In California, Demand for Action on Soaring Gas Prices

February 9, 2023

Only one way to get off the fossil price roller coaster. Move to renewable, clean, carbon free energy.

Los Angeles Times:

In the wake of skyrocketing gas rates, a utility company executive suggested that hikes in natural gas costs could lead to higher electricity bills this summer.

The news of a potential hike in electricity prices came during a California Public Utilities Commission hearing Tuesday to explore the causes of this winter’s dramatic rise in natural gas prices. 

“Wholesale natural gas prices have risen to alarming levels this winter,” CPUC President Alice Reynolds said to start the four-hour meeting, noting that consumer natural gas bills are up between 2 and 2.5 times what they were a year ago.

Though gas bills for California customers are beginning to drop due to lower costs for natural gas in February, the compounding effects on electric bills may still be coming. 

William Walsh, an executive at Southern California Edison, said his company had filed for a June 1 rate increase, totaling $595.6 million. The increase, which would be 4.4% for the average customer, is still pending approval by the CPUC. Edison serves about 15 million customers in Central, coastal and Southern California.

The utility had already increased electricity rates by about 7% on Jan. 1, along with a 3% hike by Pacific Gas and Electric Co. and 16% by San Diego Gas & Electric Co., according to filings with the CPUC.

Marlon Santa Cruz, manager of fuel and purchased power at the Los Angeles Department of Water and Power, told the CPUC that a $5 increase in cost per million BTUs in wholesale natural gas prices can more than double DWP’s cost of power production. He noted that gas price hikes are usually short-lived but the recent two-month price jump is “no longer a spike, this is an event.”

Here, the Henry Hub gas price, which covers most of the US, shows the volatility of prices over the last 3 years. I don’t have a good graph that is specific to California, energy wonks weigh in. Main takeaway is that the unpredictable vulnerability to global events will continue until renewables take over.

Experts at the hearing suggested several factors led to the rise in gas prices, such as problems with gas pipelines and an increase in demand during an unusually long cold spell.

Aleecia Gutierrez, director of the California Energy Commission’s Energy Assessments Division, pointed to similar weather events in Chicago and Boston this winter during which wholesale gas prices did not spike nearly as much as they did in the West.

She pointed to five “force majeure” events in pipeline infrastructure that reduced natural gas flow into the West, where California imports more than 90% of its natural gas and therefore relies on pipelines.

Rodger R. Schwecke, the chief infrastructure officer of Southern California Gas Co., spoke to higher demand in November and December 2022 due to cold weather. He was the first of several speakers to suggest the need for additional natural gas storage at Aliso Canyon, the troubled facility that in 2015 was the site of the biggest methane leak in U.S. history.

Several representatives for PG&E said futures prices usually create incentives for traders to buy and store natural gas in the spring and sell it for use in the winter. But futures prices were flat last year from May to December, and many independent storage facilities were left unfilled.

The low level of stored natural gas, combined with less gas coming through pipelines, caused a supply constraint, according to experts at the hearing. This combined with increased demand from residents due to cold weather and a 19% year-over-year increase in natural gas demand for electric plants to produce durably higher wholesale prices, according to PG&E representatives.

Most agreed that more stored gas could help stabilize prices in the future, with some members of the CPUC discussing a reserve for natural gas akin to the U.S. Strategic Petroleum Reserve.

The emphasis on storing more natural gas downplays the root cause, according to Fred Heutte of the NW Energy Coalition. The problem, he said, is “overdependence on gas.” He said the gas price spike had a $4-billion impact on customers and pushed for a move away from fossil fuels and toward batteries and hydropower storage.

Callers to the hearing voiced frustration with the utilities, which one ratepayer accused of price gouging. Several attendees spoke favorably of Gov. Gavin Newsom’s call for the Federal Energy Regulatory Commission to investigate whether “market manipulation, anticompetitive behavior or other anomalous activities” contributed to the higher prices.


7 Responses to “In California, Demand for Action on Soaring Gas Prices”

  1. rhymeswithgoalie Says:

    This calls to mind the year 2000 when market-gaming by Enron to take advantage of new California utility market deregulation. PG&E declared bankruptcy and the governor was kicked out of office because of the subsequent rolling blackouts.

  2. This is nothing like 2000. The big utilities lost 40% of their storage capacity due to safety retrofit requirements imposed by the state after the disastrous leak at the Aliso Canyon storage facility. PG&E, for example, got out of the commercial storage business and mothballed some wells, because it would have cost $1.5 billion to keep them open. That would have gone right into rates. You can by a lot of incrementally-priced day gas for $1.5 billion.

    It also didn’t make sense to invest that kind of capital because gas usage is trending down. It’s state policy to get to near net zero carbon emissions by 2045. In 2000, electric usage was going up.

    While the utilities filled their portion of storage to take care of their residential customers, commercial customers didn’t because, as the article points out, the forward price curve for gas was flat and so it didn’t make economic sense for them to do it.

    The article also correctly points out that having some kind of reserve requirement for storage would have greatly mitigated the price spikes. That seems like a workable idea, although you can bet there’ll be a huge fight about who should pay for that reserve.

    • John Oneill Says:

      Some ISOs pay gas turbine generators capacity payments to keep a number of days of oil on site, to burn instead of gas during a crisis. That’s why oil was the largest source of electricity in New England a fortnight ago, during the Arctic blast that boosted gas demand for heating. Nuclear reactors have a year and a half worth of fuel on top in their cores, providing easily the most reliable power, but get no credit for it.

      • rhymeswithgoalie Says:

        Diablo Canyon?

        Its reliability comes at a cost, just like having gas storage.

          • rhymeswithgoalie Says:

            Interesting article; looks good.

            However, the cheapest historical rate cited for fuel costs was six cents per kilowatt hour, so I don’t know Standford/MIT get four cents, especially considering the forecast issues of fuel sourcing.

            The capital expenditures calculation does sound bogus. (I can’t grok the complexity and cost of erratically deferring decommissioning, and I recognize that the act of dicking around about decisions can be costly in themselves.)

            I like their use of the term “Heroic Assumptions”, but I also apply it to the ongoing promises of future NPP development.

            In any case, I’m against closing down an operating nuclear power plant unless there are specific problems with it. (I don’t see that adding ongoing nuclear waste to its storage represents a significant new problem.)

    • rhymeswithgoalie Says:

      I just meant the California grid market chaos in general, rather than problems due to local wildfire risks or global markets.

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