Following on the heels of a hurried state report on natural gas and gasoline winter wholesale price spikes that revealed no alleged gouging or market manipulation, California Gov. Gray Davis last Wednesday formally asked the state’s two principal energy agencies to continue investigating prices for both fuels, which are critical to the state’s economy. Davis ordered follow-up reports every 30 days through the end of the year.

“Energy price spikes hurt every Californian,” the governor said in issuing his request for continuing probes. “We will continue to monitor the [energy] markets to ensure that no energy companies pull Enron-like tricks to artificially drive up the price. California learned a lesson from the energy crisis — never led down your guard when energy companies are around.”

Davis said he hoped the continued monitoring would assure that “no illegal activity occurs.” On March 13 he asked the California Public Utilities Commission to look at natural gas pricing, and the California Energy Commission to examine gasoline and diesel. The governor said each agency in recent years has taken steps to “protect utility ratepayers against natural gas price increases and costs.”

The CPUC was praised by Davis for its bringing the El Paso Natural Gas border price case to the Federal Energy Regulatory Commission, and for taking steps to lessen the state’s demand and dependence for natural gas. He also cited the CPUC for giving the state’s private-sector utilities the “flexibility and tools to management gas costs.”

After spiking nationally and at the California border in late February, natural gas prices have come down to more normal levels and the spikes were not caused by market manipulation, according to reports released Wednesday by the governor’s office and the two agencies in Sacramento. A CPUC staff official cautioned that the results were “preliminary” and would be supplemented by more work by the state.

Steve Maviglio, the California governor’s chief spokesperson, told news reports in the capital Wednesday that the governor remained “skeptical” of the energy suppliers, so the state intends to continue to closely monitor wholesale and retail price developments, and if they find evidence of price manipulation or gouging “there will be hell to pay.”

Nationally, natural gas prices went from an average of $6.74/MMBtus to $18.85/MMBtus on Feb. 24-25, an increase of 180%, said Paul Clanon, the CPUC’s energy division director, who was subsequently praised by the CPUC commissioners at their regular business meeting Thursday in San Francisco. In California the spike was only 68%–going from $5.68 to $9.54/MMBtus. Nevertheless, at the retail level the result was an added $325 million spent statewide from natural gas in March, compared to the same month in 2002, Clanon said.

“There is no evidence so far of market price manipulation,” said Clanon said. “The price spikes appear to be related to normal supply/demand processes.

Responding to winter price spikes in both natural gas and gasoline, California energy agencies conducted a hurried two-week analysis the end of last month at the request of Gov. Gray Davis. In both instances, so far, they emphasized that there appears to be no wrongdoing by energy suppliers and that wholesale prices have come back down. In the case of gasoline, a 42% spike in retail prices the first 10 weeks of this year will begin to drop considerably by the end of this week and later in the month when pump charges are expected to be below $2/gallon again for the lowest grades of unleaded fuel.

In terms of natural gas retail prices, Clanon said the CPUC study indicated that there was an average 22% increase from February to March in Southern California Gas Co. customer bills ($55 to $67) and 10% for Pacific Gas and Electric Co. ($62 to $69).

PG&E’s utility announced separately last week that it expects April retail natural gas prices on its system to fall 19% from an average bill of $69/month in March to an average bill of $56. The utility attributed the March price spikes to “:cold weather in the eastern United States and concerns about the situation in Iraq.”

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