Outgoing US Energy Sec. Bill Richardson Friday issued an emergency order requiring 27 suppliers to provide Pacific Gas & Electric Co. gas, after the California utility complained 6 of its suppliers had stopped or were threatening to halt deliveries.
The order expires at 3 a.m. Wednesday. Earlier Friday, President Clinton signed a memorandum finding that a natural gas supply emergency exists in central and northern California. Issued under provisions of the 1978 Natural Gas Policy Act and the 1950 Defense Production Action, the order is designed to insure gas is available for high-priority uses, such as home heating and electricity generation, and cannot be resold in the wholesale markets.
"I am issuing this temporary emergency order to keep the gas flowing while the state of California, utilities, and generators continue to work to find a solution to the current electricity and financial crisis," Richardson said.
It is the second such emergency energy order Richardson has issued to prop up cash-strapped California utilities. Richardson issued a similar order beginning in December that requires wholesale generators and marketers to sell excess power into the California market. He has renewed it several times.
Richardson said the natural gas order is warranted because "concerns about PG&E's financial status have caused several of the utility's natural gas suppliers to cut off or threaten to cut off service to PG&E. I am very concerned that such supply disruptions could endanger the health and welfare of PG&E's residential and commercial gas customers and could exacerbate the already precarious condition of California's electric grid by eliminating fuel supplies to a number of generating plants."
Cash and credit exhausted
The order applies to suppliers that provided gas to PG&E during the preceding 30 days. These suppliers are being directed to sell natural gas to PG&E under terms consistent with any contractual arrangements in existence during this 30-day period. If a supplier and PG&E fail to agree on the terms of the contractual arrangement, the energy secretary will set the terms.
The situation occurred because Pacific Gas & Electric Co. could not pay in advance or on delivery, a significant change in payment terms demanded by suppliers, according to CEO Gordon R. Smith. The company said it has exhausted its cash and credit because of the high wholesale electricity prices in California.
To cover the shortfall, Smith said the utility is quickly depleting its gas in storage. The stored gas is expected to be depleted by early February, if the current rate of withdrawal continues. If more suppliers stop their deliveries, the utility's stored gas will be consumed more quickly, he explained.
In addition to the immediate crisis, the company said it has been able to purchase only about 60% of its February gas needs. If the utility is not able to obtain enough gas for residential and small business customers, the rules of the California Public Utilities Commission require the utility to divert gas from large industrial consumers, including power plants, to residential customers. Other noncore customers whose gas could be diverted include hospitals, military bases, and universities, the company said.
"Diverting natural gas from some of our customers in order to serve others is not an acceptable solution, but we would do it in order to preserve gas for our residential customers who need heat in the middle of winter,'' Smith said.
Earlier, Reliant Energy Inc. criticized the Energy Department order that obliges power producers to continue supplying electricity to California's investor-owned utilities The Houston-based company said it is spending $5-$15 million/day on gas to fuel its California power plants.
Reliant owns 3,800 Mw of generation capacity in California. While banks refused to extend credit to the utilities, Reliant and other suppliers are being forced to assume credit risk with no promise of payment, Reliant CEO Steve Letbetter was quoted as saying.