News

Published Thursday, January 11, 2001

PG&E can't buy gas for heating POWER CRISIS

The utility files papers saying it cannot pay existing bills, is near bankruptcy and will not be able to buy more supplies without help

By Mike Taugher TIMES STAFF WRITER

The statewide electricity crisis now threatens natural gas supplies used to heat Northern California homes and fire power plants because the state's largest energy utility can no longer buy the gas on its own, according to documents filed Wednesday by PG&E Corp.

In the documents, the once-formidable power company said it is now unable to borrow money and cannot afford to pay more than $2 billion in electricity bills that are coming due between Feb. 1 and March 2. PG&E said it has about $500 million in cash reserves.

"Absent immediate regulatory, legislative or judicial relief, the utility will default on its payment obligations and faces the risk of being forced into bankruptcy," Pacific Gas & Electric disclosed to the U.S. Securities and Exchange Commission.

The company added that natural gas suppliers now are demanding cash payments and in some cases are refusing to sell gas at all.

Although the company has enough gas in storage to draw on through mid-February, a protracted shortage could force the company to divert deliveries away from gas-fired electricity generating plants and into homes, a move that could worsen that state's electricity crunch.

PG&E said it has asked Gov. Gray Davis to invoke emergency powers to allow the state to buy gas or provide credit to PG&E.

"We're taking it seriously, and we're taking immediate actions to review it," Davis told reporters who asked him about the request, which the governor received Wednesday.

And in yet another week of daily power emergencies, when grid managers asked for voluntary cutbacks of electricity use and in some cases ordered curtailment of power to industrial customers using cut-rate electricity, the weather was forcing PG&E's Diablo Canyon Power Plant to ramp down to a fraction of its power-producing capacity.

Huge ocean swells posed the threat that seaweed would clog the nuclear power plant's cooling system, according to California Independent System Operator spokeswoman Stephanie McCorkle.

That, in combination with the many gas-fired power plants already down for repairs, means the state today will likely have a "record number of megawatts off-line," McCorkle said.

PG&E filed the statement to the SEC and the request to the governor the day after an evening of lengthy negotiations at the Treasury Department in Washington.

At that meeting, state and federal officials, utilities and energy company executives agreed on a vague five-point framework meant to save the utilities from bankruptcy, ensure their ability to buy power and provide some stability to wholesale energy prices that have shot up 10 times over the going rate last year.

Aides to those officials began working on a more detailed agreement throughout the day Wednesday, and meetings were expected to continue today.

Observers said the agreement so far does little to address immediate problems with the state's thirst for electricity, but participants said it holds the beginning of a long-term solution.

"This is just solving the utilities' problem," said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, which along with all other consumer groups did not participate in the negotiation.

"This is a way to address price. It does nothing to address reliability."

But participants said the meeting marked the first time energy companies, state and federal officials and utilities all sat down together.

"I think it would hopefully send a message to the financial community that there's a blueprint in the works," said PG&E spokesman Shawn Cooper. "It is a significant first step."

During the lengthy negotiations, however, the utility's natural gas problems did not even come up, said Davis' press secretary, Steve Maviglio.

"The governor sat next to the chairman of PG&E for 61/2 hours, and this was not brought up at all, which is quite astonishing," Maviglio said. "Nevertheless, he is taking it under advisement."

Rosenfield said any financial assistance offered by the state should be repaid by PG&E in the form of money, stock or assets.

"I know about 10 people who are having trouble making ends meet. I'm going to tell them they should write a letter to the governor," Rosenfield said.

"The question on everybody's mind is, 'Where is this going to stop?' The taxpayers should receive reimbursement or shares in the company."

Rosenfield is also opposed to taxpayers or consumers bailing out PG&E from its electricity debt unless PG&E gives up assets in return.

One critical sticking point is who will pay for the PG&E's $6.6 billion unpaid electricity bill and comparable losses at Southern California Edison.

He said that depending on the terms worked out in secret negotiations, the deal could turn out to be "a massive boondoggle for taxpayers and ratepayers."

One energy industry official with knowledge of the negotiations said that although Davis would not commit to increased energy rates or a state-issued bond financing, energy producers believe it is inevitable that either consumers or taxpayers will eventually have to pay at least a large portion of that bill.

According to energy officials, utilities will have to take a financial hit, energy companies will forego a portion of their profit potential and the public will have to pay, too.

PG&E customers so far have been insulated from those high prices because of a retail rate freeze, but the high wholesale prices cost PG&E about $6.6 billion from May to December.

PG&E is seeking to recover those costs from consumers, either through higher electricity rates or a state-financed bond issue or out of a lawsuit it has filed seeking a court order that it is entitled to bill customers for those losses.

Davis has said bankruptcy for the utilities would be devastating to the state's economy, but he is also opposed to electricity rate hikes beyond the 10 percent hike approved earlier this month by the Public Utilities Commission.

"The governor repeatedly said (Tuesday in Washington) he's opposed to future rate increases, and that the bonds securitization is not something he favors," said Maviglio.

Times staff writer Ethan Rarick contributed to this story.

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-- Martin Thompson (mthom1927@aol.com), January 11, 2001

Answers

17:55 EST Wednesday PG&E warns of gas shortage

Think things are tough in California when it comes to the electricity crisis? Bundle up. You may have to shiver through a winter of inadequate natural gas supplies.

Pacific Gas and Electric Co., in a filing with the federal Securities and Exchange Commission today, warns of what it calls an "impending natural gas shortage emergency."

It says its deteriorating credit situation is causing many of its gas suppliers to decline to sell the utility any more gas, even under existing gas contracts, without getting paid up front. And PG&E says it doesn't have the cash to do that.

Worse, it says, some suppliers are refusing to sell gas for future periods beginning Friday.

It says if it has to cough up the money in advance, it will be unable to pay for gas for heating and other essential uses for its residential and small commercial customers and would be forced to further tap its gas storage and possibly divert natural gas from large commercial and industrial customers, including electric generators. It says that would "decrease the level of electric generation ... and lead to worsening outages on the electric system."

In its 8-K filing, PG&E goes on to say, "If a significant number of gas suppliers terminate their gas contracts and refuse to sell gas to the utility, the utility would exhaust all storage gas by the second week of February and there would be sustained curtailments of major portions of the Utility's gas system."

It says it's appealing to Gov. Gray Davis to "use his emergency powers to permit the state to provide temporary financial assistance sufficient to meet the demands of gas suppliers, such as by functioning as an interim purchaser or otherwise provide credit."

There was no immediate word from the governor's office.

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-- Martin Thompson (mthom1927@aol.com), January 11, 2001.