PG&E;, Citing Cash Shortage, Warns of Natural Gas Cutoffs
Pacific Gas & Electric Co., the state’s largest utility, on Wednesday warned Gov. Gray Davis that it may begin running out of natural gas in a few days unless he steps in to help it out of its latest credit crunch.
Detailing its financial meltdown in a filing with the Securities and Exchange Commission and a beseeching letter to Davis, the utility arm of PG&E; Corp. said it has nearly run out of cash to make payments for both natural gas and electricity for its customers.
The utility’s chief executive pleaded with the governor to invoke emergency powers that would allow the state to buy natural gas on its behalf or to provide credit guarantees to reassure gas suppliers that are refusing to sell to it without immediate cash payment.
“Our customers will need your help,” CEO Gordon R. Smith said in a three-page letter.
“We are very concerned that the current credit crisis is about to devolve into an unprecedented emergency in the gas industry, which could lead to curtailments (gas outages) to high-priority users during these winter months,” he said, referring to residential and small-business customers.
“That emergency will result in a gas shortage, which will threaten the health and safety of millions of Californians in the northern and central portions of the state,” Smith said, adding that the shortage could begin in the next few days.
Davis, at a news conference on his proposed budget, said he is taking PG&E;’s dilemma seriously and considering what actions to take.
“Since this is a credit problem, the forbearance the generators are offering may well solve it,” Davis said, alluding to an agreement reached late Tuesday under which electricity producers have agreed to give PG&E; and Southern California Edison more time to pay the billions of dollars they owe for wholesale electricity purchased on the expensive spot market.
The governor expressed surprise at the latest development, noting: “I was with the chairman of PG&E; until 12:15 last night and he didn’t mention anything about it to me.”
PG&E; told the SEC on Wednesday that it has only $500 million in cash left and faces a payment to the California Independent System Operator of $583 million Feb. 1 as well as a $431-million payment Feb. 15 to the California Power Exchange. An estimated $1.2 billion is due March 2 to the system operator, which oversees the state’s power grid.
PG&E; of San Francisco and SCE, the utility arm of Edison International of Rosemead, have warned that a credit crunch has pushed them to within weeks of being forced to file for bankruptcy-law protection because they are paying much more for electricity than they can pass along to customers, who are protected by a rate freeze.
PG&E; went further Wednesday, warning that it is only a few days away from being unable to buy natural gas because of suppliers’ demands for cash.
The utility said it may need to cut off supplies to big industrial users, primarily electricity plants that use gas for fuel, so that it can minimize any cuts it would have to make for residential and small-business customers. Such an action would “decrease the level of electric generation in the utility’s service territory and lead to worsening outages on the electric system,” PG&E; said.
PG&E; said it can’t borrow money, so it will default on its upcoming electricity payments “absent immediate regulatory, legislative or judicial relief.”
News of the filing sent shares of PG&E; and Edison plunging on the New York Stock Exchange. But the issues recovered later in the day, with Edison closing at $11.25 per share, up 13 cents, and PG&E; at $13.56, up 6 cents.
To conserve cash, PG&E; on Wednesday suspended its fourth-quarter dividend of 30 cents a share.
An Edison spokesman declined to reveal how much cash the utility has on hand, and Edison filed no documents Wednesday with the SEC. The utility is receiving about $98 million a week from electricity customers but is paying about twice that amount for power to serve those customers.
Southern California Gas is having no credit problems with its suppliers, spokeswoman Denise King said. PG&E; said it may ask the Los Angeles-based utility to share some natural gas with it, but King said her company, a unit of Sempra Energy, has received no such request and would have to make sure its customers are supplied first.
Reliant Energy stopped selling to PG&E; two weeks ago, and Duke Energy will not supply natural gas to the utility past March 1, spokesmen for those Houston-based companies said. Both companies also own power plants in California but get the gas to run them from their own sources, not PG&E.;
“This is because of the responsibility that we have to our shareholders, and it stems from the credit-worthiness of the utility,” Richard Wheatley of Reliant said. “We do sympathize with their situation, and we hope that the credit standards will be met and we can resume sales.”
Times staff writer Jenifer Warren in Sacramento contributed to this report.
