Dive Brief:
- California regulators are poised to launch a proceeding that will take a closer look at the high natural gas prices the state faced this winter, and their impacts on the state’s energy markets.
- If approved Thursday by the California Public Utilities Commission, the proceeding will explore the causes of the gas price spikes, impacts to gas and electric customer bills and potential threats to energy reliability, as well as ways to address the issue.
- The new proceeding comes one month after the CPUC held a regulatory meeting to hear from different parties, including the state’s utilities, on the causes and impacts of high winter gas prices. Among other measures, experts urged regulators to consider reducing the state’s dependence on natural gas in the first place.
Dive Insight:
Natural gas prices in the Western states, including California, began to spike late last November and trended extremely high over the winter. Prices began to dip in February, but are still high compared to a year ago.
According to an analysis from the U.S. Energy Information Administration, high gas prices in the Western U.S. can be attributed to several factors, including temperatures that were colder than usual, high gas consumption, pipeline constraints and low gas storage inventories in the region. California Gov. Gavin Newsom, D, has also urged federal regulators to look into whether market manipulation or anti-competitive behavior may have played a role in spiking gas prices during the winter.
Experts have noted that high natural gas prices also affect California’s electricity markets because natural gas generators are responsible for roughly half of the state’s generation. In December, California experienced the highest month of wholesale electric costs in five years, and the California Independent System Operator has estimated that wholesale energy prices that month were $3 billion more than usual.
Electricity generation is the largest end use of gas in California and because the cost of that gas is passed through in contracts, major spikes in gas prices also will push up electricity prices, said Michael Colvin, director of regulatory and legislative affairs at the Environmental Defense Fund.
The preliminary scope of the proceeding, as outlined in the proposed order, will include the causes and impacts of this winter’s gas price spikes, their effects on electric and gas bills, potential threats to electric and gas reliability this summer and after, and ways to mitigate them. Regulators are also planning to take a closer look at how utilities communicated to customers during the price spikes.
In terms of whether California is at risk of future gas price spikes, “I think the answer is probably yes – California definitely is, and California ratepayers are,” said Seth Hilton, partner at Stoel Rives.
The challenge for the CPUC, however, is that it doesn’t directly have jurisdiction over interstate natural gas prices, and 90% of California’s gas comes from out of state, he added.
This isn’t the first time California has encountered energy price spikes like this, Colvin noted.
“In the California energy crisis of 2000 and 2001, there was huge market manipulation and electric prices went all over the place. And therefore, we sought to find other remedies of what could we do to prevent that – and one of the things we said was well, if we were more reliant on non-fossil-based resources, such as renewables, that acts as a natural hedge against gas price volatility,” he said.
It was in the aftermath of this conversation that California enacted its first renewable portfolio standard, Colvin added – and one of the results of this new proposed proceeding might also be a focus on reducing the connection between electric prices and natural gas price spikes.
“So that is something I’m going to be watching for very closely,” he said.
