A special session yesterday of California’s regulators gavePG&E’s utility authority to amend its gas supply deals to keepsupplies flowing to the state past Feb. 7 when the current federalDOE emergency order expires, but it postponed action on anotherPG&E request that Southern California Gas Co. — which hasstrongly objected — be compelled to provide emergency supplies tothe PG&E utility’s residential and small business customers.

Loretta Lynch, president of the California Public UtilitiesCommission, said PG&E’s utility is a “victim — a victim ofcircumstances and a victim of predatory practices by natural gassuppliers,” now demanding payment for future supplies up front —not because the utility has failed to pay its past gas bills, butbecause the electricity crisis has sapped its credit-worthiness.

The CPUC action allows PG&E’s utility to offer suppliers theoption of securitization or, in effect, a lien, in the utility’sretail customers’ bills which cover the full cost of the wholesalegas prices as an incentive to have the suppliers extend contractswith PG&E’s gas utility operations while the credit-worthinessof the company itself is dubious. It won’t be until next week whenthe utility begins negotiating new contracts, that it will know ifthe CPUC action will overcome the suppliers reluctance to extendcontracts in the current situation, according to PG&E gasutility spokesperson Staci Homrig.

On the operational side, PG&E on Wednesday declared alow-inventory OFO because of a cold snap causing more supplies tobe burned then pipeline shippers were bringing into the system. Theaction was thought to help cause the PG&E citygate price tojump from $11 to $17 on Wednesday. As for reports of low storage,Homrig said that while the utility’s supplies are very low, theyare adequate for the next week. They are not dipping into cushionor base gas at this point, Homrig said.

Lynch said that PG&E has not defaulted on any payments, butnevertheless, in what she considers predatory practices, thesuppliers have required advance payments or payment at the timesupplies are provided. “These gas suppliers are taking advantage ofan emergency situation to extract another pound of flesh,” Lynchsaid in voting for the securitization measure. “Suppliers who havebeen paid when due, are now saying regardless of existingagreements ‘pay us today.’ They are doing this in the coldest timeof the year, so the commissioners have to take these difficultsteps to allow PG&E amend these agreements in order to keep thegas flowing.”

Part of the CPUC’s action places a 90-day limit on thesecuritization option, so with the way gas contracts work, ineffect, it only provides about another 30 days’ worth of supplies,said Homrig, who noted that almost all of PG&E’s 25 to 30suppliers have asked for special payment arrangements (advances,cash-on-delivery or letters of credit) that the company cannotaccommodate because of its cash-flow crisis.ÿ Out of ongoingnegotiations, the parties came up with the securitization proposalin the customer account receivables, thus, assuring them they willget paid.

On the gas side, PG&E has had sufficient revenues — unlikeits electric business — but the suppliers have not wanted to letthe utility stick to a normal payment arrangement because of thesevere credit-rating decline in the past weeks.

The CPUC met in San Francisco late Wednesday afternoon in themidst of a whirlwind day of public announcements from the governor,state legislature, consumer groups, regulators and utilities. A keypiece was missing, however. California state legislative leaderscalled off a morning briefing that was to have offered the latestlegislative proposals for dealing with the energy crisis.Reportedly sticking points remain centered on the key questions ofwho pays for the solutions and how deeply the state gets into theenergy business. A spokesman for the assembly speaker’s office saidhe had no idea when the briefing would be re-scheduled.

One piece of legislation that got through the state Senate (SB1X) yesterday authorizes another $500 million in emergency funds topurchase power. It also would allow the state water resourcesdepartment to be the utilities’ wholesale power supplier underlong-term contracts at least through 2002. The measure drew aprotest from CPUC Commissioner Richard Bilas, who argued that thestate agency be “removed from that role as quickly as possible.”The bill, which was first passed by the state Assembly, wasreturned to assembly committees last night to iron out changes madein the senate. It then would have to be ratified again by theAssembly.

Meanwhile, consumer activists held rallies around the stateprotesting the state bail-out of the private-sector utilities. Thisprompted at least one of the utilities, Southern California Edison,to come out swinging, saying that the recently released results ofutility financial audits do not show any “windfall profits” ordiversion of monies from the utilities to the parent company.

A letter surfaced in Washington from Gov. Gray Davis to theSenate Energy and Natural Resources Committee, dated Jan. 30 andoutlining measures the state is taking to increase energy supplyand decrease demand, sign long-term contracts and maintain thefinancial viability of the state’s public utilities. The letter, acatalogue of recent initiatives already reported here, contained nospecifics on any long-term contracts nor legislation signed thatwould address the immediate problem. Davis outlined measures beingtaken to speed up siting of new power plants, saying an additional2,000 MW would be online by the end of the year.

Responding to questions on another arena, Edison International’ssenior vice president Tom Higgins said “everything is on the table”in the ongoing negotiations between Davis’ three-person negotiatingteam and the two utilities, including dropping the pending lawsuitin federal court in Los Angeles and crediting excess revenues fromthe utilities’ own generation against the whopping wholesale powercost under-collections.

The state remained under a power watch for the 16th day as theCalifornia independent grid operator (Cal-ISO) urged conservationbecause “reserves remain very low.”

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