Published Thursday, Jan. 18, 2001, in the San Jose Mercury News

Natural-gas cutoffs possible this week, PG&E chiefs say U.S. IS EXPECTED TO RESPOND TODAY TO PLEA FROM DAVIS ON SUPPLY BY STEVE JOHNSON Mercury News

Besides losing electricity, some PG&E customers could have their natural gas cut off this week, the utility company's two top corporate officials said Wednesday, although federal officials may issue an order today that could ease the situation.

Pacific Gas & Electric Co. had warned last week that cutoffs were possible because gas suppliers were threatening to stop dealing with the cash-starved utility out of fear of not being paid. Now, some suppliers have carried through on that threat and the utility's 3.7 million gas customers could feel the effect within a day or so, said PG&E President Gordon Smith and Robert Glynn, the parent company's chief executive officer, during an interview with the Mercury News.

Timing uncertain

MORE STORIES Blackouts hit, Davis buys more power Statewide shortage leaves areas in the dark State polls: Most believe problems are fault of utilities Natural-gas cutoffs possible this week PG&E says it won't pay $76 million in bills Silent stores,empty-handed customers A crash course in unplugged life Smaller businesses are hit doubly hard Learn where you stand in the rolling-blackouts REGIONAL STORIES Outages snarl traffic, empty businesses in SJ Darkness disrupts noontime rituals in Alameda Midday power loss forces Santa Cruz to adapt Blackouts handled with aplomb on the Penninsula Random blackouts roll through SF FORUM What needs to be done to solve this energy crisis? MORE LINKS ISO Operator Calif. Public Utilities Commission PG&E Southern Calif. Edison Although residents and small businesses wouldn't be immediately affected, PG&E could cut off some industrial gas customers -- including electricity-generating plants that use natural gas for fuel -- today ``or the next day,'' Glynn said. He later amended that by noting that a decision about whether to terminate gas would probably be made ``sometime between the next two days and the next two weeks.''

Smith made it sound more urgent. ``It may be just a question of hours or days before somebody has their spigot turned off,'' he said.

But the gas problem could be averted today, when U.S. Energy Secretary Bill Richardson is expected to respond to Gov. Gray Davis' request for a federal order requiring out-of-state gas suppliers to continue selling to PG&E. Davis, who made that appeal to President Clinton on Saturday, had asked for an order similar to one already issued by Richardson that forces out-of-state electricity suppliers to sell to California during power shortages.

Although an official in Richardson's office said the energy secretary would make a statement about the request today, he said he didn't know what position Richardson would take. If Richardson doesn't issue the order Davis has sought -- and if more gas doesn't become available to PG&E -- the executives said customer cutoffs would be highly likely.

Reserves are key

Assuming the firm used up all of its gas reserves, officials said, it could avoid affecting customers for a couple of weeks. Those reserves ``would run out right around the beginning of February,'' Glynn said. But he added that ``if we use it all up now, we won't have any left for cold days in February,'' when PG&E customers with gas heaters will be especially vulnerable.

So instead of waiting until the reserves are gone, they said, PG&E probably would opt to begin cutting off some of its gas customers before that happens. How and when that might occur hasn't been determined yet, they said, but company officials were conducting a review to answer those questions. ``We're working on the decision as we speak,'' Glynn said.

If the utility does cut off gas, they said, state regulations require that the first customers to feel it would be large industrial users. Residents and small businesses, deemed high-priority customers under the rules, would be the last ones affected. But by cutting off big natural-gas users first, the executives warned, all of PG&E's customers could wind up getting hurt.

That's because two-thirds of PG&E's major gas customers are natural-gas-fueled electricity plants. Given the extreme shortage of electricity in California -- which was evidenced by the massive blackouts Wednesday -- cutting off gas to even a few of those plants could have a severe effect on electricity supplies throughout the state.

How suppliers stand

Although many of its 25 to 30 gas suppliers have expressed concerns about continuing to supply the utility, in light of its rapidly worsening financial plight, only two have actually stopped providing gas, PG&E officials said. The executives identified them as Western Gas Resources Inc. of Denver, which stopped providing gas on Saturday, and J. Aron & Co. of New York City, which ceased on Jan. 10. The officials said the two firms provide more than 13 percent of PG&E's daily gas purchases.

PG&E's executives complained that many of their suppliers had previously agreed to accept payment on the month after delivery, but they now want cash in advance or on the day of delivery. J. Aron officials couldn't be reached for comment on that point. But Ron Wirth of Western contended that ``the reason we stopped delivering is because they stopped paying under the terms of the contract,'' though he declined to elaborate.

