California has reached its first settlement with an energy producer it accused of overcharging the state last year, but it won’t immediately lower ratepayer monthly bills nor ease the state’s budget deficit.
Monday’s deal between the state and Tulsa-based Williams Cos. trims up to $1.4 billion from its $4.3 billion contract with an Oklahoma energy firm and reaps about $400 million more in refunds.
The settlement also affects only about 10 percent of the $43 billion in long-term contracts the state reached last year with energy producers during the state’s energy crisis.
Williams admitted no wrongdoing as part of the agreement, which California Gov. Gray Davis called “a victory for ratepayers. The new contract provides us more reliable power when we need it at much more favorable terms.”
Monday’s agreement followed months of detailed negotiations after the two parties agreed in principle last August to renegotiate the state’s 10-year energy contract and settle several lawsuits.
The states of Oregon and Washington, which joined class-action suits against Williams, also will receive $15 million each across three years. The three states launched a coordinated investigation into energy companies amid allegations of price manipulation during the 2000-2001 West Coast energy crisis.
Aides to California Attorney General Bill Lockyer said they are in similar talks with other energy companies and more settlements are possible.
“We aren’t commenting on the status of other discussions,” said Ken Alex, state supervising deputy attorney general. “We have other discussions going, but we can’t quantify them.”
Bill Kissinger, Davis’ deputy legal affairs secretary, said, “We hope some other energy entities pay close attention to this. Williams can say to the markets: ‘We’re basically finished with lawsuits in California and we’re moving forward.'”
In Tulsa, Williams’ president and chief executive, Steve Malcolm, said the agreement clears the firm to sell its contracts in California and removes potential investors’ uncertainty surrounding those assets while preserving the contracts’ value.
Malcolm said his conversations with banks, lenders and shareholders told him the lawsuits, refund questions and investigations were holding the company back. “That’s why we felt it was critical to get this done.”
Lockyer sued Williams in March and April, accusing the firm of illegally pricing its energy and reaping extra profits by double selling it.
In May 2001, California Lt. Gov. Cruz Bustamante and state legislators also sued Williams and four other power generators, alleging they conspired to drive up electricity prices. That suit was on behalf of taxpayers to recover the generators’ excess profits on power sales to the state since Jan. 17, 2001, when the state started buying power for three struggling utilities.
The generators were Duke Energy of Charlotte, N.C., Dynegy Inc. and Reliant Resources Inc. of Houston, Mirant Corp. of Atlanta, and Williams.
“I think probably the legal actions were a good part of the motivations for Williams to settle because our claims could have pushed them into bankruptcy,” Lockyer said.
Before the settlement, Williams stock dropped as much as 22 percent Monday, as investors reacted to federal grand jury subpoenas of its California energy trading records. After the settlement, the stock rebounded and closed down only one cent a share.
The San Francisco-based grand jury also has subpoenaed records from Mirant, Reliant Resources and Duke. Those subpoenas follow the guilty plea last month by former Enron trader Timothy Belden to conspiracy in a San Francisco federal court. It was the first public acknowledgment that criminal activity helped drive up California power prices.
The Williams refunds include $180 million in contract price reductions and $90 million for six power plant turbines to be given to the cities of San Francisco and San Diego for energy production. State officials hope when the San Francisco turbines become operational they can rely less on the region’s air-polluting Hunters Point power plant.
A remaining $150 million will help fund energy efficiency projects in cities, counties and water districts across the state. At least $80 million of the funds will help California schools begin to produce their own solar energy.