Natural Gas Intelligence – What Caused California’s Natural Gas Winter Price Spike?


Natural gas price surges in the region this winter have led the California Public Utilities Commission (CPUC) to order utilities to issue customers’ annual California Climate Credit (CCC) early.


Since the passage of California’s Assembly Bill 26, aka the Global Warming Solutions Act of 2006, most residents receive a CCC on natural gas bills in April and a CCC on electricity bills in April and October. 

NGI Senior Energy Analyst Josten Mavez explained that part of the funding for the CCC comes from the California Air Resources Board’s (CARB) cap-and-trade program, which is a “market-based emissions program” that sets a “limit on emissions for companies or power plants – anyone who emits greenhouse gasses,” Mavez said. Participants are then able to “buy and sell whether they’re in a deficit or a surplus.”

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And it’s “not just the cap-and-trade, all of California’s emissions programs fund” the CCC, Mavez added. “Those fees that do get paid fund this emissions program,” which is part of the Golden State’s effort to reduce emissions to 1990 levels by 2030. 

In early January, the CPUC’s Public Advocates Office (Cal Advocates) filed an emergency motion to accelerate the timeline of residential natural gas and electric utility customers’ CCCs to February and March this year.

Cal Advocates said it initially filed the motion in light of “severe impacts to customers resulting from the near doubling of gas and utility bills…” 

The CPUC last week voted to adopt a ruling that would require natural gas and electric utilities to distribute about $1.3 billion in credits as soon as possible. 

“December saw one of the highest natural gas price spikes in recent memory,” said CPUC’s Darcie Houck, the commissioner assigned to the proceeding. “This price volatility is another excellent reminder of the urgent need to reduce our reliance on fossil fuels in our homes and energy system.”

The CPUC followed up with an en banc with natural gas market experts to explore the causes of high natural gas and electric utility prices.

During the en banc, Consumer Watchdog President Jamie Court said, “Something is clearly wrong with the natural gas market in the West, and in particular the Southwest.

“During its peak in December and January, the spot price paid for natural gas in Southern California was two to 10 times higher than it was in the East…”

Utilities Reacting To Market Conditions

California’s regional natural gas prices in December began to spike when frigid temperatures, unusually heavy precipitation, low natural gas storage levels, pipeline constraints and a drought reducing supply of hydroelectric generation fueled the perfect storm for natural gas prices to surge. 

“Natural gas prices throughout the West have risen to alarming levels this winter,” CPUC President Alice Reynolds said. Advancing the CCC “will provide immediate relief to California families struggling to pay their bills while we examine this critical issue and explore longer-term solutions to volatile natural gas prices.”

San Diego Gas & Electric Co. (SDG&E), which serves 3.7 million residents in San Diego and southern Orange counties, recently announced that customers may see relief in February after natural gas commodity prices hit “historic highs this winter due to unprecedented market conditions in the western United States.”

In a notice sent to customers, SDG&E in January warned that “…natural gas prices have increased dramatically, primarily driven by frigid temperatures across most of the country and on-going supply challenges.

“Effective Jan. 1, 2023, a typical residential customer can expect an increase of about $120 on their monthly natural gas bill relative to last January,” SDG&E said. 

This month, however, consumers may see an average $2.34/therm reduction on their bills in February. While February’s total natural gas bills may still be higher relative to January 2022, SDG&E said it estimated that the average residential customer would see a total reduction of about $110 from last month’s bills.

Several West Coast utilities also filed in 2022 to raise their residential and commercial natural gas rates, including Pacific Gas & Electric Co. (PG&E) and Southern California Gas Co. (SoCalGas). Some of the stated causes for rate changes included inflation and increasing commodity prices, reduced natural gas storage capacity, potential transmission pipeline outages, weather and natural gas supply.

Perfect Weather For High Prices?

“Winter weather – was it cold? Well, 50-60 degrees wouldn’t be considered cold in most places,” said Mavez, who lives in Southern California.

