CA:Gas cutoff could douse lights: Power generators depend on PG&E

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Gas cutoff could douse lights: Power generators depend on PG&E By Dale Kasler Bee Staff Writer

(Published Jan. 12, 2001) With California's energy crisis feeding on itself like an out-of-control wildfire, Pacific Gas and Electric Co. warned Thursday that the electricity crunch will become dramatically worse if the utility has to cut off natural gas service.

Almost all of PG&E's natural gas suppliers are refusing to sell to PG&E beyond Jan. 31 without cash up front and the utility says it would be required to first cut off gas sales to large industrial and commercial users.

The move could cripple the flow of electricity in California, because PG&E would be diverting critically needed supplies away from gas-fired electricity-generating plants throughout the state.

Even though the plants bought the gas from other suppliers -- and use PG&E's pipeline merely for delivery -- PG&E would be required by Public Utilities Commission rules to grab the supplies in order to serve its 3.8 million households and small-business customers, said PG&E spokeswoman Staci Homrig.

With gas-fired plants responsible for 31 percent of California's electric supply, those diversions could knock out electrical generating capacity throughout the state.

The generators said they were studying their options should PG&E attempt to divert the gas.

"We've paid for it," said spokesman Tom Williams of Duke Energy Corp., a power generator that supplies 5 percent of California's electricity needs.

For all practical purposes, residential and small business customers probably wouldn't get their natural gas anyway, Homrig said. Knowing that PG&E was about to divert the product, the big industrial users probably wouldn't bring the gas into California in the first place, she said.

"There would be no gas to divert to the residential customers," she said. "The end scenario, if you play it out, is there would be no gas for residential customers to heat their homes or take a hot shower."

Sacramento gets its natural gas from PG&E, the largest natural-gas utility in the state.

Although officials on all sides of the energy crisis say they're hopeful the situation can be resolved soon, they don't discount the possibility of a gas shortage.

Gov. Gray Davis "is looking at this seriously and will figure out what, if any, response he has in the next day or two," spokesman Roger Salazar said.

PG&E, in a letter to Davis, has asked the state to act as "an interim purchaser or otherwise provide credit" to enable PG&E deal with the gas situation. It also is talking to the U.S. Department of Energy about using its "emergency federal powers."

Before unilaterally cutting off the industrial customers, PG&E would first have to ask for volunteers, said a PUC source. If not enough users step forward to give up their supplies, PG&E then could divert the gas as long as it pays a "price premium" for it, the source said.

PG&E says if suppliers won't sell gas, the utility could exhaust its own natural gas stocks by the second week of February.

PG&E's natural-gas situation, first disclosed in a Securities and Exchange Commission filing Wednesday, drives the California energy crisis to a whole new level.

With both PG&E and Southern California Edison on the verge of bankruptcy from paying more than $11 billion for wholesale power, nearly all of PG&E's natural gas suppliers are balking at selling after Jan. 31 unless they receive cash up front, Homrig said.

"We don't have the cash flow to accommodate that," she said.

Edison isn't affected because it doesn't sell natural gas.

PG&E buys about $200 million worth of natural gas monthly.

The utility says it would have no problem meeting normal payment terms, settling accounts 25 to 55 days after taking delivery. But with PG&E's financial crisis, suppliers are backing away.

In the most striking case, J. Aron & Co., the natural-gas trading arm of investment house Goldman Sachs Inc., this week refused to deliver gas that it had contracted to supply, Homrig said. Aron, which provides 8 percent of PG&E's supply, declined comment.

Many of PG&E's gas suppliers are also electricity generators that rely on PG&E's pipeline to fire their plants -- and include some of the same wholesalers that PG&E has accused of sparking the financial crisis in the first place by charging huge prices for the electricity. Among them: Duke Energy, which won't sell beyond Feb. 28.

PG&E met with most of its gas suppliers Wednesday to persuade them to keep selling the product. PG&E is threatening to identify publicly the suppliers that won't play along. "We've told them the political reality is the media are asking for names," Homrig said.

Bee news services contributed to this report.

http://www.capitolalert.com/news/capalert02_20010112.html

-- Martin Thompson (mthom1927@aol.com), January 13, 2001

Answers

It sounds to me like this situation is getting entirely out of hand.

I can't figure out why this is not reflected in the stock market. It's certainly big enough.

-- R2D2 (r2d2@earthend.net), January 13, 2001.


Maybe a bailout along the lines of the Penn Central mess would work with the idea of selling a healhty utility to private investors later. If PG&E goes under, I believe it will drag other utilities with them.

-- David Williams (DAVIDWILL@prodigy.net), January 13, 2001.

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