Nationwide, wholesale natural gas prices have fallen about 50 percent since the end of October. But, the opposite trend has emerged in California, where prices have risen 63 percent. Colder weather increased demand while maintenance on an interstate pipeline reduced supply. That along with reduced natural gas inventories in the region made for a very tight natural gas market. For example, one resident owes $330 for the month of January—385 percent higher than the average monthly bill of $68 last year.
California has had colder- and wetter-than-usual weather that has increased the demand for heating. Temperatures in California have on average been about 2 degrees Fahrenheit below normal since December 1, in part because of the storms off the Pacific Ocean that have caused widespread flooding. About 70 percent of homes in California rely on natural gas for heat, comparable to states like New York and Michigan, but twice as high as the 35 percent national average.
Factors on the supply side affecting the price increase include limitations to the capacity in a pipeline flowing from Texas to the West that is under maintenance and a reduced amount of gas inventories in the Pacific region. The West Coast states of California, Oregon and Washington have all opposed additional pipeline capacity, arguing that they are concerned about the climate.
Natural gas storage inventories in the Pacific were 30 percent below their previous five-year average (as of December 16). Storage inventories can affect the price of natural gas. Storing gas helps protect customers from skyrocketing bills because the stored supply can be used before buying natural gas at higher, more expensive prices. One option is storing more natural gas at Aliso Canyon, the largest natural gas storage facility in the state. A major leak occurred at Aliso Canyon in 2015, causing Southern California Gas to temporarily relocate thousands of households. In the aftermath, the utilities commission capped how much gas could be stored at the facility.
Another issue is the impact of regulations from the California Geologic Energy Management Division, which went into effect in 2018. The regulations caused, on average, a 40 percent decline in the utility’s well capacity. Those rules, which were much stricter than previous gas storage standards, were enacted after the Aliso Canyon leak. The rules require testing of gas facilities, and some of the tests can take a well out of service for as long as a year.
Natural Gas Bills
According to Sempra Energy’s Southern California Gas Co., customers can expect to see their gas bills almost triple this winter compared to last year. In January, SoCalGas customers got hit with a $300 bill on average, compared to $123 last year. However, according to SoCalGas, the next billing round should be lower. The same gas usage should, on average, result in a February bill that is less than half of what it was in January. But, it cautions that natural gas prices still remain higher than normal for this time of year. SoCalGas announced a $1 million contribution to its Gas Assistance Fund, which offers up to $100 one-time grants to households that earn below certain income thresholds.
PG&E Corp., which serves Northern and Central California, warned Californians of high prices, citing tight supply and increased demand amid unusually chilly weather. The company projected that residential energy prices would be about 32 percent higher between November and March compared to the same period a year earlier. In January, average bills for PG&E residential customers in Northern California increased to an estimated $195, compared to $151 the year before.
Governor and State Regulators Weigh In
California Governor Gavin Newsom has requested a federal investigation into natural gas prices and state regulators are also looking into the issue. Newsom asked the Federal Energy Regulatory Commission (FERC) to “immediately focus its investigatory resources on assessing whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in the western gas markets.”
Also, the California Public Utilities Commission (CPUC) voted to accelerate the California Climate Credit to help California families with high gas bills. The $90-$120 credit will be applied to residential utility customer bills starting in March. The money comes from the state’s cap-and-trade energy program. Since the fees are generated by use of fuels such as natural gas, this program will be taking money from consumers’ pockets with one hand and putting it back in their wallets with another. It does nothing to get at the root causes of higher bills which happen to be bad energy policies and regulations promoted by the state government in the first place.
In addition to accelerating the climate credit, the Public Advocate’s Office at the utilities commission proposed spreading the increased cost over three to six months, to make each individual bill more affordable and mitigate the risk of disconnections.
California gets 90 percent of the natural gas it uses piped in from other states, making the state vulnerable to issues outside its borders because the price of natural gas is set by regional and national markets. According to the Energy Information Administration, several factors raised natural gas prices in the West including below-normal temperatures; high gas use; lower imports of natural gas from Canada; gas pipeline constraints, including maintenance issues in West Texas; and lower gas storage levels in the Pacific region.
While Governor Newsom wants the FERC to investigate market manipulation, he should be looking at how to promote more natural gas supplies into the state and fixing state regulations on natural gas storage. California is on a path to get to net zero carbon by 2045, and like President Biden, Newsom is not looking at how to ensure that the current energy system operates smoothly, but rather plunges ahead with blinders on to get to 100 percent renewable energy and a total fleet of electric vehicles in the state, which will drive energy demand up substantially from an already weak electrical grid.