PG&E Securitization Extended; State Considers Buying Gas

The California Public Utilities Commission (CPUC) offered Pacific Gas and Electric half a loaf again last week, extending from three months to six months its authorization for the utility to sign gas supply contracts securitized by gas customer revenue. Meanwhile, not satisfied with their handiwork on the electric side, California politicians said they might have to get into gas purchasing to shore up new generation requirements.

The utility had asked for authorization for the securitization program for up to a year, as it continued to juggle a precarious gas supply situation precipitated in part by its eroded finances. A PG&E gas utility spokesperson, Staci Homrig, said the utility hopes even the modest extension will allow more suppliers to sign contract extensions. As of Friday, PG&E had 11 suppliers representing about 40% of its supply requirements signed on to at least the 90-day version of the new contracts. It had enough supplies to last through this month, with storage down to 5.8 Bcf of available working gas owned by core customers, she said. There is another 30 Bcf of "non-cycling" gas that has to be kept in the storage field, plus a couple Bcf of gas owned by non-core or core aggregate customers.

ÿThe CPUC first took action on the securitization plan Jan. 31, allowing PG&E's utility to offer suppliers in effect, a lien on the utility's retail customers bills which cover the full cost of the wholesale gas prices, as an incentive for the suppliers extend contracts with PG&E's gas utility operations (see NGI, Feb. 5 & 12).

The tight natural gas supplies to the state could get tighter this summer since most of the added 5,000 MW of generation capacity the governor has promised this year will be natural gas-fired. The team of industry and state officials leading the effort to add generation acknowledged that could mean the state would be getting into the fuel supply business.

"We recognize there are going to be additional demands placed on the state's gas supplies, plus knowing we have run into problems with gas deliveries to existing plants, clearly means that we are going to have to do something to make sure we understand what the problems are with gas. But I can't rule out the state getting involved in natural gas purchases until we have completed the planning for this additional generation," said Larry Hamlin, a Southern California Edison generation executive on loan to the state to head up bringing new generation plants online. "We know that the gas situation is one of the areas which we are going to have to give high priority. The California Energy Commission, with which I am working on this assignment, has indicated that there have to be ways to increase storage or do something to try to facilitate the delivery of gas for peaking requirements.

"We know it is a problem and are going to try to design something to address those issues." Hamlin noted that some 1,300 MW of new peaking capacity is included in the total, which is made up of 37 separate units spread around the transmission grid, most of which have not been built as yet. Another 600 MW involves units now offline that are old and will be re-started, such as units at AES Corp.'s Huntington Beach power plant.

The governor's generation team admitted that as many as 4,000 MW of the goal, or about 80%, was in the pipeline or in existing but idle plants, before the governor announced his latest push for added generation. For example, 1,300 MW will come from three new plants that have been under construction for the past 18 months, with a targeted start some time in the mid part of the year.

Making the added capacity even more critical, Hamlin confirmed, is the expectation that there will be less power to import from the Pacific Northwest this summer. It was supplies from that region last summer dropping considerably from 1999 that caused the supply crunch that helped create the wholesale price spike throughout the West.

Richard Nemec, Los Angeles

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