PG&E to Securitize Retail Gas Payments
Meeting in a special session last week, California's regulators
gave PG&E's utility authority to amend its gas supply deals to
keep supplies flowing to the state past Tuesday when the current
federal DOE emergency order expires. But regulators postponed
action on another PG&E request that Southern California Gas Co.
over its strong protests be compelled to provide emergency supplies
to PG&E's gas utility residential and small business customers.
That issue is scheduled to come up Thursday when the regulators
Given the utilities credit problems and other factors, it was
still unclear at the end of last week whether the temporary measure
will solve the utilities' severe credit problems.
Loretta Lynch, president of the California Public Utilities
Commission, said PG&E's utility is a "victim --- a victim of
circumstances and a victim of predatory practices by natural gas
suppliers" now demanding payment for future supplies upfront ---
not because the utility has failed to pay its past gas bills, but
because the electricity crisis has sapped its credit-worthiness.
The CPUC action allows PG&E's utility to offer suppliers the
option of securitization, or, in effect, a lien, in the utility's
retail customers bills which cover the full cost of the wholesale
gas prices as an incentive to have the suppliers extend contracts
with PG&E's gas utility operations while the overall company is
still covered with an erosion of its credit-worthiness. This week's
negotiations for new contracts should offer some indication if the
CPUC action will overcome the suppliers' growing reluctance to
extend contracts under the continuing financial crisis
circumstances in California, according to PG&E gas utility
spokesperson Staci Homrig.
On the operational side, PG&E last Wednesday declared a
low-inventory OFO because of a cold snap cau sing more
supplies to be burned then pipeline shippers were bringing into the
system. The action was thought to help cause the PG&E citygate
price to jump from $11 to $17 Jan. 31. As for reports of low
storage, Homrig said that while the utility's supplies are very
low, they are adequate for the next week. They are not dipping into
cushion or base gas at this point, Homrig said.
PUC President Lynch said that PG&E has not defaulted on any
payments, but nevertheless in what she considers predatory
practices, the suppliers have required advance payments or payment
at the time supplies are provided. "These gas suppliers are taking
advantage of an emergency situation to extract another pound of
flesh," Lynch said in voting for the securitization measure.
"Suppliers who have been paid when due are now saying regardless of
existing agreements 'pay us today'. They are doing this in the
coldest time of the year so the commissioners have to take these
difficult steps to allow PG&E amend these agreements in order
to keep the gas flowing."
Part of the CPUC's action places a 90-day limit on the
securitization option, so the way gas contracts work, in effect, it
only provides about another 30 days' worth of supplies, said
Homrig, who noted that almost all of PG&E's 25 to 30 suppliers
have asked for special payment arrangements (advances,
cash-on-delivery or letters of credit) that the company cannot
accommodate because of its cash-flow crisis.ÿ Out of ongoing
negotiations, the parties came up with the securitization proposal
in the customer account receivables, thus, assuring them they will
On the gas side, PG&E has had sufficient revenues (unlike in
its electric business) but the suppliers have not wanted to let the
utility stick to a normal payment arrangement because of the severe
credit-rating decline in the past weeks.
"The CPUC seems to be optimistic that the legislature will come
up with some solution that will improve our overall financial
position (thus, eliminating the gas suppliers' present concerns
over getting paid)," Homrig said. "The only thing keeping the gas
suppliers from doing business with us is our poor financial state.
If that improves, presumably everything will go back to normal.
"We'll probably have a better sense next week how many suppliers
will work with us."
Richard Nemec, Los Angeles