California Regulators Look to Shield Residents From Spiking Natural Gas Rates

Gas prices have spiked in California.

That may sound like old news after months of high prices at the pump, but this time another kind of gas is running up the tab: natural gas, which fuels stoves and heats water and homes.

Average bills for PG&E residential customers in Northern California shot up to an estimated $195 in January, compared to $151 the year before; Southern California Gas customers got hit with $300 on average, compared to $123 last year, according to data that Jean Spencer, supervisor of the energy division of the California Public Utilities Commission (CPUC), shared at a recent hearing. Meanwhile, across the country, wholesale natural gas prices have fallen an average of 50% since October, according to reporting in Bloomberg.

So what gives?

At a CPUC hearing Tuesday, a host of state energy-related agencies and industry representatives looked into that exact question and discussed strategies to mitigate high prices. While the CPUC can’t directly set prices, attendees weighed different long-term options that could keep the cost of gas down for consumers.

The meeting followed a decision by the CPUC last week to speed up a climate credit for consumers that should reduce gas bills. That move will translate to roughly $50 off most people's utility bills — but is just “a short-term Band-Aid, and this is a longer-term problem,” said CPUC President Alice Busching Reynolds.

At least one California gas company — SoCalGas — said it expects bills to go down in February.

Why are prices so high?

California pipes in 90% of its natural gas from outside its borders, making the state vulnerable to supply issues beyond its control.

Several factors conspired to send natural gas prices soaring in the West, according to the U.S. Energy Information Agency: below-normal temperatures; high gas use; lower imports of natural gas from Canada; gas pipeline constraints, including maintenance issues in West Texas; and lower gas storage levels in the Pacific region.

But on Monday, Gov. Gavin Newsom made clear he isn’t satisfied those reasons represent the whole story, writing in a letter to federal regulators that “those known factors cannot explain the extent and longevity of the price spike.” He asked federal energy regulators to investigate “whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in the western gas markets.”

What, if anything, can be done?

Although the price of natural gas is set by regional and national markets, the CPUC and industry representatives on Tuesday weighed shorter- and longer-term changes that could insulate California customers from wildly fluctuating bills.

In addition to accelerating the climate credit, the CPUC's Public Advocates Office has proposed spreading the increased cost over three to six months, to make each individual bill more affordable and reduce the risk of disconnections.

Industry representatives also suggested increasing gas storage capacity and loosening certain regulations.

Storing natural gas enables utilities to rely on that existing supply and not have to buy as much when prices spike, shielding customers from shockingly high bills.

Rodger Schwecke, senior vice president and chief infrastructure officer at SoCalGas, suggested reevaluating how much gas is stored at Aliso Canyon, the largest natural gas storage facility in the state. A major leak occurred at Aliso Canyon in 2015, causing the utility to temporarily relocate thousands of households. In the aftermath, the CPUC capped how much gas could be stored at the facility.

Mark Pocta, program manager at the Public Advocates Office, also emphasized the importance of storage capacity at Aliso Canyon, mentioning a proposal to increase the cap, which would provide more storage capacity. How Aliso Canyon gets used is something “that the commission will need to consider closely moving forward,” Pocta said.

Meanwhile, Lucy Redmond, director of gas reservoir engineering and facilities at PG&E, told officials on Tuesday that the impact of a 2018 state regulation caused a 40% average decline in the utility’s well capacity.

Those rules, which were much stricter than previous gas storage standards, were enacted after the Aliso Canyon leak, said Mike Florio, senior fellow at the policy group Gridworks and a former CPUC commissioner, in an interview with CalMatters.

“A lot of people think it’s really excessive, that they kind of went from not paying any attention at all to being really too strict in these regulations,” he said, adding that the rules require testing of gas facilities, and some of the tests can take a well out of service for as long as a year.

“They’ve created a price problem,” he said.

But the CPUC couldn’t revise the rules even if it wanted to, because a different state agency, the Geologic Energy M​anagement Division of the Department of Conservation, wrote them, Florio noted.

“The only way this gets resolved is if it goes up their respective chains of command, maybe even as far as the governor’s office, to say, ‘Hey, let’s get these agencies on the same page,’” he said.