Asked what his firm would do if Richardson ordered it to resume supplying PG&E, Wirth said, ``We'd just have to evaluate that situation if that occurs.''

http://www0.mercurycenter.com/premium/local/docs/gas18.htm

-- Martin Thompson (mthom1927@aol.com), January 18, 2001

Answers

I keep thinking the California troubles can't get any worse, but then something else pops up. All this mess is going to have an effect on the rest of country in the not to near future. This is not just a California problem anymore.

-- Martin Thompson (mthom1927@aol.com), January 18, 2001.

Martin,

You're so correct! Given we keep hearing that Californy is the 10th [or was that the 6th] largest economy on the planet. It appears that is is about to implode.

Did you set up a layoff thread yet?

-- (perry@ofuzzy1.com), January 18, 2001.

Maybe a California Lay off thread?

-- Martin Thompson (mthom1927@aol.com), January 18, 2001.

Natural Gas Supply Issue Reaches Crisis Level; Suppliers Have Said They May Pull Up to Two-Thirds of Needed Gas Due to California Energy Crisis Source: Business Wire Publication date: 2001-01-18

SAN FRANCISCO--(BUSINESS WIRE)--Jan. 18, 2001--Pacific Gas and Electric Company has been notified by six of its natural gas suppliers, accounting for 36 percent of daily supply, that they have stopped, or may stop delivering gas by January 23. In addition, several other suppliers, accounting for another 30 percent of daily supplies, have told the utility that they are considering stopping deliveries.

The withdrawal of gas deliveries brings Northern and Central California close to the brink of natural gas shortages in the middle of winter, which could threaten the health and safety of millions of Californians. As a result of these withdrawals, natural gas could be cut to homes, hospitals, businesses, refineries and power plants.

"As California continues to struggle with an energy crisis and the financial havoc it has created for the state's utilities, we face the very real possibility of natural gas shortages in the coming weeks," said Gordon R. Smith, president and CEO of Pacific Gas and Electric Company. "We have done our best to call attention to this crisis and obtain assistance to avert a catastrophe, and now we must wait to see if the state and federal governments will step in to ensure that natural gas flows to homes and businesses in Northern and Central California."

Pacific Gas and Electric Company has taken a number of steps to try and avert the looming crisis. The company:

-- Informed Governor Davis of the problem on Jan. 9 and asked him

to consider using his emergency powers to help avert gas

shortages by providing short-term financial assistance so gas

suppliers will sell to the cash-strapped utility.

-- Met with its 25-30 key suppliers on Jan. 10 to urge them to

continue to deliver gas under normal payment arrangements.

-- Requested on Jan. 12 that President Clinton declare a natural

gas supply emergency.

The suppliers which have withdrawn supplies as of Jan. 17, or have stated that they may pull supplies in the coming days, include two of Pacific Gas and Electric Company's largest suppliers, J. Aron & Co., the trading arm of Goldman Sachs in New York, and Sempra Energy Trading of Stamford, Connecticut. The other suppliers are Western Gas Resources, Inc. of Denver; Duke Energy Trading of Houston; Coastal Merchant Energy of Houston; and Natural Gas Exchange of Calgary, Alberta. The situation has occurred because Pacific Gas and Electric Company could not pay in advance or on delivery, a significant change in payment terms demanded by suppliers. The company has exhausted its cash and credit because of the high wholesale electricity prices in California.

To cover the shortfall caused by the pulled gas supplies and the fact that other suppliers will not sell to Pacific Gas and Electric Company, the utility is quickly depleting its natural gas in storage. The stored gas is expected to be depleted by early February if the current rate of withdrawal continues. If more suppliers stop their deliveries, the utility's stored gas will be consumed more quickly.

In addition to the immediate crisis created by the halt in gas deliveries, the company has been able to purchase only about 60 percent of the gas it expects customers to need each day in February. Therefore, an even greater crisis is expected in February once storage supplies are depleted and inadequate supplies are flowing into the state.

If Pacific Gas and Electric Company is not able to obtain enough gas for residential and small business customers, the rules of the California Public Utilities Commission require the utility to divert gas from noncore (large industrial) consumers, among which are power plants that need natural gas to generate electricity. However, the result will be an even worse electricity shortage than the state is currently suffering. Some power plant operators have stated that they will send their gas out of California to prevent it from being used by residential and small business customers. Other noncore customers whose gas could be diverted include hospitals, military bases and universities.

"Diverting natural gas from some of our customers in order to serve others is not an acceptable solution, but we would do it in order to preserve gas for our residential customers who need heat in the middle of winter," said Smith. "What we need is for gas suppliers to continue to sell their gas to Pacific Gas and Electric Company on regular terms, and with an ordinary payment schedule."

For more information about Pacific Gas and Electric Company, please visit our web site at www.pge.com.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp? story_id=17478467&ID=cnniw&scategory=Energy%3ANatural+Gas

-- Martin Thompson (mthom1927@aol.com), January 18, 2001.