<PAGE>

                                                                  EXHIBIT 10.23

     An asterisk ([*]) indicates that confidential information has been
omitted and filed separately with the Securities and Exchange Commission as
part of a Confidential Treatment Request.

                                   GUARANTY BY
                          THE WILLIAMS COMPANIES, INC.

     GUARANTY (this "GUARANTY"), dated as of March 1, 2000, by The Williams
Companies, Inc., a Delaware corporation (the "GUARANTOR"), in favor of AES Red
Oak, L.L.C., a Delaware limited liability company ("GUARANTEED PARTY"), pursuant
to Section 18.3 of that certain Fuel Conversion Services, Capacity and Ancillary
Services Purchase Agreement, dated as of September 17, 1999, by and between
Guaranteed Party and Williams Energy Marketing & Trading Company, a Delaware
corporation and a subsidiary of Guarantor (the "COMPANY"), as modified or
supplemented from time to time (the "PPA").

                                    RECITALS

     WHEREAS, Guaranteed Party has agreed to enter into the PPA in reliance upon
the Guarantor's agreement, pursuant to the terms and conditions set forth below,
to provide this Guaranty to Guaranteed Party; and

     WHEREAS, Guarantor is willing to provide this Guaranty to Guaranteed Party,
on the terms and conditions set forth below, as an inducement to Guaranteed
Party to enter into the PPA with the Company.

     NOW, THEREFORE, in consideration of the above premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be bound hereby, the Guarantor agrees as follows:

     1. OBLIGATIONS OF GUARANTOR. Subject to the Guaranty Cap set forth in
Section 2 of this Guaranty, the Guarantor unconditionally and irrevocably
guaranties, as primary obligor and not merely as surety, to and for the benefit
of Guaranteed Party, the prompt payment and performance when due of all present
and future obligations (i) of the Company to make Total Fixed Payments pursuant
to, and as such term is defined in, the PPA and (ii) to pay damages arising
under the PPA in respect of the Company's obligation to make Total Fixed
Payments under the PPA (including damages related to the loss by Guaranteed
Party of the Total Fixed Payments arising from any breach by the Company of the
PPA or a termination of the PPA for cause by Guaranteed Party) together with any
and all reasonable expenses (including reasonable attorneys' fees and expenses)
incurred by Guaranteed Party in enforcing this Guaranty (the obligations
referred to in clauses (i) and (ii) collectively and individually, the
"OBLIGATIONS"). Subject to the Guaranty Cap set forth in Section 2 of this
Guaranty, the Guarantor agrees, that upon the failure of the Company to pay any
of the Obligations when they become due, the Guarantor will, upon written demand
by Guaranteed Party, pay, or cause to be paid, to Guaranteed Party any and all
such unpaid Obligations.

     2. MAXIMUM GUARANTEED AMOUNT.

     (a) The aggregate liability of the Guarantor under this Guaranty and
Guaranteed Party's right of recovery hereunder is limited to a total aggregate
amount of [*]


<PAGE>

[*] (the "GUARANTY CAP").

     (b) [*]

     3. NATURE OF OBLIGATIONS. The Guarantor guaranties that the Obligations
shall be paid strictly in accordance with the terms of the PPA, regardless of
any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of Guaranteed Party with respect
thereto. The duties of the Guarantor under this Guaranty are independent of the
Obligations, and a separate action or actions may be brought and prosecuted
against the Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the Company or whether the Company is joined in any
such action or actions. Guaranteed Party shall not be obligated to file any
claim relating to the Obligations if the Company becomes subject to a
bankruptcy, reorganization or similar proceeding and neither the failure of
Guaranteed Party to so file, nor the existence of any such proceeding, shall
affect the Guarantor's obligations hereunder. The liability of the Guarantor
under this Guaranty as specified in Section 1 of this Guaranty shall, to the
fullest extent permitted by law, be absolute and unconditional irrespective of:

          (i) any change in the time, manner or place of payment of, or in any
     other term of, all or any of the Obligations, or any other amendment or
     waiver of or any consent to departure from the PPA, including, without
     limitation, any increase in the Obligations; provided, however, no action
     taken pursuant to this Section 3(i) shall be construed to extend the term
     of this Guaranty or increase the amount of the Guaranty Cap;

          (ii) any manner of sale or other disposition of assets of the Company
     or any of its Affiliates (as such term is defined in the PPA); or

          (iii) any change, restructuring or termination of the structure or
     existence of the Company or any of its Affiliates.

