January 18, 2001
Contact: PG&E News Department (415) 973-5930
EDITORS: Please do not use "Pacific Gas and Electric" or "PG&E" when referring to PG&E Corporation or its National Energy Group. The PG&E National Energy Group is not the same company as Pacific Gas and Electric Company, the utility, and is not regulated by the California Public Utilities Commission. Customers of Pacific Gas and Electric Company do not have to buy products or services from the National Energy Group in order to continue to receive quality regulated services from Pacific Gas and Electric Company.

Natural Gas Supply Issue Reaches Crisis Level: Suppliers Have Said They May Pull Up to Two-Thirds of Needed Gas Due to California Energy Crisis

SAN FRANCISCO - Pacific Gas and Electric Company has been notified by six of its natural gas suppliers, accounting for 36 percent of daily supply, that they have stopped, or may stop delivering gas by January 23. In addition, several other suppliers, accounting for another 30 percent of daily supplies, have told the utility that they are considering stopping deliveries.

The withdrawal of gas deliveries brings Northern and Central California close to the brink of natural gas shortages in the middle of winter, which could threaten the health and safety of millions of Californians. As a result of these withdrawals, natural gas could be cut to homes, hospitals, businesses, refineries and power plants.

"As California continues to struggle with an energy crisis and the financial havoc it has created for the state's utilities, we face the very real possibility of natural gas shortages in the coming weeks," said Gordon R. Smith, president and CEO of Pacific Gas and Electric Company. "We have done our best to call attention to this crisis and obtain assistance to avert a catastrophe, and now we must wait to see if the state and federal governments will step in to ensure that natural gas flows to homes and businesses in Northern and Central California."

Pacific Gas and Electric Company has taken a number of steps to try and avert the looming crisis. The company:

  • Informed Governor Davis of the problem on Jan. 9 and asked him to consider using his emergency powers to help avert gas shortages by providing short-term financial assistance so gas suppliers will sell to the cash-strapped utility.

  • Met with its 25-30 key suppliers on Jan. 10 to urge them to continue to deliver gas under normal payment arrangements.

  • Requested on Jan. 12 that President Clinton declare a natural gas supply emergency.

The suppliers which have withdrawn supplies as of Jan. 17, or have stated that they may pull supplies in the coming days, include two of Pacific Gas and Electric Company's largest suppliers, J. Aron & Co., the trading arm of Goldman Sachs in New York, and Sempra Energy Trading of Stamford, Connecticut. The other suppliers are Western Gas Resources, Inc. of Denver; Duke Energy Trading of Houston; Coastal Merchant Energy of Houston; and Natural Gas Exchange of Calgary, Alberta. The situation has occurred because Pacific Gas and Electric Company could not pay in advance or on delivery, a significant change in payment terms demanded by suppliers. The company has exhausted its cash and credit because of the high wholesale electricity prices in California.

To cover the shortfall caused by the pulled gas supplies and the fact that other suppliers will not sell to Pacific Gas and Electric Company, the utility is quickly depleting its natural 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.

In addition to the immediate crisis created by the halt in gas deliveries, the company has been able to purchase only about 60 percent of the gas it expects customers to need each day in February. Therefore, an even greater crisis is expected in February once storage supplies are depleted and inadequate supplies are flowing into the state.

If Pacific Gas and Electric Company 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 non-core (large industrial) consumers, among which are power plants that need natural gas to generate electricity. However, the result will be an even worse electricity shortage than the state is currently suffering. Some power plant operators have stated that they will send their gas out of California to prevent it from being used by residential and small business customers. Other non-core customers whose gas could be diverted include hospitals, military bases and universities.

"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," said Smith. "What we need is for gas suppliers to continue to sell their gas to Pacific Gas and Electric Company on regular terms, and with an ordinary payment schedule."