Natural Gas Crisis…Or War?

A Somali man scurries away as the bodies of two men thought to be Ethiopian soldiers killed during heavy fighting lay on a street of Mogadishu 29 March 2007. MUSTAFA ABDI/AFP/Getty Images

A looming shortage of natural gas has led California's power companies to request emergency intervention from the state — even as lawmakers in Washington consider reducing government's authority to control natural gas supplies.

Pacific Gas & Electric Co. warned Friday that customers could face natural gas shortages by next month, or as soon as next week if a cold front hits.

PG&E is one of two major California utilities whose financial difficulties have led to rolling blackouts, calls for power conservation and efforts by the state of California to begin buying power on behalf of the utilities.

California's power crisis has also prompted action by the federal government. In December and January, the Clinton and Bush administrations both issued orders compelling electric and natural gas companies to keep supplying power to California even if the utilities can’t pay for it.

Those orders, one for electric companies and one for gas companies, lapsed Tuesday.

The state's Independent System Operator (ISO), which runs the power grid, went to court to get the order covering electric companies continued. A federal judge Thursday extended the order indefinitely.

Now the utilities want the same help for natural gas sales.

PG&E's chief, Gordon R. Smith, sent a letter to Gov. Gray Davis late Wednesday asking him to support PG&E's request to state regulators for a gas emergency declaration that would require Southern California Gas Co. to buy extra gas and sell it to the financially ailing utility.

PG&E projects that its gas storage inventory will be drawn down to minimum levels by mid-March. Even before then, executives said, diversions from non-core customers could occur, especially if cold weather increases heat demand.

"There would be massive blackouts," said Mike Katz of PG&E. "Gas would get cut off cut to our industrial customers first and if we got into a real dire situation, there could be a shortfall to residential customers."

CBS News Correspondent John Blackstone reports the potential gas crisis has some angry at natural gas companies.

Loretta Lynch, who chairs the California Public Utilities Commission, said, "the natural gas suppliers are taking advantage of the situation."

Gas From The Past
Previous uses of the Defense Production Act:

President Richard Nixon used it to try to cntrol spiraling costs during the energy-starved 1970s.

President George H.W. Bush invoked it during the buildup to the Persian Gulf War to procure atropine, an antidote to poison gas, as well as desert boots and uniforms.

President Ronald Reagan used it to keep afloat a company that made filament radon for rocket engines.

President Bill Clinton used the act to procure communications and computer equipment for military actions in Bosnia and Kosovo.

Smith also asked the governor to use the state's credit to help buy gas for PG&E's residential users and other core customers.

Davis is reviewing the request, a spokesman said Thursday.

But while the utility asks the state for help securing natural gas supplies, the federal government's powers to help out are under review.

Senators are debating whether to kill the Korean War-era law that Presidents Clinton and Bush used last month to keep the natural gas flowing in California.

That law is the 1950 Defense Production Act. Signed by Harry Truman during the Korean War, the law has been used several times by presidents in wartime and at peace, said Alan Gropman, chairman of the department of grand strategy and mobilization at the Industrial College of the Armed Forces.

Gropman said the law lets a president compel a company to act only if the company has a federal contract or provides a product to a national security entity such as a military base. In California, it could be argued that the energy companies provide gas not only to its residents but also to military bases in the state, Gropman said.

Sen. Phil Gramm, R-Texas, chairman of the Banking Committee, criticized use of the law in California's crisis.

Gramm argued at a hearing Friday that the law should be used only to supply military and aerospace facilities, not fix a credit crunch that utilities such as Pacific Gas and Electric Co. were experiencing.

"It ought to be an extraordinary action, in my opinion, for the government to be taking people's property and dictating prices," he said.

A longtime critic of the law, Gramm questions whether any president should be able to interfere with the financial interests of private companies when there is no war. Some of the energy suppliers affected in its latest invocation are based in Texas.

But defenders of the law point out that if Mr. Clinton and, later, Mr. Bush hadn't invoked the law, electricity supplies would have grown even scarcer — and utilities might have seized natural gas flowing to military installations and used it for civilian power plants.

The law was set to expire in 1999 but was extended through September, 2002.

Other senators at Friday's hearing were also critical of the effect of the emergency orders on surrounding states.

"When California suffers, Wyoming has to panic," said Sen. Mike Enzi, R-Wyo.

But officials from the Department of Energy defended orders that other states send electricity to California.

"Some intervention was necessary to avoid what I think of as a run on the bank," said Eric Fygi, the department's acting general counsel.



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  • CBSNews.com staff CBSNews.com staff

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