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California Regulator Investigating ‘Extraordinarily High’ Winter Natural Gas Price Spikes
Looking to dig a bit deeper into the natural gas price spikes this winter in California, the California Public Utilities Commission (CPUC) on Thursday launched a multi-pronged investigation into the causes, impacts and the potential for recurrence.
In addition, the commission also intends to examine the impact of the price spikes on natural gas and electric prices, as well as on customer bills. It also is reviewing potential threats to natural gas and electric reliability, along with price volatility for this summer and beyond. CPUC plans to also investigate potential mitigations and utility communications given to customers to determine whether they were sufficient or require modifications.
California’s regional natural gas prices in December began to spike when frigid temperatures, low storage levels, pipeline constraints and a drought reducing supply of hydroelectric generation fueled the perfect storm for prices to surge.
“The initiation of this proceeding will allow us to deeply probe the causes and impacts of these harmful natural gas price spikes and explore mitigations against such price volatility in the future,” said CPUC President Alice Reynolds. “This is a critical step to protecting consumers and increasing transparency.”
The CPUC noted that the wholesale price of natural gas in California, and throughout the West, was extraordinarily high beginning in late November 2022. While prices trended lower in February, they are still considered high compared with February 2022.
“Southern California experienced below-normal temperatures throughout the region causing average scheduled gas deliveries to jump almost 1.29 Bcf/d from October to November, peaking in January at 9.11 Bcf,” according to NGI Senior Energy Analyst Josten Mavez. “Colder temps, teaming with lackluster storage levels, pipe constraints and low hydro pushed the average SoCal Citygate Daily spot price from $9.329/MMBtu to $30.753/MMBtu, or 230%, from November to December.
“But what makes it remarkable is how long these prices remained,” Mavez added. “This historically prolonged period of high gas prices that has persisted throughout most of winter is further highlighting California’s aging and inadequate gas infrastructure, which could potentially restart the conversation to allow greater utilization of the Aliso Canyon storage facility.”
While the CPUC does not regulate natural gas prices or natural gas producers, the commission is interested in the impact of the high prices on utility customers, given the role that fuel plays in electricity production. The California Independent System Operator has estimated that electricity prices overall were $3 billion above average in December 2022.
In response to the spikes, the CPUC took a number of actions, including holding a public en banc hearing on Feb. 7, where presentations were made. The California Energy Commission (CEC) presented price comparisons between this winter and last winter.
The CEC said natural gas prices for delivery on December 22, 2022, were nearly seven times higher compared with the same day in 2021. In addition, the CEC said the price spikes were not unique to California and were experienced in other western states.
California utilities, including San Diego Gas & Electric Co., Southern California Gas Co. (SoCalGas) and Pacific Gas & Electric Corp. (PG&E), have said publicly that they are working with customers to mitigate the impacts of unusually high winter prices for natural gas.
Factors Beyond Normal Market Forces?
The CPUC investigation is to include whether factors beyond normal market forces were at play. It will also determine whether action by the CPUC may prevent or mitigate future price spikes, and it plans to consider whether other entities have jurisdiction to mitigate high natural gas prices.
CPUC Commissioner Genevieve Shiroma said it was essential that ratepayers and the commission “acquire a full explanation of the root causes of the extraordinary high natural gas prices this winter that are unsustainable. It is also essential that the CPUC determine if there is more that we can do to provide relief and understand whether other regulatory entities have the authority to do more.”
California Gov. Gavin Newsom (D) in early February sent a letter to FERC Chairman Willie Phillips. He called on the Federal Energy Regulatory Commission to investigate “whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in western gas markets…
“…If warranted, I ask that FERC bring its full enforcement powers and resources to bear to protect customers,” Newsom said in the letter.
In response, FERC stated that it was conducting surveillance to determine whether any market participants engaged in behavior that contributed to, or took advantage of, the high natural gas prices.
The CPUC plans to resolve this proceeding within three years. Companies that were given 30 days to file comments with the commission were: SoCalGas, San Diego Gas & Electric Co., Southwest Gas, PG&E, Bear Valley, Alpine Valley, West Coast Gas, Southern California Edison, Central Valley Storage, Wild Goose Gas Storage and Lodi Gas Storage.
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