The ongoing turmoil in the energy industry and residue of California’s fiscal and energy-related struggles have made it harder on the state’s largest natural gas buyer — the California General Service Department’s gas aggregation program covers more than 100 government facilities scattered across the state. The deadline for bids for up to 5 Bcf of supplies over a five-year period starting April 2003 will conclude later this month (Aug. 23).

Currently, the state’s 130 facilities, ranging from campuses of the University of California to state prisons and local county/city facilities, are consuming about 15 Bcf/year under a contract that BP won last year. Part of the supplies are tied to an index, and between 30% to 50% are purchased in fixed-price blocks, according to Marshall Clark, the director of the state gas-buying program.

“The way our contract works now, we buy most of the gas at index, but we have the capacity to buy some fixed-price gas ahead of time, so at this particular time we are looking to buy anywhere from 30 to 50 percent at fixed and the rest floating at index,” Clark said. “We have our annual contract now, but in the last six months we have set up a process where gas suppliers can come in to be qualified (RFQ) and we sign a contract with them–not with any purchases–but to be available for a bidding pool, and we’re in the bidding process with that pool for some long-term flows starting in April next year.”

Clark has been satisfied with pricing, but he acknowledges that the current financial crisis in the industry and the state’s current political stalemate delaying the approval of a new fiscal year (July through June) 2002-03 budget is complicating the gas-buying program for state facilities. For example, he cannot pay his July gas bill until there is a new budget authorized, and bill only has a 45-day grace period.

Firms like Dynegy and Enron that were prospective bidders are no longer viable, and some of the viable suppliers are reluctant to do too much business with the state of California, said Clark, noting it is a carryover from some of the concerns that have arise in the state’s electricity buying program involving another part of state government–the Department of Water Resources (DWR).

“We work very hard to differentiate ourselves from the DWR gas purchasing for tolling agreements,” Clark said. “Suppliers have had them (DWR) on a very tight leash in terms of credit. We have a very different record of payment and are based on the utility line item budgets of each of the government facilities. As long as the legislature appropriates money to operate the building they are going to have to heat them.

“The reliability of our revenue flow is on an entirely different basis than it is for DWR where there are concerns about bonding, the CPUC and the allocations.”

On a long-term basis there is a further complication from the state General Services contract provision called a “non-appropriation clause” that essentially says that if the legislature doesn’t appropriate the funds for the purchases, Clark’s group can back out of the contract with no liability to the state. This is a provision that has “always been there” because it stems from the state constitution, Clark said, but in the current unsettling energy environment when the state still has not approved a new fiscal year budget tends to make would-be suppliers wary.

Clark said qualified suppliers can contact him in Sacramento regarding the state program at: 916-324-1283.

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