CPUC Votes to Keep Gas Flowing
A special session yesterday of California's regulators gave PG&E's utility 
authority to amend its gas supply deals to keep supplies flowing to the state 
past Feb. 7 when the current federal DOE emergency order expires, but it 
postponed action on another PG&E request that Southern California Gas Co. --- 
which has strongly objected --- be compelled to provide emergency supplies to 
the PG&E utility's residential and small business customers. 
Loretta Lynch, president of the California Public Utilities Commission, said 
PG&E's utility is a "victim --- a victim of circumstances and a victim of 
predatory practices by natural gas suppliers," now demanding payment for 
future supplies up front --- not because the utility has failed to pay its 
past gas bills, but because the electricity crisis has sapped its 
credit-worthiness. 
The CPUC action allows PG&E's utility to offer suppliers the option of 
securitization or, in effect, a lien, in the utility's retail customers' 
bills which cover the full cost of the wholesale gas prices as an incentive 
to have the suppliers extend contracts with PG&E's gas utility operations 
while the credit-worthiness of the company itself is dubious. It won't be 
until next week when the utility begins negotiating new contracts, that it 
will know if the CPUC action will overcome the suppliers reluctance to extend 
contracts in the current situation, according to PG&E gas utility 
spokesperson Staci Homrig. 
On the operational side, PG&E on Wednesday declared a low-inventory OFO 
because of a cold snap causing more supplies to be burned then pipeline 
shippers were bringing into the system. The action was thought to help cause 
the PG&E citygate price to jump from $11 to $17 on Wednesday. As for reports 
of low storage, Homrig said that while the utility's supplies are very low, 
they are adequate for the next week. They are not dipping into cushion or 
base gas at this point, Homrig said. 
Lynch said that PG&E has not defaulted on any payments, but nevertheless, in 
what she considers predatory practices, the suppliers have required advance 
payments or payment at the time supplies are provided. "These gas suppliers 
are taking advantage of an emergency situation to extract another pound of 
flesh," Lynch said in voting for the securitization measure. "Suppliers who 
have been paid when due, are now saying regardless of existing agreements 
'pay us today.' They are doing this in the coldest time of the year, so the 
commissioners have to take these difficult steps to allow PG&E amend these 
agreements in order to keep the gas flowing." 
Part of the CPUC's action places a 90-day limit on the securitization option, 
so with the way gas contracts work, in effect, it only provides about another 
30 days' worth of supplies, said Homrig, who noted that almost all of PG&E's 
25 to 30 suppliers have asked for special payment arrangements (advances, 
cash-on-delivery or letters of credit) that the company cannot accommodate 
because of its cash-flow crisis.~ Out of ongoing negotiations, the parties 
came up with the securitization proposal in the customer account receivables, 
thus, assuring them they will get paid. 
On the gas side, PG&E has had sufficient revenues --- unlike its electric 
business --- but the suppliers have not wanted to let the utility stick to a 
normal payment arrangement because of the severe credit-rating decline in the 
past weeks. 
The CPUC met in San Francisco late Wednesday afternoon in the midst of a 
whirlwind day of public announcements from the governor, state legislature, 
consumer groups, regulators and utilities. A key piece was missing, however. 
California state legislative leaders called off a morning briefing that was 
to have offered the latest legislative proposals for dealing with the energy 
crisis. Reportedly sticking points remain centered on the key questions of 
who pays for the solutions and how deeply the state gets into the energy 
business. A spokesman for the assembly speaker's office said he had no idea 
when the briefing would be re-scheduled. 
One piece of legislation that got through the state Senate (SB 1X) yesterday 
authorizes another $500 million in emergency funds to purchase power. It also 
would allow the state water resources department to be the utilities' 
wholesale power supplier under long-term contracts at least through 2002. The 
measure drew a protest from CPUC Commissioner Richard Bilas, who argued that 
the state agency be "removed from that role as quickly as possible." The 
bill, which was first passed by the state Assembly, was returned to assembly 
committees last night to iron out changes made in the senate. It then would 
have to be ratified again by the Assembly. 
Meanwhile, consumer activists held rallies around the state protesting the 
state bail-out of the private-sector utilities. This prompted at least one of 
the utilities, Southern California Edison, to come out swinging, saying that 
the recently released results of utility financial audits do not show any 
"windfall profits" or diversion of monies from the utilities to the parent 
company. 
A letter surfaced in Washington from Gov. Gray Davis to the Senate Energy and 
Natural Resources Committee, dated Jan. 30 and outlining measures the state 
is taking to increase energy supply and decrease demand, sign long-term 
contracts and maintain the financial viability of the state's public 
utilities. The letter, a catalogue of recent initiatives already reported 
here, contained no specifics on any long-term contracts nor legislation 
signed that would address the immediate problem. Davis outlined measures 
being taken to speed up siting of new power plants, saying an additional 
2,000 MW would be online by the end of the year. 
Responding to questions on another arena, Edison International's senior vice 
president Tom Higgins said "everything is on the table" in the ongoing 
negotiations between Davis' three-person negotiating team and the two 
utilities, including dropping the pending lawsuit in federal court in Los 
Angeles and crediting excess revenues from the utilities' own generation 
against the whopping wholesale power cost under-collections. 
The state remained under a power watch for the 16th day as the California 
independent grid operator (Cal-ISO) urged conservation because "reserves 
remain very low."