California is experiencing its lowest retail natural gas utility charges in more than five years, according to a report the state regulatory commission submitted to the legislature and governor earlier in June. The natural gas portion was part of the newly required annual accounting of energy utility rates by the California Public Utilities Commission (CPUC) under a 2009 law (SB 695) that became effective this year.
The CPUC acknowledged it has no control over wholesale gas commodity prices, and recent low prices for gas are “the result of developments in the natural gas market, which is influenced by both national and global market conditions.” Investor-owned utilities (IOU) in the state buy gas only for small (residential/commercial) customers; almost all large (noncore) commercial/industrial customers purchase their own supplies and pay the IOUs for transportation.
Major natural gas IOUs in California change the procurement rates they charge monthly. Added impacts on the prices they pay likely will come from several sources next year, including the advent of the Ruby Pipeline from the Rockies and some changes in natural gas storage capacities allocated to core customers.
The transportation charges are one of three components in typical core (residential/commercial) utility bills with the other two being the wholesale commodity charges for the gas and a third component to recover the costs of various utility public service programs called a “public purpose surcharge.”
As part of its first annual report on retail rates, the CPUC also reported on what the regulators were doing to limit IOU costs and rate increases for both electric and natural gas operations. While the state regulators said they would rely on what they called “ongoing successful programs” to assure gas-buying costs of the IOUs are reasonable, future changes in the retail charges and costs “are most heavily influenced by the price of natural gas supply.”
“Natural gas procurement costs have the most significant impact on the month-to-month and year-to-year changes in utility core gas customer rates for two reasons — first, the gas procurement rate is a large component of the total core natural gas rate, and second, gas prices fluctuate far more than the other two core rate components [delivery and public purpose charges],” the CPUC report said.
“Total core gas rates on average are at their lowest level in at least the last five years. Gas procurement costs in 2009 were 37% lower than the procurement costs in 2008, and even with the dramatic decrease [last year], these costs represented about 47% of total utility costs. Because gas costs fell so much last year, and into 2010, procurement rates also fell dramatically.”
Large noncore customers buying their own gas supplies do not have to provide the CPUC with price data on their commodity charges, but from data the CPUC assembled from the federal Energy Information Administration, the state regulators reported that these industrial buyers are also experiencing “their lowest gas prices in about six or seven years.”
The report also noted that the CPUC has no control over interstate transportation capacity availability and charges, noting those rates are set by the Federal Energy Regulatory Commission. What the state regulators do have some control over are the utility gas-buying programs.
The CPUC said in the next 12 months it will encourage the IOUs to continue with gas cost incentive systems, hedging, interstate pipeline capacity contracts, storage and the newly pursued project for building another pipeline from the Rockies to the West Coast, El Paso’s Ruby Pipeline that is expected to begin deliveries next year.
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