     The Guarantor shall not contest the amount, Guaranteed Party's right to
collect, or Guaranteed Party's collection of, the Obligations (as they may be
revised from time to time as provided for herein) in any future proceeding
including, without limitation, civil, criminal, regulatory, administrative,
judicial, equitable, or appellate, on the basis that the Obligations constitute
a penalty, are or will result in a forfeiture, or are otherwise unlawful;
provided, however, that, notwithstanding anything to the contrary contained
herein, the Guarantor may

                                       2

<PAGE>

assert that Guaranteed Party's actual damages are less than the Obligations,
contest liability or assert any other claim or defense that the Company could
assert, except as expressly limited herein, so long as the Guarantor does not
duplicate or reassert any claims or initiate any proceedings that were resolved
or concluded previously by the Company.

     The Guarantor agrees that the obligations of the Guarantor set forth in
this Guaranty shall be direct obligations of the Guarantor, and such obligations
shall be absolute and unconditional and shall not be subject to any
counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension,
deferment, reduction or defense (other than full and strict compliance by the
Guarantor with its obligations hereunder) based upon any claim the Guarantor or
any other Person (as such term is defined in the PPA) may have against
Guaranteed Party or the Company. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, all as though such
payment had not been made.

     4. WAIVER. The Guarantor hereby waives demand, promptness, diligence,
presentment, notice of acceptance, notice of protest for non-payment and any
other notice or similar action with respect to any of the Obligations and this
Guaranty and any requirement that Guaranteed Party exhaust any right or take any
action against the Company or any other Person.

     5. SUBROGATION. The Guarantor shall not exercise any rights which it may
acquire by way of subrogation under this Guaranty, by any payment made hereunder
or otherwise, until all Obligations and all other amounts payable under this
Guaranty shall have been paid in full to Guaranteed Party. If any amount shall
be paid to the Guarantor on account of any subrogation rights at any time prior
to the payment in full of the Obligations and all other amounts payable under
this Guaranty, such amount(s) shall be paid immediately to Guaranteed Party to
be credited and applied to the Obligations, whether matured or unmatured, in
accordance with the terms hereof and the PPA. Upon full payment of the
Obligations and all other amounts payable under this Guaranty, Guarantor shall
be subrogated to the rights of Guaranteed Party, and Guaranteed Party shall take
all such reasonable actions, at the Guarantor's sole expense, as Guarantor shall
reasonably request to effect such subrogation rights.

     6. CERTAIN RIGHTS AND POWERS OF GUARANTEED PARTY. Guaranteed Party shall
have all of the rights and remedies available under applicable law and may
proceed by appropriate court action to enforce the terms hereof and to recover
damages for the breach hereof. Each and every remedy of Guaranteed Party shall,
to the extent permitted by law, be cumulative and shall be in addition to any
other remedy now or hereafter existing at law or in equity. At the option of
Guaranteed Party and upon notice to the Guarantor, the Guarantor may be joined
in any action or proceeding commenced by Guaranteed Party against the Company in
respect of any Obligation, and recovery may be had against the Guarantor in such
action or proceeding or in any independent action or proceeding against the
Guarantor, without any requirement that Guaranteed Party first assert, prosecute
or exhaust any remedy or claim against the Company.

     7. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and warrants to
Guaranteed Party as follows:

                                       3

<PAGE>

     (a) ORGANIZATION AND GOOD STANDING. The Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each jurisdiction in which it currently conducts its business. The
Guarantor has all requisite corporate power and authority to carry on its
business at it is now conducted and as contemplated by this Guaranty, and to
enter into and perform its obligations hereunder.

     (b) DUE AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance by the Guarantor of the Guaranty has been duly and effectively
authorized by all necessary corporate action of the Guarantor. No other
corporate proceedings are necessary to authorize the execution and delivery by
the Guarantor of this Guaranty; and this Guaranty is the valid and binding
obligation of Guarantor, enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws from time to time in effect that affect creditors' rights generally
or by general principles of equity. Neither the execution and delivery of this
Guaranty nor compliance by the Guarantor with any of the provisions hereof will
(i) violate, or conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or laps of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
upon any of the properties or assets of the Guarantor under any of the terms,
conditions or provisions of, the Certificate of Incorporation or By-Laws of the
Guarantor in effect on the date of this Guaranty (hereinafter, the "Effective
Date") or any agreement or other instrument or obligation to which the Guarantor
is a party at the Effective Date, or by which the Guarantor or any of its
properties or assets or may be bound or affected as of the Effective Date, or
(ii) violate any order, writ, injunction decree, arbitration award, statute,
rule or regulation applicable at the Effective Date to the Guarantor or any of
its properties or assets.

