Natural gas prices still high, but down from big January spike

The price of natural gas in Southern California has cooled since January’s record highs, but it’s still higher than in past winters, leaving residents and businesses with another ballooning expense to go with inflation in housing, food and most everything else.

Customers of Southern California Gas Co. saw their bills double or triple between December and January. February rates were back down around December levels, and rates are declining again in March, while federal and state regulators look at the January spike to see if California utilities were manipulating the markets or improperly profiting from higher prices.

At Presto Pasta, a quick-serve chain with seven locations in Ventura, Santa Barbara and Los Angeles counties, the typical gas bill was more than $3,000 at each restaurant in January, up from about $1,200 in December, said Jeff Schuberg, the chain’s co-owner. It dropped back down to about $1,200 in February, but two years ago, gas bills were around $500 per restaurant.

A Presto Pasta location spends all day boiling water for pasta, simmering sauces and sautéing other dishes on gas stoves, and baking food in gas ovens, so natural gas is one of the top expenses. In January, the gas bill was half as much as the rent in some locations, Schuberg said.

“Our customers are very price sensitive, so we need to be a good value at our price point,” he said. “We’re not a high-profit-margin restaurant, so a $3,000 gas bill, that eats directly into our profits.”

Presto Pasta was able to swallow the extra cost for one month without raising prices, cutting staff or making other big changes. It helps that most of the chain’s restaurants are well established and have loyal customers. But new restaurants are a lot more vulnerable, Schuberg said.

“We have a store in Simi Valley that’s only a few years old, and it’s not as established,” he said. “If that were our only location, and we get a gas bill like this? We’re in trouble.”

Families don’t have restaurant-sized gas bills, but many of them saw their bills jump by hundreds of dollars in January, after months of more gradual inflation.

Tim Aller, a personal manager in the music industry who lives with his wife in Ventura, said he turned off the central heater in the house and opted for electric space heaters after the January gas bill came. It was $280, up from $83 in November and $114 in December.

“I’m not in a situation where that’s causing a major problem in my life, but I’m sensitive to it,” he said. “Along with everything else that’s going up, it’s one more thing.”

The nonprofit Community Action of Ventura County runs a program that uses state and federal funding to help people with utility bills. The Home Energy Assistance Program, or HEAP, pays up to $3,000 per year directly to the utility company, depending on the applicant’s income and household size, but it typically only covers either the gas or electricity bill.

Until very recently, Ventura County residents who needed help with their bills always chose the electric bill, said Susy Lopez-Garcia, the executive director of Community Action of Ventura County. Now, they’re just as likely to ask for help with the gas bill.

The total number of households served by HEAP in Ventura County has gone from about 2,000 per year to more than 3,000 during the pandemic, and it appears to still be growing, Lopez-Garcia said.

Why the 'astronomical' price increase?

The January spike in gas bills has consumers and politicians alike asking questions. The California Public Utilities Commission held hearings on the matter in February, and decided to immediately give customers the “climate credit” discounts that had been scheduled for April. Climate credits are discounts on energy bills funded by the proceeds of California’s “cap-and-trade” system, in which power plants and other major greenhouse gas emitters pay for permits to release carbon.

Gov. Gavin Newsom asked the Federal Energy Regulatory Commission to investigate, and 15 Democratic congressional representatives from California, including both Ventura County representatives, sent the FERC a similar letter. In a statement to the Star, a FERC spokesperson said the agency "is undertaking enhanced surveillance right now to determine whether market participants contributed to or benefited from the high gas price spikes in California."

In their letter to the FERC, the congressional Democrats singled out SoCalGas, pointing to average gas bills that went from $123 in January 2021 to $300 in January 2022. Gas bills from PG&E, which serves most of Northern California, rose by a much smaller amount, from $151 to $195 on average, while gas prices fell by 50% nationwide.

SoCalGas points to a simple reason prices rose: the cost of the natural gas the company buys on the wholesale market went way up, and California regulations require that the utilities pass those costs on to consumers. Utilities are allowed to show financial gains only in some parts of their business, and gas and electricity aren’t among them — the “commodity price” of gas shown on a customer’s bill is the price the utility paid at wholesale. The idea is to remove any incentive for the utilities to encourage their customers to use more gas or electricity.

In January, SoCalGas paid $344.89 per therm of natural gas, compared to $105.33 in December and $64.96 in November. The price dropped to $110.87 in February and $59.67 in March.

Severin Borenstein, a professor in the Haas School of Business at UC Berkeley and faculty director of the school’s Energy Institute, said the “astronomical” price spike in January is worth investigating.

“I don’t think people who say this is some sort of nefarious behavior should be dismissed, but the simplistic argument, that they’re raising our prices just to make more money, doesn’t have much content behind it,” he said. “The bottom line is, we know there are legitimate reasons gas prices should have gone up, but we don’t know if that’s the whole story.”

The “legitimate reasons” Borenstein cites are supply and demand — demand was up and supply was down, so prices went up.

Demand is high because this has been an extremely cold winter on the West Coast. On the supply side, California faces a few problems. The El Paso Pipeline, which brings natural gas to California from Texas, exploded in December 2021 and still hasn’t been completely repaired. Usually, the reduced capacity isn’t a big deal, but when demand is high, it becomes an issue, Borenstein said.

And SoCalGas’s Aliso Canyon storage facility, site of a major natural gas leak in 2015, is still operating at less than half of its capacity.

Borenstein said prices spiked more in Southern California because PG&E has more natural gas storage and takes financial measures to hedge against high commodity prices. Storage and other types of hedging smooth out the price for consumers, so SoCalGas customers will pay more when prices are high, but less when prices are low.

SoCalGas is owned by Sempra, the parent company of other utilities and energy holdings. In the early 2000s California energy crisis, Sempra was one of the companies accused of manipulating markets, along with Enron and others. Sempra didn’t admit wrongdoing, but paid nearly $800 million to settle a pair of lawsuits brought by the state and other plaintiffs.

“Sempra is huge company, and there are unregulated components of it,” Borenstein said. “Could they have some arm of the company that makes money off of higher prices? We just don’t know. … That’s why Newsom calling for a federal investigation is completely appropriate.”

SoCalGas is now asking the Public Utilities Commission to approve a rate increase that would take effect in 2024. It's unrelated to the January price spike, but Borenstein said he expects some "blowback" due to the timing.

The average residential bill would go up by about $8.28 per month, compared to 2023, and SoCalGas said it will use most of the extra revenue to upgrade its infrastructure. The first public hearing on the request was Monday, and another is scheduled for March 15. The hearings are virtual and can be viewed through the CPUC’s website.

Tony Biasotti is an investigative and watchdog reporter for the Ventura County Star. Reach him at tbiasotti@vcstar.com. This story was made possible by a grant from the Ventura County Community Foundation's Fund to Support Local Journalism.

This article originally appeared on Ventura County Star: Ventura County restaurant reported $3,000 gas bill in January