Richardson Orders Gas Suppliers to Resume Shipments to PG&E
Following a warning last Thursday by Pacific Gas and Electric
Co. that its gas suppliers were cutting off supplies because of
PG&E's financial trouble, Energy Secretary Bill Richardson
stepped in and ordered the suppliers to continue providing gas to
the utility through this Wednesday.
The temporary emergency order requires suppliers who had
delivered gas to the utility in the last 30 days to continue
supplying PG&E with gas under terms consistent with their prior
contracts. If a supplier and PG&E fail to agree on the terms of
the contractual arrangement, the Secretary of Energy will set the
The order, issued pursuant to provisions of the Natural Gas
Policy Act of 1978 (NGPA) and the Defense Production Act of 1950
(DPA), followed a memorandum signed by President Clinton finding
that a natural gas supply emergency exists in the central and
northern regions of California.
"Concerns about PG&E's financial status have caused several
of the utility's natural gas suppliers to cut-off or threaten to
cut-off service to PG&E. I am very concerned that such supply
disruptions could endanger the health and welfare of PG&E's
residential and commercial gas customers and could exacerbate the
already precarious condition of California's electric grid by
eliminating fuel supplies to a number of generating plants," said
Richardson. "I am issuing this temporary emergency order to keep
the gas flowing while the State of California, utilities and
generators continue to work to find a solution to the current
electricity and financial crisis."
PG&E said six of its gas suppliers, accounting for 36% of
its daily supply, cut off supply or could stop delivering gas by
Jan. 23. Several other PG&E suppliers, accounting for another
30% of daily supplies, have told the utility that they are
considering stopping deliveries because of PG&E's inability to
pay on or prior to delivery.
The situation brings Northern and Central California close to
the brink of natural gas shortages in the middle of winter,
PG&E said, which could threaten the health and safety of
millions of Californians. As a result of these withdrawals, natural
gas could be cut to homes, hospitals, businesses, refineries and
power plants. PG&E said it would rely on stored gas until it
runs out, which is expected sometime next month depending on the
amount of supply curtailments.
"As California continues to struggle with an energy crisis and
the financial havoc it has created for the state's utilities, we
face the very real possibility of natural gas shortages in the
coming weeks," said Pacific Gas and Electric CEO Gordon R. Smith.
"We have done our best to call attention to this crisis and obtain
assistance to avert a catastrophe, and now we must wait to see if
the state and federal governments will step in to ensure that
natural gas flows to homes and businesses in Northern and Central
The company noted it has taken a number of steps to try and
avert the looming crisis. The company informed Gov. Gray Davis of
the problem on Jan. 9 and asked him to consider using his emergency
powers to help avert gas shortages by providing short-term
financial assistance so gas suppliers will sell to the
cash-strapped utility. It met with its 25-30 key suppliers on Jan.
10 to urge them to continue to deliver gas under normal payment
arrangements. Through Gov. Davis, it requested on Jan. 12 that
President Clinton declare a natural gas supply emergency.
The suppliers that have withdrawn supplies as of Jan. 17, or
have stated that they may pull supplies in the coming days, include
two of utility's largest suppliers: J. Aron & Co., the trading
arm of Goldman Sachs in New York, and Sempra Energy Trading of
Stamford, CT. The other suppliers are Western Gas Resources, Duke
Energy Trading, Coastal Merchant Energy and Natural Gas Exchange of
Many of PG&E's suppliers have changed payment terms on the
utility, requiring that it pay in advance or on delivery rather
than on credit. The company has exhausted its cash and credit
because of the high wholesale electricity prices in the state.
To cover the gas supply shortfall, the utility is quickly
depleting its natural gas in storage. The stored gas is expected to
be depleted by early February if the current rate of withdrawal
continues. If more suppliers stop their deliveries, the utility's
stored gas will be consumed more quickly.
In addition to the immediate crisis created by the halt in gas
deliveries, the company has been able to purchase only about 60% of
the gas it expects customers to need each day in February.
Therefore, an even greater crisis is expected in February once
storage supplies are depleted and inadequate supplies are flowing
into the state.
If the utility is not able to obtain enough gas for residential
and small business customers, regulations require that it divert
gas from noncore (large industrial) consumers, among which are
power plants that need natural gas to generate electricity.
However, the result will be an even worse electricity shortage than
the state is currently suffering. Some power plant operators have
stated that they will send their gas out of California to prevent
it from being used by residential and small business customers, the
utility said. Other noncore customers whose gas could be diverted
include hospitals, military bases and universities.
"Diverting natural gas from some of our customers in order to
serve others is not an acceptable solution, but we would do it in
order to preserve gas for our residential customers who need heat
in the middle of winter," said Smith. "What we need is for gas
suppliers to continue to sell their gas to Pacific Gas and Electric
Company on regular terms, and with an ordinary payment schedule."
Reliant Energy, which cut off its relatively small amount of gas
sales to PG&E a couple of weeks ago, said it would comply with
the order if it was subject to it. "We've got to get a look at the
DOE order," said Reliant spokesman Richard Wheatley. "We're trying
to be a constructive participant in solutions here and of course we
are going to study it and try to be as flexible as we can. I'm not
going to say 'bingo' we are going to resume it but we are going to
work within the constraints we have today.
"We've provided as much available power as we can to the PX and
ISO. We're continuing to bear the financial risk ourselves with no
guarantee of payment," he said. "We're exposing ourselves in a very
big way here. Something has to be resolved. We have hundreds of
millions [of unrecovered costs in this]. The accounts receivable
continue to mount for every [molecule of gas] and kWh you sell into