     (c) NO CONSENT REQUIRED. No permit, authorization, consent, approval,
waiver, exception, variance, ruling, order decree, exemption, filing, recording,
registration, notice or declaration (collectively, "GOVERNMENTAL APPROVAL"), is
required or to be made on the Guarantor's behalf with any federal, state,
county, municipal, regional, local, territorial or other governmental
department, regulatory body, commission, board, bureau, agency, taxing authority
or other instrumentality (collectively, "GOVERNMENTAL AUTHORITY") to authorize
the execution and delivery of this Guaranty or the taking of any future action
contemplated hereby, except for those Governmental Approvals (i) which have
already been obtained or (ii) the failure of which to obtain would not have an
adverse effect on the ability of the Guarantor to perform and satisfy its
obligations hereunder.

     (d) NO DEFAULT UNDER OTHER AGREEMENTS. The Guarantor is not in default, and
no condition exists that with notice or lapse of time or both would constitute a
default, under any mortgage, deed of trust, indenture or other instrument or
agreement to which it is a party or by which it or any of its properties or
assets may be bound, that would have a material adverse effect on the
Guarantor's ability to perform under this Guaranty; and the Guarantor is not in
violation of any federal, state, or local rules, ordinances, judgments, decrees,
injunctions, writs, interpretations, licenses and permits or orders of any
court, arbitrator (collectively, "REQUIREMENTS OF LAW"), or Governmental
Authority that could have a material adverse effect on the Guarantor's ability
to perform under this Guaranty.

                                       4

<PAGE>

     (e) LITIGATION. There is no litigation, proceeding, arbitration or
government investigation pending or, so far as known to the Guarantor,
threatened with respect to or otherwise relating to the Guarantor which if
adversely determined could, in any one case or in the aggregate, have a material
adverse effect on the ability of the Guarantor to comply with its obligations
under this Guaranty.

     (f) COMPLIANCE WITH LAW. (i) The Guarantor has complied in all material
respects with all Requirements of Law relating to this Guaranty, the Guarantor
has received no written notice to the effect that, or otherwise been advised in
writing that, it is not in compliance with any requirement of law or
governmental approval relating to this Guaranty, and the Guarantor has no reason
to believe that any currently existing circumstances are likely to result in
violations by the Guarantor of any such requirement of law which could in any
one case or in the aggregate, have a material adverse effect on the ability of
the Guarantor to perform under this Guaranty; and (ii) to the best of the
knowledge of the Guarantor, there is not now pending any proceeding, hearing or
investigation with respect to the adoption of amendments or modifications to any
existing requirement of law or governmental approval with respect to such
matters which, if adopted, would have a material adverse effect on the ability
of the Guarantor to comply with its obligations under the Guaranty.

     8. COVENANTS. The Guarantor covenants and agrees that, so long as any part
of the Obligations shall remain unpaid, the Guarantor shall:

     (a) PERFORMANCE AND COMPLIANCE WITH OTHER AGREEMENTS. Perform and comply
with each of the material provisions of each material indenture, credit
agreement, contract or other agreement by which the Guarantor is bound,
non-performance or non-compliance with which would have a material adverse
effect on its ability to perform its obligations hereunder, except material
contracts or other agreements being contested in good faith.

     (b) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain its
corporate existence and preserve its material rights, franchises and privileges
to conduct its business substantially as conducted on the date hereof.

     (c) COMPLIANCE WITH LAWS, ETC. Comply with all Requirements of Law and
Governmental Approvals, non-compliance with which would have a material adverse
effect on its ability to perform its obligations herein, except laws, rules,
regulations and orders being contested in good faith.

     (d) NOTICE OF BREACH. Provide, as soon as possible and in any event within
three (3) business days after the occurrence of any default or breach of the
obligations applicable to the Guarantor hereunder, a statement of the Chief
Financial Officer or Vice-President and Treasurer of the Guarantor setting forth
details of the circumstances leading to such breach or default hereof and the
action which the Guarantor proposes to take with respect thereto.

     (e) MERGERS, ETC. Not merge with any person, corporation, partnership, or
other entity unless: (i) the surviving and resulting entity agrees in writing to
be bound hereby to the same

                                       5

<PAGE>

extent as the Guarantor, and (ii) immediately after giving effect thereto, no
event of default or breach of this Guaranty shall have occurred and be
continuing.

     9. NO WAIVER. No failure on the part of Guaranteed Party to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.

     10. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
(i) remain in full force and effect until the payment in full of all amounts
payable under this Guaranty, (ii) be binding upon the Guarantor, its successors
and assigns, and (iii) inure to the benefit of, and be enforceable by,
Guaranteed Party and its successors, transferees and assigns.

