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Gas, Power Rate Hikes Ahead, PG&E CEO Warns

Pacific Gas and Electric Co. (PG&E) is feeling the pressure from high natural gas wholesale prices and consumers will have to pay, parent company CEO Peter Darbee told financial analysts last Wednesday during a quarterly earnings conference call.

As a result of high gas prices, PG&E's retail electric utility customers are facing additional rate increases of 6-11% on top of a 4.4% rate increase filed in June to be effective in October. Darbee said the earlier filing represented a $9.50/MMBtu price for natural gas, but later this year the large combination utility intends to file an updated rate request for 2009 that could result in added hikes, depending on what gas prices are at the time.

"As always, we are working to mitigate the impact of gas price fluctuations, including hedging and efforts to expand gas shortage capacities, and helping customers manage their monthly bills," Darbee said. The utility is resigned to the fact that energy costs are going to get higher and it has to help customers take steps to lessen the future impact, he said.

A flip side of the higher prices is that they increase the momentum and interest in pursuing alternative supplies, according to Darbee, responding to analysts' questions. As a result, PG&E is interested in accessing Rockies supplies and/or liquefied natural gas imports (LNG) -- either from the far south at Sempra Energy's coastal Costa Azul facility in North Baja California, Mexico, and proposed supplies at Coos Bay, OR.

"Accessing the gas in the Rockies area is very useful, given the diminution of supplies we have seen from Western Canada for a number of years now," said Darbee, downplaying the fact that PG&E dropped out of an equity position in El Paso Natural Gas's proposed Ruby Pipeline. "El Paso has confirmed it is moving ahead with Ruby, and as a buyer of capacity, we're very interested in that access to the Rockies."

He is unsure what is happening with competing proposals to move gas from the Rockies west, and thinks that El Paso may have a leg up on everybody from the standpoint of the cost at which it can deliver the gas. In terms of PG&E's continued equity interest in the Pacific Connector pipeline proposal from a proposed LNG plant at Coos Bay, OR, Darbee expects movement on the ongoing LNG permit in the "next several months."

Noting a recoupling of global natural gas and oil prices as oil has "gone through the roof, "Darbee said PG&E "could move ahead with these LNG terminals, but the question becomes whether the gas will come to [North America] because of higher prices internationally that might take the gas to Japan or other markets."

Another PG&E executive stressed that the combination utility wants to have access to any and all sources of natural gas for California.

In response to a question, Darbee said that his utility was not looking at doing anything to expand its backbone transmission pipeline system, particularly with the lowering of volumes coming from Canada in recent years. "To the south the opportunity that might arise would be because of Sempra's Costa Azul LNG terminal, and how much more additional gas will be available from the south."

He said there hasn't been any "great progress in recent months" in clarifying the Sempra terminals supplies that eventually move into California.

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