Truce With California Sends Williams Higher

Williams rallied Tuesday as investors celebrated a truce with California.

Tulsa-based Williams announced late Monday that it reached a settlement with California that could end two major lawsuits accusing it of gouging the state during the power crisis of 2001. The deal, expected to be finalized in a month, could shave nearly one-third of the value from a $4.3 billion long-term power deal Williams inked with the state last year. It also requires Williams to fork over $417 million in refunds, hard assets and energy discounts to compensate for the alleged overpricing.

Williams, which admitted no wrongdoing in the deal, celebrated the settlement as a victory that will erase a major drag on its stock. The market agreed, pushing shares of the beleaguered energy company up 9.6% to $2.85 in Tuesday morning trading.

Williams CEO Steve Malcolm said the settlement will "bring closure" to numerous legal entanglements and allow the company to move forward.

"From a business perspective, we've been able to preserve the value we have for our long-term energy contracts with California," Malcolm said. "And once the settlement goes into effect, it will improve our opportunity to sell or assign all or a portion of our California portfolio."

So far, energy companies have failed to locate interested buyers for their once-hot trading operations. But Williams, if cleared of any criminal wrongdoing, has at least put some major uncertainties behind it.

Prudential analyst Carol Coale described Williams' settlement -- the first struck between a major energy company and the state of California -- as a possible template for future deals between other power companies still battling with the state. She warned that the settlement does not resolve federal investigations, such as the one being conducted by the U.S. attorney's office in Sacramento. But she viewed the California deal as an "overall positive" for the stock, despite a price tag that was higher than she'd expected.