Natural Gas Suppliers Are Refusing to Sell to PG&E;
More than 15 natural gas suppliers are refusing to sell gas to cash-squeezed Pacific Gas & Electric beyond their current contracts for fear they won’t be paid, the utility said Friday, a reflection of its precarious financial condition and potential bankruptcy filing in the near future.
Experts in bankruptcy law say the reluctance of natural gas purveyors to contract with PG&E; is typical in cases where bankruptcy looms. Suppliers have a better chance of getting paid on contracts signed after a customer files for protection from Bankruptcy Court than before. PG&E;, the state’s largest utility, has said it faces bankruptcy unless it receives immediate rate relief.
PG&E; and Edison International’s Southern California Edison unit are each asking state Public Utilities Commission for emergency rate hikes they say are crucial to avoid insolvency. Three major Wall Street debt-rating agencies say they are poised to downgrade PG&E; and Edison debt unless the PUC signals Thursday that it will significantly raise rates.
“It’s like a house of cards,” said Kenneth Klee, a Century City bankruptcy lawyer and UCLA law professor. “If the PUC gives a favorable ruling, the company can obtain financing, and then suppliers will sell it all the gas it needs,” Klee said.
“But if the rate increase is not sufficient, we might see the first steps of bankruptcy strategy whereby the company files for bankruptcy in order to get the financing it needs to purchase gas. That’s what suppliers might be anticipating,” Klee said
Although the utilities’ bid for a rate increase is aimed at helping to pay $11 billion in wholesale electricity costs that consumers haven’t been billed for, their cash crisis is also discouraging PG&E;’s “gas suppliers from selling to us,” spokeswoman Staci Homrig said.
“Wall Street has made it clear that a rate increase would ease their concerns about our credit-worthiness, and that’s what is causing gas suppliers to have concerns about selling to us.”
In a statement late Friday afternoon, PG&E; said it has enough gas lined up from outside suppliers to serve all its 3.8 million gas customers only through January “as long as temperatures do not drop, thereby increasing demand above forecast levels.” PG&E; has enough gas in storage to meet only part of its projected February and March demand, Homrig said.
PG&E;, which is based in San Francisco and serves Central and Northern California, has only one generation plant that uses gas and “it doesn’t run very often,” a spokeswoman said. So, any gas shortage would not affect the utility’s ability to deliver its own gas-generated electricity. Edison has sold all of its natural gas-fired power plants in recent years.
The utility said its average customer gas bill will rise in January to $125, up 60% from this month.
The worst may not be over yet for gas customers: Many analysts expect gas prices to continue to rise through February and March because of under-average inventory levels and cold-weather forecasts.
Consumer advocate Harvey Rosenfield, president of Foundation for Taxpayer and Consumer Rights in Santa Monica, said PG&E; has “in the process of scaring officials into a bailout also begun to scare their own suppliers.”
“The company has made the threat of bankruptcy to leverage a bailout, and that was directed at the politicians,” Rosenfield said. “But other companies read the papers too.”
