California Deal Spurs Rare Williams Rally

The hard-hit stock jumps back above $1 on a settlement deal with the Golden State.
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Williams

(WMB) - Get Report

brightened an otherwise gloomy week with news of a possible resolution to its problems in California.

The Tulsa energy company announced Friday that it has reached a settlement agreement with California that should lead to a new, long-term power contract between the two parties. Terms of the deal -- including possible refunds to California ratepayers and future power rates -- were not disclosed.

California officials wouldn't confirm that any deal had been finalized. "As far as we know, that's still pending," said a spokesman for Gov. Gray Davis's office.

Williams has been under fire for more than a year for allegedly overcharging customers for power during the California energy crisis of 2000-2001. The proposed settlement, which will be presented to federal regulators early next month, could end an avalanche of public and private litigation against the company.

"By working together, we 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 Chief Executive 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."

Williams investors lurched to embrace the news, welcoming any distraction from their escalating panic about the company's deteriorating financial condition. Immediately after the settlement announcement, Williams' stock shot from 88 cents to $1.40 a share for a swift 59% gain.

Bob Rader, a senior partner at Capital West Securities in Oklahoma City, felt a tiny surge of hope at Williams' ability to secure a long-term power contract with California.

"Part of the reason Williams got downgraded by the credit agencies was because counterparties wouldn't sign long-term contracts with them anymore," said Rader, who has no financial stake in the company. "This could actually help their rating go back up -- although maybe that's more of a hope than anything else."

Investors, who witnessed Williams' tumble into junk credit territory this week, displayed only faltering hope as well. Following the stock's brief surge, it settled back to $1.06 for a more modest gain of 20%.

The stock was down 79% on the week, tumbling from $5.16 on surprising news of a large second-quarter loss and a series of downgrades over liquidity concerns. Williams is currently scrambling to negotiate an $800 million credit line, expiring Wednesday, that's viewed by some as the only lifeboat that can save the company from bankruptcy.

"If they can't do that, they'll be on the courthouse steps next Thursday," said John Olson, an analyst at Sanders Morris Harris in Houston.

Olson owns no stock in the company.

In other industry action,

Xcel Energy

(XEL) - Get Report

got slaughtered after stunning the market with news about its financial condition. Shares plunged 37% to finish at a record low of $7.55, and analysts warned the free fall could continue.

Christopher R. Ellinghaus, an analyst at Williams Capital Group, issued a scathing downgrade -- dropping the stock from strong buy to sell -- after the company reported a poor second quarter and painted a dismal picture for the rest of the year.

"The conference call today was one of the worst we have had the displeasure of witnessing and dramatically reduced our confidence in the earnings, the dividend and the fundamentals going forward," Ellinghaus wrote. "However, the Xcel story is not about earnings or even dividends.

"It's about survival."

Xcel is an energy trading and utility company based in Minneapolis.