Shell Urges PUC To Drop PG&E Texas-based division says private company can supply gas to state

Bernadette Tansey, Chronicle Staff Writer Wednesday, January 31, 2001

With PG&E warning that millions of Northern Californians could lose their natural gas next month, a division of Shell Oil Co. is urging state regulators to eliminate the cash-starved utility as the region's main gas supplier.

Shell Energy Services of Houston wants the state Public Utilities Commission to replace PG&E with a creditworthy private company that would have no problem securing gas. That company could also arrange shipment of the gas through the same interstate and California pipelines now used by PG&E, Shell Energy said.

The utility would still manage delivery to individual homes and businesses through its local pipes, John Leslie, an attorney for the Shell subsidiary, said yesterday. But it would have nothing to do with buying and shipping gas.

"The answer to PG&E's gas supply crisis is found in the competitive gas supply marketplace," Leslie said in a filing with the PUC. "Nonutility gas suppliers are willing and fully able to step in, on an expeditious basis, to purchase gas for all of PG&E's 3.7 million residential customers and 214,000 core commercial customers" who have not chosen outside suppliers.

Leslie said Shell Energy fills this role in Georgia and Ohio, but has not decided whether it would try to take over for PG&E in California.

Shell Energy filed its proposal in response to a plea by PG&E that the state force a Southern California utility to buy gas for it and ship it north.

PG&E has laid out a bleak scenario for Northern Californians who use natural gas to heat their homes and cook their meals if the state or federal governments don't step in.

Gas suppliers don't want to sell to the debt-laden utility because they are afraid they won't be paid. A federal order that keeps the gas flowing expires at midnight Tuesday, and the Bush administration says it does not intend to extend it.

Starting in mid-February, PG&E says, cities farthest from major pipelines --

including San Francisco, Sacramento, Santa Cruz, Santa Rosa and Fresno -- could lose their gas for weeks or months.

PG&E and the consumer group TURN, the Utility Reform Network, said Shell's plan would do nothing to help the immediate crisis and could put Northern Californians at risk of paying higher gas costs in the long run.

"Would they set the rate at today's market prices, when everybody knows today's prices are at record highs because of the tight supply-demand situation?" said PG&E spokeswoman Staci Homrig. "In a year or two, when prices drop, customers would be paying a lot more than the market price."

The utility is asking the PUC to approve several measures to reassure gas suppliers they will be paid. The commission is scheduled to take up the requests today.

To get over its credit crunch, PG&E is proposing that its more financially secure counterpart, Southern California Gas Co., be ordered to buy gas for PG&E. SoCalGas has said it will go to court to fight any such order, which it says would threaten its own financial stability.

Homrig said Shell or any other company that took over the gas system would still have to rely on PG&E for billing services, because it would be impossible for a replacement firm to set up its own system for millions of customers overnight. So the new firm would be in the same position as PG&E's current gas suppliers -- a creditor, waiting for PG&E to pass along the money customers send in.

"We would love it if Shell Energy Services would sell us some gas," Homrig said. "They can help in this crisis."

Leslie said the Shell division does not sell natural gas now in California, but is exploring the possibility.

TURN staff attorney Marcel Hawiger said that despite PG&E's immediate problems, the regulated utility serves gas customers better than an unregulated private firm would because it simply passes through the cost of gas and charges a fee for transmission.

An unregulated company, he said, would be looking for a profit from its gas procurement business and possibly from its use of PG&E's valuable contracts for access to interstate pipelines.

PG&E's problems, he noted, flow not from its gas business but from electricity. Electric rates are still capped for consumers, so PG&E is piling up debt. The utility can recover all its costs for gas, which is not capped.

"It would be ironic to strip PG&E of its gas business, which provides gas at competitive rates, and is not the cause of the financial problem," Hawiger said.

E-mail Bernadette Tansey at btansey@sfchronicle.com.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/01/31/MN156360.DTL

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