The below-investment-grade credit ratings plaguing many energy suppliers right now have substantially shrunk the pool of natural gas suppliers that California can tap to meet the 15 Bcf annual supply needs of a coalition of major state and local government facilities, which aggregate their loads through the state General Services Department’s gas-buying program.

BP is the current so-called “full requirements” supplier for the state public sector facilities on an April 1-March 31 annual contract basis, along with several pool suppliers providing longer term supplies.

Used as a hedge supplementing the full-requirements supply deal, which will be bid again in early January and contracted for in late February-early March, the pool currently includes only two suppliers, and the list of creditworthy companies that can be called on has shrunk to less than a half-dozen (BP, Sempra Energy, Coral Energy Resources, Occidental Petroleum and Cook Inlet Energy Supply), said Marshall Clark, director of the state gas-buying program.

“We always have just one full-requirements supplier, but we also always have the capacity to go out to the pool to buy gas for periods outside of the period of the full-requirements supplier,” Clark said. “The pool is meant for a longer term basis out as much as five years into the future, although we could use it within the full-requirements supplier’s time frame. Frankly, we try to work with our full-requirements (FR) supplier and not interfere with their action anymore than necessary.”

The annual FR supplier has to handle the nominations for all the state’s gas requirements even though some of it includes contracts with other suppliers for fixed-price, multi-year deals. Clark said the state currently has two five-year deals — one for 8 million decatherms to serve the overall state program, and a second one for a specific state facility 800,000 decatherms.

“There is also a current contract with Texaco for a block of fixed-price gas into the PG&E utility territory and BP (as the FR supplier) essentially accepts those supplies at the border and does the nomination and scheduling from there,” said Clark, noting that the FR supplier can also be part of the pool, which currently includes BP and Cook Inlet only.

“Currently our requirements are that potential suppliers have to have an above-junk bond ratings, and a number of companies, such as TXU, don’t qualify,” he said. “TXU has been a supplier in the past and we’d like to have them again, but they are not at a credit level that we are comfortable with right now.”

The majority of the potential suppliers are “knocked out” by the ratings, and then the state’s “poor image in the energy industry” knocks out many of the other left over,” Clark said.

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