PG&E; Ability to Buy Natural Gas Eased

SAN FRANCISCO — Moving to head off a “doomsday scenario” of widespread and prolonged natural gas outages in Northern and Central California, state regulators on Wednesday granted cash-strapped Pacific Gas & Electric Co. permission to use money owed to the company by customers as collateral for future gas purchases from suppliers.

As the Public Utilities Commission took steps to ease California’s natural gas shortage, PUC President Loretta M. Lynch unloaded on suppliers that have threatened to stop delivering gas to PG&E; without advance payment or collateral.

Calling the situation “egregious,” Lynch accused the industry of taking advantage of the state’s continuing energy crunch.

“I believe PG&E; is the victim . . . of predatory practices of the natural gas industry,” she said.

The commission did not act on an unusual request by PG&E; to force Southern California Gas to sell emergency gas supplies to the utility, a step that the gas company feared would spread the crisis to its own 18 million customers. The matter was deferred to the commission meeting next week, but Lynch said she views the two PG&E; proposals as an “either-or” proposition.

“It is incumbent on PG&E; to make this work,” she said after Wednesday’s 5-0 vote.

In addition to allowing PG&E; to use its unpaid gas customer accounts as collateral, the commission allowed the company to pledge its core gas inventory to secure additional gas supplies. However, the PUC said that action could be taken only if PG&E; did not have enough accounts receivable to cover a particular gas purchase.

The authorization, the PUC said, will expire once PG&E;’s financial condition improves. That could come within 90 days of any state bailout legislation or 15 days after certain improvements in the company’s credit rating occur.

“This is good news,” said PG&E; spokeswoman Staci Homrig. “We hope we can take this authorization to gas suppliers and make them do business with us.

“This [decision] keeps the gas flowing for at least the next month,” Homrig said, explaining that it takes so long to collect gas money from customers that the 90-day limit would cover only one billing cycle. The company, she said, could file for an extension if necessary.

The company estimated, in filings with the PUC, that firms providing 71% of its core gas supply either have terminated or have threatened to terminate gas shipments. They are J. Aron & Co., a subsidiary of Goldman Sachs; Sempra Energy Trading; Duke Energy and partner Coastal Merchant Energy; and Western Gas Resources.

Alex Hemerick, spokeswoman for Sempra Energy Trading of Stamford, Conn., declined to comment, saying the firm is studying the plan.

Tom Williams of Duke Energy North America said, “We don’t have any comment one way or the other. We are following developments hour by hour, day by day.”

Other suppliers did not return calls late Wednesday.

PG&E; made a series of urgent requests starting two weeks ago after gas suppliers threatened to halt sales to the utility, fearing it could not pay its bills. The crisis recently took on added urgency because a federal order requiring gas suppliers to sell to California expires at midnight Tuesday.

Without emergency assistance, PG&E; representatives said, many of the company’s 3.9 million residential and business customers--and entire cities, from Sacramento to San Francisco and Fresno--faced potential shut-off of their gas. And, they said, dwindling supplies would have a ripple effect on many of the company’s 4.8 million electricity customers, because gas-fired power plants are among the large “non-core” industrial customers that would lose gas supplies first.

The company also warned that non-core customers farthest from pipelines would suffer “catastrophic effects. . . . Hospitals, government agencies and industrial users would have reduced gas supply and would have to limit or cease operations.”

The company appealed for help from the U.S. Department of Energy, gas suppliers, Southern California Gas and Gov. Gray Davis, who sent letters to the White House to seek assistance. The utility warned that, without a solution to its supply problems, it would have to start diverting gas from non-core customers by mid-February, with residential and small-business customers to follow shortly thereafter.

On Jan. 18, PG&E; asked the PUC to declare a gas supply emergency and to order Southern California Gas to come to the rescue. Four days later, PG&E; asked the commission for permission to use unpaid customer accounts as collateral to help persuade its suppliers to keep gas coming.

The PUC’s order prohibits PG&E; from providing collateral for any gas purchases from its own affiliates. A company spokesman said PG&E; Energy Trading has provided the utility with gas but has not asked for any advance payments or security.

Was the crisis averted?

“I hope and expect so,” said PUC Commissioner Carl W. Wood. “But these days we never know what tomorrow will bring.”

Times staff writer Chris Kraul contributed to this story.

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Power Points Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

Daily Developments

* The state Senate put final touches on AB1X, which authorizes the state to enter long-term contracts for electricity and issues $10 billion in bonds to pay for that power.

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* At a U.S. Senate committee hearing in Washington, senators complained that the power crunch is spreading throughout the West and that California brought its problems on itself by making it difficult for companies to build power plants.

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* Enron Corp. sued the California Power Exchange to prevent it from tapping its assets to pay off other debts.

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Verbatim

“No more talking about leadership. Put up or shut up.”

--Assembly Republican Leader Bill Campbell

(R-Villa Park)

Complete package and updates at www.latimes.com/power