PG&E Bargains With Wary Gas Suppliers : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

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PG&E Bargains With Wary Gas Suppliers Carolyn Said, Chronicle Staff Writer

Saturday, February 3, 2001 2001 San Francisco Chronicle


As the clock ticks toward Tuesday at midnight and expiration of an emergency federal order forcing natural-gas suppliers to sell to California utilities, PG&E is urgently trying to line up deals to keep gas flowing.

The stakes are high. If suppliers cut off gas, Northern California could face a doomsday scenario that would leave hundreds of thousands of homes and small businesses without heat or hot water. Lack of natural gas also could disrupt generation of electricity and production of gasoline, diesel and jet fuel.

PG&E will spend the weekend locked in marathon negotiating sessions with natural-gas suppliers, armed with a new order from the state Public Utilities Commission that it hopes will bolster its credit and persuade reluctant suppliers to continue deliveries. The suppliers earlier this month threatened to stop selling to PG&E unless it paid up front -- something the cash-strapped utility can't do.

The PUC on Wednesday passed an emergency measure allowing PG&E to offer the gas suppliers collateral: customers' future gas payments and PG&E's limited gas reserves.

Sources said some gas suppliers had responded positively to the offer, but so far the major companies that threatened to cut off PG&E's supply have not said publicly if they will keep the gas flowing.

"We're still reviewing the situation and the (PUC) order," said Alex Hemerick, a spokeswoman for Sempra Energy Trading of Stamford, Conn., one of PG&E's two largest gas suppliers.

The other of the largest gas suppliers, J. Aron & Co., the trading arm of Goldman Sachs in New York, was more tight-lipped. "We are selling (PG&E) natural gas in accordance with our contract and the emergency order," said Kathleen Baum, a spokeswoman.

Sempra, J. Aron and four other firms, which collectively account for 36 percent of PG&E's daily gas supply, had previously threatened to cease deliveries by Jan. 23, according to PG&E. That's when outgoing Energy Secretary Bill Richardson's emergency order forcing gas suppliers to keep selling was set to expire.

Richardson's successor, Energy Secretary Spencer Abraham, extended that order for two weeks, but is adamant about not renewing it.

Tom Williams, a spokesman for Duke Energy Trading in Houston -- also a major supplier for PG&E -- said his firm will continue to sell gas to PG&E until the emergency order expires Tuesday night.

Afterward, "unless we get adequate credit assurances by that time, we'll be evaluating our options," he said. "We don't have a position yet on whether the receivables serve as an adequate credit assurance at all."

But several smaller gas suppliers said the offer of collateral is a step in the right direction.

"We were pleased with the PUC order," said Alan Lippincott, director of California government relations for BP. "We think it will improve our ability to provide natural gas to PG&E."

BP provides 50 million cubic feet per day, about 3 percent of PG&E's natural-gas supply; Lippincott said the firm is considering doubling that amount.

"It's a creative attempt on PG&E's part to establish creditworthiness in the market," said Peter Krenkel, president of the Natural Gas Exchange in Calgary, Alberta.

The commodity exchange, an electronic marketplace for buyers and sellers of natural gas, suspended PG&E in mid-January when its bond rating was cut. As a Canadian entity, it was not bound by the Department of Energy order that forced other suppliers to continue doing business with PG&E.

The natural-gas situation is a byproduct of the electricity crisis and PG&E's financial woes. Although natural-gas prices have quadrupled during the past year, PG&E is allowed to charge customers the full price -- unlike with electricity, where a rate freeze left PG&E responsible for soaring wholesale costs.

PG&E is due to pay suppliers on Feb. 25 for their January shipments. Although it has not defaulted on payments to date, the suppliers evidently fear that PG&E's precarious financial situation could cause it to dip into the money it collected for gas from customers, instead of passing that money along to the gas suppliers.

The gas suppliers "are exploiting the financial crisis of the utility to extract greater assurances and up-front payments," said Marcel Hawiger, a staff attorney with consumer watchdog group The Utility Reform Network.

Hawiger said he hopes the offer of collateral, as well as the Legislature's actions on Thursday to relieve PG&E from the electricity crunch, will reassure gas suppliers so they continue selling.

Both PG&E and several natural-gas suppliers said they expect to have more information about the situation on Monday.

E-mail Carolyn Said at

-- Martin Thompson (, February 03, 2001


Martin, Thank you- this question is really the decisive one: will the suppliers continue to provide gas, or is this the end of it. Everything else is of secondary importance. Swissrose.

-- Swissrose (, February 04, 2001.

You are absolutely right. Feb 6th is crunch time. It will be interesting who blinks first.

-- Martin Thompson (, February 04, 2001.

If push comes to shove, it will trigger the first major "triage" Y2K event, as prognosticated in the Navy War College think tank study at sublink, for the "Flood" scenario's "... greatly expanded timeline, thus allowing more time for effective crisis management and network triage ...". To prevent the "doomsday" scenario of natural gas cutoff to large numbers of customers, electricity generation will be curtailed at gas generating facilities instead. Fortunately, this makes microeconomic sense also, since the full cost of gas is borne by users, unlike electricity at this time. Hence, if push comes to shove, expect electric blackouts, not natural gas cutoffs (except perhaps to large industrial customers who can relight their own pilots competently.) If this triage didn't make microeconomic sense, the situation would be much more serious.

-- Robert Riggs (, February 06, 2001.

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