Under protest, gas supplier says it fulfilled DOE order

Jan. 25, 2001
Fulfilling the requirements of a US Energy Department order, Western Gas Resources Inc. Thursday reported shipping 5,000 MMbtu/day of gas to Pacific Gas & Electric Co.(PG&E), which complained suppliers were threatening to suspend deliveries without cash payments. Western estimated it will have $2.2 million in total invoices outstanding under a terminated supply agreement with PG&E, including deliveries under the order.


Fulfilling the requirements of a US Energy Department order, Western Gas Resources Inc. Thursday reported shipping 5,000 MMbtu/day of gas to Pacific Gas & Electric Co.(PG&E), which complained suppliers were threatening to suspend deliveries without cash payments.

Western estimated it will have $2.2 million in total invoices outstanding under a terminated supply agreement with PG&E, including deliveries under the order. The company said it has no other outstanding exposure to either PG&E or Southern California Edison Co. but cannot express an opinion on to its ability to recover these charges from PG&E.

PG&E has suspended payments on various debt in order to conserve cash. Former US Energy Sec. Bill Richardson Friday issued an emergency order Jan. 19 requiring 27 suppliers to provide gas to PG&E after the California utility complained 6 of its suppliers, including Western, had stopped or were threatening to halt deliveries.

The order was extended through Feb. 7 by Energy Sec. Spencer Abraham. Western said the 5,000 MMBtu/day represents less than 1/2 of 1% of PG&E's typical supply requirements of 1.44 bcf/day in January.

In a statement, Western CEO Lanny Outlaw said the company will comply with the order and sympathizes with California citizens. However, he said, "We have difficulty understanding how our Company, our employees in Colorado, Wyoming, Texas, New Mexico, Louisiana, and Oklahoma and our shareholders can be expected to bear any loss as a result of these orders." Outlaw said the company will act "vigorously" to recover any losses and protect its numerous stakeholders.

The situation occurred because PG&E 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 the request for the order.

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.