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Williams Shares Tumble After Energy Trading Subpoena

Nov 11, 2002 | AP Shares of Williams Cos. plunged Monday as investors reacted to a federal grand jury's subpoena of the company's California energy trading records. But the stock rebounded on news the company settled the state's lawsuit against it by paying $150 million and making other concessions in renegotiated long-term contracts.

Williams received the subpoena Friday from a federal grand jury in San Francisco, the company said after the market closed last week. The grand jury is investigating whether power companies manipulated energy prices during California's energy crisis.

Charlotte, N.C.-based Duke Energy, Houston-based Reliant Resources Inc. and Atlanta-based Mirant Corp. said they have also received subpoenas. The four companies, which California utility regulators have accused of scheming to drive up energy prices during the state's power crisis in 2000 and 2001, said they would cooperate.

The subpoena was another setback for Tulsa-based Williams as it tries find a joint venture partner or a buyer for its struggling energy trading business, which is also being investigated by federal regulators.

"With the many clouds overhanging that business, Friday's California subpoenas are only going to make matters worse," said Tulsa money manager Fred Russell, whose investment house sold its 198,000 Williams shares in September. "This is not good news especially when you remember that a subpoena has far more ominous connotations than inquiries or even investigations."

But settling the lawsuit California filed in March should clear one obstacle the company has faced in its six-month-long search for an energy trading investor. The lawsuit, filed by California Attorney General Bill Lockyer, had alleged Williams double-billed the state for millions of dollars of electricity.

Williams shares tumbled as far as 58 cents, or 22 percent, to $2.03 Monday on the New York Stock Exchange before closing just a penny off at $2.60. The stock has a 52-week high of $30.40.

Duke shares fell $1.55, or 8 percent, to $18.41 Monday. Reliant dropped 31 cents, or 14 percent, to $1.94. Mirant shares were off 34 cents, or 15 percent, to $1.91.

The subpoena asked Williams for documents relating to its energy trading contracts and information about key people involved in its California energy trades, Williams spokesman Kelly Swan said Monday.

Williams said it expects Washington, Oregon and private class-action plaintiffs to join its settlement with California, which alleged Williams and other companies were paid by the state to hold power in reserve but sold it anyway on the open market.

Under the settlement, Williams will pay California $150 million over eight years, increase power output through 2010 to 1,875 megawatts from 1,400, provide six power-generating turbines, sell the state natural gas through 2010 and give it more flexibility in dispatching power, Williams said.

Williams will also cooperate with the Lockyer's ongoing investigation into the state's energy market, the company said.

The settlement also frees Williams from any refunds the Federal Energy Regulatory Commission orders paid to California for long-term contracts the state entered at high prices during the contracts.

In a September report to state lawmakers, the California Public Utilities Commission accused five energy companies including Williams, Reliant, Mirant and Duke of causing the state's rolling blackouts by withholding power.

Williams, which provides fuel to three AES power plants in the Los Angeles area, has denied withholding any power during the crisis.

Williams' energy trading division is also being investigated by the Commodity Futures Trading Commission for false information some Williams energy traders provided to an industry publication. The publication uses information from traders to compile price indexes used to price natural gas contracts.

Energy trading chief executive and president Bill Hobbs has said the investigations, California's litigation and the possible downgrade of the contracts have repelled potential buyers or partners of the trading unit.

Enron Corp.'s collapse has caused investors and analysts to look harder at other energy traders' debt. Williams credit has since been lowered below investment grade, preventing the company from signing any long-term energy trading contracts.

The unit, which accounted for half the company's operating profit in 2001, lost $497.5 million in the second quarter.

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