California utilities’ eroding creditworthiness is extendingbeyond the electricity sector and seeping into the naturalgas-buying parts of their business as well, according to a PacificGas and Electric Co. witness testifying Friday in the ongoing stateemergency rate hearings.

Some 17 of the PG&E utility’s 40-50 gas suppliers have saidthey don’t want to sell any more to the huge combination utilityand others have put tighter cash requirements on future sales, saidWalt Campbell, the PG&E utility’s business/financial planningdirector, who noted that his company is currently tapped out ofso-called “trade credits” for gas supplies.

“As long as the weather is mild, the next couple of months, thisshould not create a severe operational problem,” Campbell said.”However, if we get a cold snap, we only have a certain amount ofgas in storage and we don’t get any new gas from producers, we willhave to order curtailments, and the first customers curtailed arethe power plants.”

Second, he said there is a similar problem for QF powerproducers not being able to get credit for gas supplies andtherefore not being able to produce electricity to thesupply-strapped state grid.

This footnote was part of the administrative “evidence” minutiathat fills the time warp of state regulatory hearings in whichCalifornia officials held three days of evidentiary sessions lastweek in San Francisco without concluding the emergency fact-findinginto the state’s two major utilities’ pleas for rate increases.

Hearings continue today amid cries from consumer groups toignore the utilities’ requests and make their holding companiesabsorb the more than $8 billion in added costs.

Regardless of whether the California Public Utilities Commissiongrants rate relief, the regulators also want to determine whetherthey should lift the retail rate freeze, and how to deal withvaluing and potentially disposing of the utilities’ othergeneration assets, which are increasingly vital nuclear andhydroelectric plants that they still own an operate on a regulatedbasis.

The consumer group TURN’s chief attorney, Michael Florio, saidthe state “shouldn’t be making policy in response to threats,”noting that the potential declarations of utility bankruptcies”might not be the worst option,” echoing some remarks by RalphNader, who attended part of the hearings Thursday.

“In other states where utility bankruptcies have occurred, thelights have remained on. That’s not something we can depend onnow.”

The hearings are placing both utilities in the usual regulatoryposture of having to justify their requests for higher rates.Witnesses on Friday were asked many details about the nationalrating agencies, levels of credit, financial support available fromthe nonutility parts of their parent corporations and whatcost-cutting measures the utilities are adopting in the face oftheir financial dilemma. (Southern California Edison announced a$100 million cutback and discontinuance of its parent’s fourthquarter dividend, but PG&E Corp. and its utility have not madeany similar announcements.)

A former CPUC chief counsel and executive director, Michael Day,now a private attorney representing Enron Corp., urged the stateregulators last Thursday to not lift the current retail rate freezeand to think in terms of providing interim rate relief when itmeets this Thursday, using additional time for further hearings tomake a final decision on rates and other issues.

Day said he thinks past cases and current laws allow the CPUC toprovide interim rate increases in the face of emergencies, and thatthe valuation and rate freeze issues need not be dealt with at thistime, according to his assessment of the state’s 1996 electricityrestructuring law.

PG&E, however, stressed the need for the CPUC to do fourthings on Jan. 4: lift the freeze, assure that the utilities canultimately be made whole, and okay both short- and long-term rateincreases.

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