This past winter’s natural gas and gasoline wholesale price spikes were not the result of manipulation but rather primarily a reaction to changes in the weather, according to the latest monthly tracking report released by California’s two major energy agencies Tuesday. The California Energy Commission and California Public Utilities Commission completed investigations this spring at the behest of the governor.

The average wholesale gas costs for the state’s major utilities dropped about 30% in April, compared to March, the report said.

Dated June 2, the report said additional information “strengthens the original conclusions” that include: “the market price spike was temporary and driven primarily by U.S. weather.” It caused “lingering concerns” about natural gas supply, demand and market issues. In the latest analysis, an assessment showed improved hydro-electric conditions for the state this summer. Hydro availability can significantly affect wholesale natural gas prices because of the abundance of gas-fired power generation in the state.

As of mid-May, the energy commission staff placed hydro levels at 108% of normal from in-state facilities, mostly in Northern California. “This is a significant increase from the 78% of normal expected just two months ago,” the report said, noting that the Pacific Northwest hydro situation also has improved, moving up to 83% of normal long-term average levels.

“The increase in hydro-generation in both areas will ease the demand on natural gas for power generation and help allow more natural gas to be purchased at lower market prices for storage in California,” the report said.

It noted that the impact of wholesale price spikes on retail rates could have been worse if not for successful mitigation work by California’s utilities. It also noted that the Federal Energy Regulatory Commission staff conducted its own investigation that concurred with some of the state’s earlier findings, and it said FERC staff is continuing to examine “circumstances surrounding natural gas market trading activity.”

Under its assessment of natural gas market price behavior, the report concluded that prices (at Henry Hub) have declined to “levels below the February 2003 price spike,” and “more importantly, they have been stable compared to earlier trading behavior, although these market prices are slowly increasing.”

The report also looks at “lingering issues” and sees gas storage as an area where the state is in better shape than the rest of the nation, which is at historically low levels.

“California utilities and storage facility customers have been injecting natural gas since the April 1 start of the injection season, while their U.S. counterparts did not start significant injections until May,” the report said. “The lack of early U.S. injection is particularly worrisome because little surplus natural gas may be available this summer” due to demand on gas-fired electric peaking plants. It noted that the national drilling rig count is up but needs to increase much further.

The full report is available on the California Energy Commission web site (www.energy.ca.gov).

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