NGI The Weekly Gas Market Report
Meeting in a special session last week, California’s regulatorsgave PG&E’s utility authority to amend its gas supply deals tokeep supplies flowing to the state past Tuesday when the currentfederal DOE emergency order expires. But regulators postponedaction on another PG&E request that Southern California Gas Co.over its strong protests be compelled to provide emergency suppliesto PG&E’s gas utility residential and small business customers.That issue is scheduled to come up Thursday when the regulatorsreconvene.
Given the utilities credit problems and other factors, it wasstill unclear at the end of last week whether the temporary measurewill solve the utilities’ severe credit problems.
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 upfront —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 overall company isstill covered with an erosion of its credit-worthiness. This week’snegotiations for new contracts should offer some indication if theCPUC action will overcome the suppliers’ growing reluctance toextend contracts under the continuing financial crisiscircumstances in California, according to PG&E gas utilityspokesperson Staci Homrig.
On the operational side, PG&E last Wednesday declared alow-inventory OFO because of a cold snap cau sing moresupplies to be burned then pipeline shippers were bringing into thesystem. The action was thought to help cause the PG&E citygateprice to jump from $11 to $17 Jan. 31. As for reports of lowstorage, Homrig said that while the utility’s supplies are verylow, they are adequate for the next week. They are not dipping intocushion or base gas at this point, Homrig said.
PUC President Lynch said that PG&E has not defaulted on anypayments, but nevertheless in what she considers predatorypractices, the suppliers have required advance payments or paymentat the time supplies are provided. “These gas suppliers are takingadvantage of an emergency situation to extract another pound offlesh,” Lynch said in voting for the securitization measure.”Suppliers who have been paid when due are now saying regardless ofexisting agreements ‘pay us today’. They are doing this in thecoldest time of the year so the commissioners have to take thesedifficult steps to allow PG&E amend these agreements in orderto keep the gas flowing.”
Part of the CPUC’s action places a 90-day limit on thesecuritization option, so the way gas contracts work, in effect, itonly provides about another 30 days’ worth of supplies, saidHomrig, who noted that almost all of PG&E’s 25 to 30 suppliershave 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 (unlike inits electric business) but the suppliers have not wanted to let theutility stick to a normal payment arrangement because of the severecredit-rating decline in the past weeks.
“The CPUC seems to be optimistic that the legislature will comeup with some solution that will improve our overall financialposition (thus, eliminating the gas suppliers’ present concernsover getting paid),” Homrig said. “The only thing keeping the gassuppliers from doing business with us is our poor financial state.If that improves, presumably everything will go back to normal.
“We’ll probably have a better sense next week how many supplierswill work with us.”
Richard Nemec, Los Angeles
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