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PG&E Warns CA Regulators Gas Costs May Cause $243 Million Power Hike

Pacific Gas and Electric Co. notified the California Public Utilities Commission that "skyrocketing" wholesale natural gas costs nationally were causing wholesale electricity prices to spike and the result might be the need for added retail power utility rates in the state. PG&E's utility estimated that the higher gas costs could translate into an added $243 million in wholesale power costs, or a 2.5% hike, by January.

Natural gas-fired generation makes up 43% of PG&E's utility electric portfolio, and earlier this month the CPUC approved an added gas supply hedging program for the utility.

The utility made its notification to the CPUC as part of a regular filing to update its 2006 forecast revenue requirements for a balancing account, the Energy Resources Recovery Account (ERRA), that tracks the difference between retail power rates and the wholesale costs of power to the utility. Included in ERRA are power purchase contracts, market purchases, fuel costs for utility generation facilities and related costs associated with procurement, but the cost of natural gas is a big factor in most, if not all, of these items.

"The country is facing what are expected to be record-high natural gas prices this winter and beyond, caused by very tight supply-demand balance in the national market and made worse by the damage to vital natural gas infrastructure caused by Hurricanes Katrina and Rita," a PG&E utility spokesperson said. The utility has taken several "concrete measures," including hedging portions of its electric portfolio.

PG&E's utility also pointed out that it has an overall diverse portfolio of power sources, with 23% coming from nuclear and 31% from large hydroelectric and renewables, in addition to its natural gas-fired generation.

Noting that PG&E utility customers are impacted in both gas and electricity, Tom Bottorff, utility senior vice president for customer service, said the utility has taken "concrete actions, such as hedging a significant portion of its electric portfolio, to help protect customers from any further increases in commodity prices this winter."

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