     11. WAIVER OF NOTICES. The Guarantor hereby unconditionally and irrevocably
waives all notices to and demands upon the Company or the Guarantor and all
other formalities, the omission of any of which or delay in performance of
which, might, but for the provisions of this paragraph, by rule of law, under
equitable principles or otherwise, constitute grounds for relieving or
discharging the Guarantor in whole or in part from its obligations hereunder.

     12. NO CONSEQUENTIAL DAMAGES. Neither Party shall be liable to the other
under this Guaranty or otherwise for any exemplary, consequential, special, or
punitive losses or damages that may be incurred by either Party as a result of
their execution of and performance under this Guaranty.

     13. FURTHER ASSURANCES. The Guarantor, at its sole cost and expense, shall
cause to be promptly and duly taken, executed, acknowledged and delivered, such
further documents and instruments as Guaranteed Party may from time to time
reasonably request in order to carry-out more effectively the intent and
purposes of this Guaranty.

     14. SEVERABILITY. If any provision of this Guaranty shall be held or deemed
to be or shall, in fact, be illegal, inoperative or unenforceable, the same
shall not affect any other provision or provisions herein contained or render
the same invalid, inoperative or unenforceable to any extent whatsoever.

     15. COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. The effective
date of this Guaranty for all purposes shall be the date specified on page one
(1) above.

     16. AMENDMENT; WAIVER; REQUIREMENT OF WRITING. This Guaranty cannot be
amended, changed, modified, released or discharged except by a writing signed by
the party against whom enforcement of the amendment, change, modification or
waiver is sought.

     17. ADDRESS FOR NOTICES. Any notice, request, consent, waiver or other
communication required or permitted hereunder shall be effective only if it is
in writing and personally delivered or sent by certified or registered mail,
postage prepaid, or by nationally recognized overnight courier, addressed as set
forth below:

                                       6

<PAGE>

         If to Guaranteed Party:

                      AES Red Oak, L.L.C.
                      c/o The AES Corporation
                      1001 North 19th Street
                      Arlington, VA  22209
                      Attention:    General Counsel
                      Telephone:    (703) 522-1315
                      Facsimile:    (703) 528-4510

         If to Guarantor:

                      The Williams Companies, Inc.
                      One Williams Center
                      Tulsa, OK   74172
                      Attention:    Treasurer
                      Telephone:    (918) 573-5551
                      Facsimile:    (918) 573-2065

or to such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice or communication
shall be deemed to have been given as of the date received by the recipient
thereof.

     18. GOVERNING LAW. This Guaranty shall be construed in accordance with and
governed by the laws of the State of New York without regard to the conflict of
laws provisions of such laws.

     19. SUBMISSION TO JURISDICTION. Each of Guaranteed Party and the Guarantor
hereby irrevocably and unconditionally:

     (a) submits for itself and its property in any legal action or proceeding
relating to this Guaranty, or for recognition and enforcement of any judgment in
respect thereof, to the exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of the Southern District of
New York, and appellate courts with jurisdiction over any appeals therefrom;

     (b) consents and agrees that any such action or proceeding may be brought
in and only in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;

     (c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to its address set forth
in Section 17 of this Guaranty, or at such other address of which the other
party shall have been notified pursuant thereto; and

                                       7

<PAGE>

     (d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.

     20. ASSIGNMENT. This Guaranty may be assigned by the Guarantor only with
prior written consent of Guaranteed Party, which consent shall not be
unreasonably withheld. Guaranteed Party may assign this Guaranty only as
permitted under the PPA with respect to assignments by Guaranteed Party of its
rights thereunder. This Guaranty shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       8

<PAGE>

     IN WITNESS WHEREOF, the Guarantor and Guaranteed Party have each caused
this Guaranty to be executed on its behalf by its duly authorized office as of
the date shown above.

                                  THE WILLIAMS COMPANIES, INC.
                                  as Guarantor

                                  By: /s/ James G. Ivey
                                     -------------------------------------------
                                     Name: James G. Ivey
                                     Title: Treasurer

                                  ACCEPTED AND ACKNOWLEDGED:

                                  AES RED OAK, L.L.C.

                                  By: /s/ Charles Falter
                                     -------------------------------------------
                                     Name: Charles B. Falter
                                     Title: Vice President



                    [GUARANTY BY THE WILLIAMS COMPANIES, INC.]

<PAGE>


                                    EXHIBIT A

                               AES RED OAK PROJECT
                          THE WILLIAMS COMPANIES, INC.
                         GUARANTY CAP REDUCTION SCHEDULE

<TABLE>

<CAPTION>


                          MAY 30               NOVEMBER 30
                          ------                ----------
   YEAR                REDUCTION                 REDUCTION
   ----                ---------                ----------

<S>                        <C>                  <C>

[*]

</TABLE>


                                   [EXHIBIT A]