Natural gas sales next battlefield PG&E maneuvers against SoCalGas

By Michael Utley The Press-Enterprise

In a dramatic escalation of the state's energy crisis, a Northern California utility today will seek a state order forcing the Southern California Gas Co. to give it natural gas with no assurance of repayment.

The move by San Francisco-based Pacific Gas & Electric Co., which is on the verge of bankruptcy, could result in a similar financial meltdown at SoCalGas and jeopardize its ability to serve its 18 million customers in Southern California, gas company officials said Tuesday.

"We simply cannot take on PG&E's burden," said SoCalGas spokeswoman Denise King. "That will drag us down the same path toward insolvency."

PG&E needs the fuel to supply its own 3.8 million customers and fuel its gas-burning power plants at a time when out-of-state energy companies are refusing to sell to the crippled utility. SoCalGas estimates that supplying PG&E would cost $500 million to $1 billion a month.

The California Public Utilities Commission has the power to issue a mandatory sell order, according to legal briefs filed by PG&E attorneys. SoCalGas said it would appeal any such order to the federal courts as an illegal "taking" of the utility's property.

PUC officials have been asked to make a decision today, but it is possible they may delay the ruling to a later meeting.

If a sell order is upheld, it could result in higher gas prices or even jeopardize the availability of natural gas in Southern California, including the Inland Empire, said King, the SoCalGas spokeswoman.

In Riverside and San Bernardino counties, SoCalGas serves 859,000 residential and business customers. The utility's residential customers have already experienced an average 60 percent increase on their gas bills over last winter.

In the past few days, both PG&E and Southern California Edison have said they will default on billions of dollars in payments owed to suppliers and lenders. In PG&E's case, that threat has caused some natural gas suppliers to cut off shipments to the utility.

PG&E said 71 percent of its natural gas suppliers threatened or terminated supply agreements in January. Two suppliers, J. Aron Co. and Western Gas Resources, suspended gas deliveries earlier this month, according to a PG&E legal brief filed with the PUC.

The federal government issued an emergency order last year requiring suppliers to sell natural gas to PG&E. But the order expires on Feb. 7, and the Bush administration has indicated it will not issue another one.

As a result, PG&E said it expects to run out of natural gas by Feb. 6. That would force the utility to cut service to homes and businesses, leaving many Northern California customers without heat, hot water and cooking facilities in the middle of winter.

Such a drastic move would exacerbate the state's electricity crisis by cutting off PG&E gas-powered electricity plants, the company said. Northern California has already experienced two days of rolling blackouts because of the supply crisis.

Forcing SoCalGas to help is the only immediate way to solve the problem, PG&E officials said.

"PG&E has no choice . . . but to attempt to secure the gas supplies which (the PUC) may compel SoCalGas to supply," PG&E chief financial officer Kent Harvey wrote in a brief to the utilities commission. "SoCalGas' credit is far better than PG&E's."

SoCalGas, meanwhile, contends that its credit rating would be severely damaged by an attempt to buy fuel for PG&E's customers. Lenders would not be willing to provide enough money to buy the additional gas supplies, if they knew the fuel was going to PG&E with little chance of repayment, a SoCalGas lawyer wrote in opposing the request.

"PG&E, by its own admission, is insolvent," wrote SoCalGas attorney David Follett. "Thus, a commitment to pay from PG&E is worth nothing."

Michael Utley can be reached by e-mail at mutley@pe.com, by phone at (909) 890-4461, or by fax at (909) 890-3565.

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-- Martin Thompson (mthom1927@aol.com), January 31, 2001