Perfect storm or market manipulation? Why utilities say your gas bill spiked this winter

Energy industry leaders cited weather swings and storage limitations Tuesday for a spike in natural gas prices that left Californians gaping at their January gas bills, but questions linger about possible market manipulation.

The special meeting by Public Utilities Commission was the latest sign of distress over spiking prices. It followed a request Monday by Gov. Gavin Newsom for a federal investigation into prices across western states this winter. Last week, the commission expedited financial relief for customers’ gas bills.

This winter price surge also underscores the challenges facing the state’s efforts to transition away from fossil fuel reliance and toward renewable electricity as millions of residents continue to depend on affordable natural gas.

In several hours of testimony, utility executives cited a series of conditions that drove up prices, including increased household demand for heat coinciding with pipeline constraints that squeezed supply.

The commission said it plans to evaluate their remarks and determine ways to avoid price spikes in future cold spells. Among the possible measures raised were regional natural gas storage reserves, and requiring utilities to purchase natural gas on long term contracts to hedge against high short term prices.

“The cost of inaction is increasing rapidly,” said commissioner Genevieve Shiroma. “We must be on a constant quest to see if there’s more that can be done to maintain integrity because we are looking to decarbonize but we are heavily reliant upon this infrastructure and on natural gas.”

Wholesale natural gas prices nationwide fell since October, but rose by 63% in California, according to Bloomberg. Southern California residents in particular saw stunning bill hikes. A typical peak monthly bill of $65 from last winter was expected to be $160, SoCalGas told the Los Angeles Times, a 146% increase.

A colder-than-usual winter since early December dialed up demand for natural gas heating, which 70% of California homes use. Capacity limitations in a pipeline flowing from Texas to the west put additional constraints on supply, because the state imports nearly 90% of its natural gas.

In the meeting, utilities including SoCalGas and Pacific Gas & Electric pointed to insufficient storage in the western region to make up for restrictions on supply from the Texas line.

“As we go into winter, we want to have certainty that our pipeline infrastructure and storage facilities are prepared for what the winter might bring us,” SoCalGas senior vice president Rodger Schwecke said. “And this winter they weren’t prepared.”

Consumer advocates and experts applauded Newsom’s call for an investigation by the Federal Energy Regulatory Commission (FERC) into reasons for the price jump, given past manipulation of energy markets by suppliers.

In a letter to FERC, Newsom requested that the agency assess “whether market manipulation, anti-competitive behavior, or other anomalous activities” are driving elevated prices in the Western U.S.

Mark Pocta, program manager at the CPUC Public Advocate’s Office, said his office recommended maintaining existing natural gas facilities across the state and prioritizing storage to alleviate prices during weather events.

“It’s just a general observation, but it appears there’s more price volatility associated with weather. It seems you see a lot more price movements associated with the weather now,” Pocta said.

Severin Borenstein, faculty director of the Energy Institute at UC Berkeley’s Haas School of Business and member of the board of the organization that oversees the state’s electricity transmission, the California Independent System Operator (ISO), said the price jump is a reminder to pay mind to natural gas and gasoline markets.

“We are reducing our use of fossil fuels. Some people take that to mean we really don’t have to worry about gas storage anymore,” Borenstein said. “We really have to be cognizant that we’re not off of these fuels, and we have got to keep supply in sync with demand while we rachet it down.”

Borenstein added that the state should interrogate its policies on natural gas storage and the way utilities purchase the resource on the wholesale market, a practice called financial hedging.

Californians stung by high energy bills can expect to receive some relief after the CPUC voted Thursday to fast track credits from utilities using state climate funds. Depending on their utility, customers will see $90-$120 deducted from an upcoming energy bill.