Chronicle Washington Bureau

Sen. Phil Gramm, R-Texas, said that a 1950 law enacted during the height of the Korean War should not be applied in peace-time to make private companies sell gas to nearly bankrupt California utilities.

Former President Clinton first invoked the Defense Production Act Jan. 19, - a day before leaving office - to allow Pacific Gas & Electric Co. to continue buying natural gas. PG&E relies on gas to make electricity, and its near bankruptcy scared off gas suppliers.

President Bush extended the gas emergency order for two more weeks after taking office, but refused any further extensions when it expired this past Wednesday.

Gramm, who chairs the Senate Banking Committee and held a hearing on the order yesterday, called the law "powerful and potentially dangerous".

National security should not be invoked to deal with utility credit problems, Gramm said. He charged it was an abuse for the federal government to make suppliers "sell to parties that they would not have supplied  in the absence of the use of the police power of the federal government".

Gramm also charged that the orders had created a potential financial liability for federal taxpayers, who could wind up footing the bill if the suppliers who were ordered to provide gas are not paid in return.

But PG&E spojesman Shawn Cooper said the company intends to make its monthly gas payment to suppliers - estimated at $300 million - when the bills come due Feb. 25. PG&E, the main investor-owned utility serving Northern California, uses about 1 billion cubic feet of natural gas each day.

Eric Fygi, the Energy Department's acting counsel who defended the orders, said use of the act was justified because otherwise PG&E might have seized gas flowing to military bases in California and diverted it to residential customers.

Gramm, a pro-market conservative, was unconvinced, however, noting the law had been used by President Nixon to impose wage and price controls during the nation's last energy crisis in the 1970s.

"We're not going to extend the Defense Production Act as it's now written. It's either going to die or it's going to be dramatically rewritten," Gramm said. "In a free society, in the midst of peace-time, it ought to be an extraordinary action, in my opinion, for the government to be taking people's property and dictating prices."

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