Calif. Reaches Settlement With Power Provider

California agreed Monday to drop its lawsuits against Williams Cos., one of the major power companies accused of price gouging during the energy crisis, in exchange for concessions and payments that the state says could exceed $1.8 billion.

Gov. Gray Davis and Atty. Gen. Bill Lockyer announced the settlement with Tulsa, Okla.-based Williams days after federal prosecutors signaled they were pressing ahead with a criminal investigation into alleged manipulation of energy prices in California and issued subpoenas to Williams and four other companies.

In its deal with California, Williams agreed to renegotiate $4.3 billion in long-term power contracts with the state.

The deal provides no rate breaks for utility customers, many of whom have seen their bills rise as much as 40% since the energy crisis of 2000-01. But Davis called the settlement an “important victory for consumers” in the long term, in part because Williams agreed to cut the cost of electricity it will supply to Californians in the future.

“This may become a template for more agreements,” Lockyer said. “We are in very active negotiations” with other companies, including Duke Energy Corp., Reliant Resources Inc. and Mirant Corp.

The state has accused energy companies of overcharging California as much as $9 billion for energy purchases made during the height of the electricity crisis. State officials maintained that Williams accounted for about $400 million of that.

In settling with the state, Williams admitted no wrongdoing. However, Williams is one of at least five major players in California subpoenaed by the U.S. attorney’s office in San Francisco to turn over information about their involvement in the state’s power markets. Others include Duke, Reliant, Mirant and AES Corp.

As part of the settlement, Williams agreed to cut the price of its long-term energy contracts by as much as $1.4 billion over 10 years, state officials said. The exact savings will depend on future energy demand, among other factors.

The company also will make payments and other concessions valued at $417 million, including $180 million in discounts on energy contracts.

Williams will give the state six electricity-generating turbines valued at $90 million and will make a $147-million cash payment over eight years. The cash will be split among the states of California, Oregon and Washington, as well as various local governments. California will use $80 million of its cash payment to convert public schools to solar energy.

The settlement also ends the state’s litigation accusing Williams of illegally pricing energy and double-selling electricity.

Not everyone was impressed with the state’s settlement.

After reviewing the renegotiated contracts Monday, Mike Florio, senior attorney with the Utility Reform Network, a San Francisco-based consumer group, said state officials were overvaluing the concessions.

“From our perspective it looks like they rearranged the long-term contracts but did not provide any real savings unless the state chooses not to buy power from Williams after 2007,” Florio said.

Florio also said discounts on other contracts would be of little benefit.

“The prices of the natural gas contracts looked to be reasonable considering current market prices are not at historic lows as the Davis people claim,” he said. “If anything, it is guaranteeing Williams a market for its gas, rather than giving the state a concession.”

California jumped into the energy business in 2001 after soaring wholesale energy prices drove the state’s two largest utilities -- Edison International unit Southern California Edison and PG&E; Corp.’s Pacific Gas & Electric Co. -- to the brink. The utilities were unable to purchase power from their usual suppliers because they ceased being credit-worthy.

Edison eventually worked out a deal with the state Public Utilities Commission to use surplus rate collections to pay off its energy debts and avoid Bankruptcy Court. Pacific Gas & Electric filed for Chapter 11 bankruptcy protection from its creditors.

Last year, 29 companies including Williams signed $43 billion in contracts to provide the state Department of Water Resources with power for California over the next 20 years.

This year, state regulators asked the Federal Energy Regulatory Commission to overturn dozens of the contracts. The state said they should be nullified because they were signed when companies were illegally manipulating the state’s energy market in spring 2001. FERC has set a hearing on the issue for Dec. 2, with a decision expected in February.

Consumer advocates have criticized the Williams contracts as among the state’s worst. The Williams deal required the state to buy electricity whether it was needed or not. It also relieved Williams from any new taxes that might be imposed, as well as fines for pollution coming from power plants that generate the electricity it will be supplying.

The renegotiated contracts that are part of the settlement eliminate those terms and provide more flexibility for state power purchasers.

“We came back to the table this year ready to do the right thing for everyone involved,” Williams Chief Executive Steve Malcolm said in a statement. “Today’s settlement is the result of the productive dialogue we’ve had with California officials since we reached an agreement in principle in July.”

Like most energy merchants, Williams has been reeling from falling prices and credit problems. Lockyer said Williams’ desire to shore up its balance sheet helped speed the talks.

The state said it structured the agreement to get price reductions and hard assets such as the generators because it feared that cash payments might be endangered if Williams is pushed into bankruptcy. Under Monday’s deal, Williams will provide turbines to San Diego and San Francisco for those cities to use as part of new power facilities.

Malcolm said the agreement “preserves the value” of the energy company’s contracts with the state and would give Williams the ability to sell off its California business.

Its shares, down 90% this year, fell a penny to $2.60 on the New York Stock Exchange.

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Hirsch reported from Los Angeles, Morain from Sacramento.