Williams

(WMB) - Get Report

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.

California consumers, who've criticized Williams' original contracts as among the state's worst, wanted more from the negotiations. But state officials told the

Los Angeles Times

Monday that California pushed most heavily for price concessions and hard assets -- including four turbines valued at $90 million -- because it feared that cash payments would be endangered under a Williams bankruptcy.

News of the settlement came shortly after a fresh subpoena had sent shares of Williams diving by as much as 22%. The announcement also precedes, by mere days, a third-quarter earnings report that has been delayed for weeks.

California officials said Williams' push to strengthen its balance sheet helped speed the negotiation process along. Williams has been scrambling to rebuild itself in the wake of

Enron's

demise. The company's stock has hemorrhaged 90% of its value since Enron sent the entire industry into a tailspin roughly a year ago.

Our premium content on RealMoney.com is FREE for TODAY ONLY, Tuesday, Nov. 12!

Click here

to check it out.