get it done,” Coale said.

Wagner met with energy company officials for several days in Sacramento this month. More talks are scheduled for Aug. 5 and 6 in Washington, D.C.

Wagner is trying to mop up the mess left by the implosion of the power market California launched in 1998 under an attempt at deregulation. Exorbitant prices in that market drove the state’s biggest private utility to bankruptcy and forced a state agency--the Department of Water Resources--to take over the job of buying electricity for 27 million utility customers.

Davis argues that power sellers such as Williams earned $9 billion in excess profits in 2000 and 2001 and should be forced to give it back by FERC, the nation’s top arbiter of electricity sales.

The governor and the California Public Utilities Commission also argue that California deserves a $21-billion break on the $43 billion worth of long-term contracts the state signed in the spring of 2001. They say that the deals, some lasting 10 years, were signed at a time when energy companies wielded illegal levels of control over power prices.

Wagner has been trying to help California and the energy companies find compromise on both the issues of refunds and long-term contracts.

Williams President and Chief Executive Steve Malcolm said the company had reached agreement with California, Washington and Oregon on a “global settlement” that should result in a new power contract with California. It would also resolve litigation against the company, including a lawsuit by state Atty. Gen. Bill Lockyer accusing Williams of violating state business laws.

“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,” Malcolm said.

Williams signed four separate agreements with Water Resources worth an estimated $3.8 billion over 10 years. Consumer advocates have criticized the contracts as among the state’s worst. The state auditor concluded that the deals could expose the state to hundreds of millions of dollars of increased costs by allowing Williams to charge the state for compliance with air pollution laws.