NGI The Weekly Gas Market Report
After suspending payment of its fourth quarter dividend of 30cents/share and requesting emergency assistance from the state forbuying natural gas on Wednesday, Pacific Gas & Electric Co.said Thursday it will immediately lay off 325 employees and cutcustomer services to save $180 million. The utility unit ofPG&E Corp. plans to cut another 675 jobs if its cash situationdoes not improve over the next few months, Pacific Gas and ElectricPresident Gordon Smith said in a memo sent to employees onThursday.
Smith also told the utility’s 18,800 employees that manycustomer services will be cut back, among them customer telephonecenters, work to put electric cables underground, meter reading,and community and charitable contributions.
In a filing with the Securities and Exchange Commission,PG&E warned of an “impending natural gas shortage emergency.”The utility’s deteriorating credit situation is causing many of itsgas suppliers to decline to sell it any more gas, even underexisting gas contracts, in the absence of accelerated payments.
PG&E said some suppliers have made demands that it provideprepayment, cash on delivery, or other forms of payment assurance,which the utility is unable to meet. Other suppliers have refusedto sell it gas for future periods beginning as early as today. IfPG&E can’t buy any gas to serve core customers, it first wouldhave to rely on gas in storage, which already is low, and thenwould have to divert gas from large commercial and industrialcustomers (non-core customers), including electric generators, fordelivery to core customers. If a significant number of gassuppliers terminate their contracts, the utility would exhaust allstorage gas by the second week of February and there would besustained curtailments of major portions of the utility’s gassystem.
PG&E also said that it would postpone release of itsfinancial results for the fourth quarter of 2000, as it awaits theoutcome of ongoing state and federal efforts to resolve the crisis.Those efforts could result in measures that would significantly andadversely affect the company’s financial results.
As of Dec. 31, PG&E said, is recorded under-collected powerpurchase costs of $6.6 billion, “more than 100% of its totalstockholders’ equity.” Wholesale power prices in December spiked toover $400/MWh, 1000% higher than a year earlier.
As of Jan. 10, PG&E told the SEC it had cash reserves of$500 million, which is clearly inadequate to make its schedulednear-term payments. It has a payment due to the CaliforniaIndependent System Operator (ISO) on Feb. 1 for real-time energypurchases of $583 million, an estimated payment to the CaliforniaPower Exchange (PX), due on Feb. 15 for day-ahead energy purchasesof $431 million, and an estimated payment to the ISO for energypurchases in December due on March 2 of $1.2 billion.
In addition, the utility’s monthly gas procurement disbursementsare more than $200 million. The recent rate increase approved bythe California Public Utilities Commission (CPUC) on Jan. 4 willraise $70 million in cash per month for three months. But even ifall that cash were made available immediately, $210 millionrepresents about one week’s worth of net power purchases at currentprices, the company said. “Thus, the rate increase does not raiseenough cash for the utility to pay its ongoing procurement bills ormake further borrowing possible. Either a further ratings downgradeto below investment grade or a default in the payment of certainobligations of $100 million or more would create an immediatedefault under certain utility and PG&E Corp. credit and otherfinancial agreements, entitling financial creditors to acceleraterepayment of loans,” PG&E said.
The utility currently is unable to borrow more money and isforeclosed from the capital markets because of its financialcondition. Absent immediate regulatory, legislative or judicialrelief, PG&E will default on its payment obligations and facesthe risk of being forced into bankruptcy.
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