S&P: Williams decision unfavorable

Standard & Poor's said Friday that The Williams Cos. Inc.'s (B+/stable/--) decision to continue operating its wholesale power business and cease efforts to exit that business is unfavorable for credit but is in line with S&P's expectations.

The power business requires a significant amount of cash to meet margin calls. In addition, although the power business is cash flow positive today, the tail end of the portfolio could be substantially cash flow negative to Williams if today's depressed power prices prevail beyond the power hedges that expire in 2010.

Williams' power business consists of long-term contracts for capacity to generate 7,700 megawatts of electricity for wholesale markets. Six tolling contracts that were forged between 1998-2001 represent the most significant portion of the company's wholesale power business.

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