PG&E's Gas Suppliers Want Cash Cutoff complicates electricity crunch

Christian Berthelsen, Chronicle Staff Writer Monday, January 22, 2001

California's energy crisis has spilled over into the natural gas sector in full force, with the precariousness of Pacific Gas and Electric Co.'s finances leading gas providers to withhold supplies unless they are paid in cash.

With a bankruptcy filing by PG&E more of a likelihood, its lack of cash is causing natural gas suppliers to balk. PG&E warned Thursday that its deteriorating credit could lead to a loss of more than a third of its gas supply by tomorrow, possibly resulting in a complete depletion of its storage by early next month.

Illustrating just how intricately interwoven the various crises are, gas cutbacks could end up exacerbating the electricity shortage. If gas suppliers follow through with shutting off PG&E, the first customers to be curtailed would be electricity generators, who need natural gas to run their plants.

The desperation of the situation became evident on Friday when outgoing U.S.

Energy Secretary Bill Richardson, in one of his last official acts, ordered companies to continue shipping natural gas into California to ensure adequate supply.

"I am issuing this temporary emergency order to keep the gas flowing while the state of California, utilities and generators continue to work to find a solution to the current electricity and energy crisis," Dow Jones quoted the secretary as saying.

The cost of natural gas rose fourfold in the last year, as increasing demand collided with reduced supply. The oil price crash in the late 1990s curtailed exploration for both oil and natural gas. Yet because natural gas is a fairly clean-burning fuel, and for a time was relatively inexpensive, a whole wave of appliances and industries -- including electricity generation -- have come to rely on it.

On Thursday, two of PG&E's largest natural gas suppliers -- J. Aron & Co. , the gas trading division of Goldman Sachs, and Western Gas Resources of Denver -- stopped deliveries, and Sempra Energy Trading followed suit on Friday. While the utility has 25 to 30 suppliers, those three represent 20 percent of customer needs.

While the utilities are facing insolvency, it was less clear why natural gas suppliers were stopping deliveries. Unlike electricity, where PG&E has been barred by a rate freeze from passing on high wholesale costs, natural gas prices are borne in full by customers. Presumably, the utility would still be able to pay the suppliers when customers paid their bills.

"If the suppliers would just sell and deliver to us, that would solve the problem," said Staci Homrig, a spokeswoman for PG&E. "Our problem is that we can't provide cash up front as they're requesting, because we don't have cash. But we can pay their bills if they stick to a normal payment schedule."

Representatives of Goldman Sachs and Western did not return telephone calls seeking comment on Friday.

Three more suppliers -- Duke Energy Trading, Coastal Merchant Energy and Natural Gas Exchange of Canada -- have said they may stop providing gas as early as tomorrow. If so, that would mean PG&E would be lacking two-thirds of its regular supply. The utility has been drawing heavily on its reserve fields,

such as the mile-square underground one near the Delta in Stockton, taking as much as

1 billion cubic feet a day to serve customer needs. If that continues, the utility could run out of reserves by early next month.

Former Energy Secretary Richardson took a similar emergency measure last month, when he ordered electricity generators to continue selling juice to the state's power grids, even though they were balking over fears they would not be paid.

The Department of Energy order issued Friday, which was apparently requested by Gov. Gray Davis, requires all suppliers who have sold natural gas to PG&E in the last 30 days to continue doing so through tomorrow. It is unclear if that order will be continued by President Bush's energy secretary, Spencer Abraham. So far, Bush has expressed a reluctance to get involved in the California energy crisis, saying it is up to the state to fix its own problems.

PG&E issued a statement Friday saying that while it supported the secretary's order, the company was concerned it would last only until tomorrow and said it should be extended further.

A complete failure to deliver natural gas could mean that, as the coldest winter months approach, 3.6 million Californians would have to find other means of heating their homes, getting hot water, cooking and running clothes dryers. Still, PG&E customers can select another gas provider; options appear on the utility's Web site, under the "residential services" link.

http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2001/01/22/MN78166.DTL

-- Martin Thompson (mthom1927@aol.com), January 22, 2001

Answers

The Department of Energy order issued Friday, which was apparently requested by Gov. Gray Davis, requires all suppliers who have sold natural gas to PG&E in the last 30 days to continue doing so through tomorrow.

Huh? How can it order a supplier in another country to do anything?

-- Rachel Gibson (rgibson@hotmail.com), January 22, 2001.