Utilities say weather, storage, pipeline issues contributed to high costs
By Rob Nikolewski, THE SAN DIEGO UNION TRIBUNE
February 1, 2023
After a record-breaking price spike in January that left customers with natural gas hookups across the San Diego region worried about skyrocketing bills, San Diego Gas & Electric on Tuesday reported that its posted natural gas price for February has dropped 67.8 percent.
SDG&E’s commodity price in February will come to $1.11 per therm, down from $3.45 in January. A therm refers to one unit of natural gas.
The overall price that SDG&E customers pay for natural gas – when transportation and delivery costs and expenses for state-mandated programs are added to the commodity, or wholesale, price – will total $2.76 per therm in February, compared to $5.11 in January. That’s a drop of 46 percent.
Utility officials estimate that a typical residential customer’s gas bill is expected to come to about $110 in February. SDG&E last month warned gas customers to brace for January bills of about $225.
The decline will come as a relief for many customers, but they are still paying a lot more this February than they were in February 2022, when the price per therm was 60.7 cents.
February’s rates come as SDG&E natural gas customers are about to receive their January statements, which figure to be eye-popping.
“While February is welcome news, for customers who are frustrated and wondering what they’re going to do for their January bill because of that unprecedented high, we want those customers to communicate with us,” said SDG&E spokesman Anthony Wagner. “We want to be there to potentially help you with a tailored solution if you’re struggling.”
Of SDG&E’s customer base of 3.7 million, about 905,000 have gas meters.
While the high price of natural gas directly impacts gas customers, it also has a trickle-down effect on customers who don’t have gas hook-ups in their homes and businesses. That’s because gas prices affect overall electricity rates.
For example, SDG&E relies on natural gas for power production, such as the 500-megawatt combined-cycle Palomar Energy Center in Escondido.
SDG&E’s natural gas is purchased by Southern California Gas, a fellow subsidiary of San Diego-based Fortune 500 energy company Sempra.
The utilities have blamed January’s price spike on a confluence of events.
The weather in Southern California has been abnormally wet and cold, leading customers to turn up their natural gas heating units and driving up demand.
About 90 percent of California’s natural gas comes from outside the state and the U.S. Energy Information Administration cited reduced pipeline capacity and constraints in gas deliveries from other states. The EIA also said inventories on the West Coast are well below the five-year average.
California regulators now limit the capacity of the massive Aliso Canyon natural gas storage facility, operated by SoCalGas, to 60 percent, after the disastrous leak there that lasted 111 days in late 2015 and early 2016. Thousands were forced from their homes in the Porter Ranch community and other neighborhoods in Los Angeles County.
Natural gas shipments from West Texas represent a major source of natural gas delivery to California but, as the Wall Street Journal reported, a Kinder Morgan pipeline has been closed since an explosion in August 2021 that killed two people in the town of Coolidge, Ariz. Kinder Morgan last week submitted a request with the federal government to get the line back into commercial service.
While natural gas prices are high in California, they are falling in other parts of the country.
Portions of the East and Midwest have posted above-average temperatures for most of this month, which has led to a big drop in natural gas consumption, resulting in high storage levels and falling futures prices for natural gas. Henry Hub, the Louisiana natural gas pipeline that serves as the benchmark for the North American natural gas market on the New York Mercantile Exchange, is seeing the lowest prices since May 2021.
“It’s a big country and there are regional differentials that will spike – or slide for that matter – and right now, because of the weather situation in California, you’re getting some big spikes,” Robert Yawger, managing director and energy futures strategist at Mizuho Securities, told the Union-Tribune earlier this month.
SDG&E and SoCalGas say they aren’t making a profit on the high natural gas prices.
According to California law, investor-owned utilities cannot make money when customers use more gas or electricity. Since 1982, sales are “decoupled” from profits and the cost of natural gas and electricity is passed through to customers’ bills with no markup.
But some groups say the market is being manipulated.
Natural gas prices “don’t just double overnight because things got a little colder than last year,” said Jamie Court, president of Los Angeles-based Consumer Watchdog.
His group has called on the state attorney general to launch an investigation.
On Tuesday, the California Public Utilities Commission will look into the causes and impacts of the price spike. The California Energy Commission and the California Independent System Operator, the nonprofit that manages the electric grid for about 80 percent of the state, will also take part.
Utilities commission President Alice Reynolds earlier this month said her staff will also contact the Federal Energy Regulatory Commission – which oversees transmission and wholesale sale of electricity and natural gas in interstate commerce – and ask “that their market surveillance and enforcement staff take a serious look at what is going on in the gas and electric markets in the West.”
SDG&E says it’s OK with any and all examinations into natural gas prices. “We welcome any tool that helps provide greater clarity and transparency for our customers,” Wagner said.
As for providing some financial relief, the utilities commission will soon decide on whether to move up the timing of the annual climate credit that natural gas customers receive from the state.
The credit – funded by revenue from the state’s cap and trade program that requires power plants, natural gas providers and large industries that emit greenhouse gases to buy permits on the carbon pollution they produce – usually ranges from $40 to $55 and is automatically deducted from the bills of natural gas customers in April.
The Public Advocates Office, the independent arm of the utilities commission, has suggested applying the credit to the February billing cycle instead.
The commission will vote on the proposal Thursday.