California Energy Crisis Drives Natural Gas Prices to Record Levels; Suppliers Declining to Sell Commodity; Crisis Threatens PG&E's Ability to Purchase Gas for Its Customers Source: Business Wire Publication date: 2000-12-29

SAN FRANCISCO--(BUSINESS WIRE)--Dec. 29, 2000--Pacific Gas and Electric Company today informed the California Public Utilities Commission that the cash and credit squeeze created by the electricity crisis in California has prompted 15-20 natural gas suppliers to decline to sell gas to the company beyond their current commitments. The utility delivers natural gas to 3.8 million customers, many of whom require natural gas to heat their homes. Pacific Gas and Electric Company has been able to purchase enough gas for its customers' projected use in January, as long as temperatures do not drop thereby increasing demand above forecast levels.

California's energy crisis has caused a dramatic run-up in the price of natural gas, driving January gas bills 60% higher than December. Market prices in January are expected to reach record levels, following dramatic increases in November and December due to cold weather and record demand by natural-gas fueled power plants. Gas bills are high all across the nation due to an imbalance in supply and demand, but California's market prices have far exceeded those in the rest of the country.

The average residential bill will rise to $125 in January, compared with a December average of $77. In January 2000, before prices began to spike, the average residential bill was $50. Because California's natural gas industry has been deregulated for more than a decade, consumers here pay the market price for the gas they use.

"We recognize that this dramatic increase in the market price of gas will be very difficult for many of our customers, and we would like to be able to cushion the blow. However, Pacific Gas and Electric Company's current financial position, resulting from the outrageous wholesale electric prices we are being forced to pay on behalf of our customers, prevents us from being able to finance this high cost and spreading it out over a few months," said Gordon R. Smith, president and CEO of the utility. "What should be noted is that many of the companies who have declined to sell us natural gas are the same companies who own power plants in California and are currently charging as much as 30 times what it costs them to generate the power."

Among the companies who have expressed concern about selling gas to Pacific Gas and Electric Company are companies who now own power plants that California's utilities were required to sell as part of electric deregulation. The companies, which are based outside of California, saw their profits double and triple this past summer while California's consumers and utilities have been required to pay the ransom.

While gas prices in California are extremely high, Pacific Gas and Electric Company has been able to mitigate the prices by planning ahead. The company has taken a number of steps to lock in low prices for its customers, including storing gas in the summer, signing long-term contracts and arranging for price caps. If Pacific Gas and Electric Company had not taken the steps it did, average January residential bills could have been as high as $162.

In the past, the California Public Utilities Commission discouraged investment in gas pipeline assets. However, if the company had been encouraged by the CPUC to build more in-state storage and lock in capacity rights on various pipelines that deliver gas to California, the company would have been able to keep prices lower for its customers. While it would have required a small surcharge on customers' monthly bills, compared to today's astronomical market prices, the surcharge would have seemed minuscule.

Pacific Gas and Electric Company does not produce natural gas, and does not profit from the high cost of gas. The utility is like UPS in that its revenue comes from the delivery of gas. Pacific Gas and Electric Company's delivery rates have not changed significantly for several years.

In addition to proactively educating customers about the high market prices and providing information about how to conserve energy and obtain financial assistance to pay bills, Pacific Gas and Electric Company has taken several steps to ensure stability in California's out-of-control gas market. Among them:

-- Requested that the Federal Energy Regulatory Commission (FERC)

impose price caps on gas delivered to the California border

and points within the state.

-- Urged FERC to suspend contracts between El Paso Natural Gas

Company and its wholly-owned affiliate, which Pacific Gas and

Electric Company believes have allowed the companies to

manipulate prices in the California gas market.

To help customers pay high gas bills, Pacific Gas and Electric Company offers two financial assistance programs, CARE and REACH. The utility recently expanded the REACH program to provide more assistance to low-income families. For more information about CARE and REACH, customers can call 1-800-743-5000.

Pacific Gas and Electric Company also has a number of programs to help customers conserve energy in their homes and businesses. Information is available at www.pge.com and by calling the Smarter Energy Line at 1-800-933-9555.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=16960497&ID=cnniw&scategory=Energy%3ANatural+Gas

-- Martin Thompson (mthom1927@aol.com), December 30, 2000

Answers

Gas that is stored in the Summer is turned into a liquid at several hundred degrees below zero F. Its a fairly long process and requires large highly-refrigerated tanks. My local utility does this and the amount in storage can only supply about 5% of daily usage for about a month.

This can cover higher than usual peak usage, but is not the answer to short supply.

-- John Littmann (littmannj@aol.com), December 30, 2000.

Thanks for the response. I could not figure out how the utilities were storing gas.

-- David Williams (DAVIDWILL@prodigy.net), December 30, 2000.