Additionally, the National Oceanic and Atmospheric Administration’s October outlook “was that most of California would have 30-50% chance of higher-than-normal temperatures. It’s a crystal ball, you never know what’s going to happen, but we did see pretty mild weather,” Mavez said. 

Other factors to be considered include California’s ongoing drought.

In 2019, large hydroelectric plants supplied more than 16% of California’s total in-state electricity generation, according to historical data from the California Energy Commission. 

“…We’re in a drought. We’re not getting a lot of the precipitation we used to get from the Pacific Northwest, from the Rockies, from even our mountain ranges, there’s not a lot of hydro-sourced power,” Mavez said.

By 2021, that figure has dropped to 6%, and natural gas has picked up the slack, he said. 

“I’ve noticed a reduction in the reduction in hydro-sourced power with an equal and opposite increase in natural gas-sourced power,” Mavez added.

Natural Gas Storage Issue

But California does not have the natural gas storage capacity to supplant reduced hydroelectricity generation. 

“That goes back to the whole storage issue that we have,” Mavez said.

This winter’s weather causing high natural gas prices not only affected California, “it was the Rockies, Southwest, they all saw that, but the main driver was and has always been for the last few years, storage – natural gas storage,” Mavez said.

“Aliso Canyon is the biggest one,” Mavez said. Following the country’s largest ever methane leak in 2015, CPUC regulators reduced Aliso Canyon’s storage capacity from its peak-level capacity of 86 Bcf to 34 Bcf. There since have been increases and proposals to increase the Los Angeles facility’s storage capacity, but it has not returned to its peak allowance. 

The Golden State this winter also saw “supply interruptions, logistics issues with the railroad strike, pipeline maintenance,” Mavez added. “El Paso had maintenance done. And not just in California, we have an aging infrastructure problem. A lot of the pipelines…are over 50 years old, so there’s a lot of maintenance going on that limits supply.

“In general, demand increased again…, but to me, the biggest contributor is limited storage capacity,” Mavez said.

Natural Gas: ‘The Happy Medium’

Utilities “aren’t incorrect…,” Mavez said, speaking to utilities’ reports to customers that natural gas commodity prices have increased. 

“They’ve put it pretty plainly that it is a pass-through. It’s just unfortunate that there’s a lot of volatility,” Mavez said.

PG&E, Southwest Gas Corp., SDG&E and SoCalGas all said in proceeding comments they generally supported an acceleration of the CCC, according to the CPUC’s final ruling

February or March’s combined natural gas and electric climate credit could range from about $30-$130 per household depending on the utility, and would appear on customers’ bills as soon as possible, CPUC said. 

Speaking to the CCC, Mavez said the solution is “a Band-Aid. It’s always been treated as a Band-Aid to alleviate two months out of the year.

“It’s being funded by greenhouse gas reduction programs – great – but it’s not a long-term solution. It’s not even a short-term solution,” Mavez said.

“I understand we want renewable sources of power, we want to have a meaningful impact on the future, but…there has to be some sort of happy medium that we’re absolutely trying to find,” Mavez said. “But here’s a solution right now with natural gas that could help alleviate some of the issues that we’re seeing momentarily.”

Commissioner John Reynolds similarly said that the “relief from high fossil fuel prices…comes from the state’s program to fight climate change and reduce global warming emissions.

“Moving forward, Californians need access to improvements and technology that will help them get the same benefits while using less energy,” the commissioner said.

In mid-November, CARB and Newsom proposed an updated scoping plan to achieve targets set by Newsom’s California Climate Commitment. The scoping plan would target a “94% drop in demand for oil and 86% drop in demand for all fossil fuels,” according to the governor’s office. 

“It’s getting very political,” Mavez said, noting that Gov. Gavin Newsom has stepped in to ask FERC to investigate natural gas prices in the state. 

Newsom recently sent a letter to Federal Energy Regulatory Commission Chairman Willie Phillips calling on the agency to investigate “whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in western gas markets…

“…If warranted, I ask that FERC bring its full enforcement powers and resources to bear to protect customers,” Newsom said in the letter. 

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