Soaring California natural gas prices could bring higher electricity bills this summer

In the wake of skyrocketing gas rates, a utility company executive suggested that hikes in natural gas costs could lead to higher electricity bills this summer.

The news of a potential hike in electricity prices came during a California Public Utilities Commission hearing Tuesday to explore the causes of this winter’s dramatic rise in natural gas prices.

“Wholesale natural gas prices have risen to alarming levels this winter,” CPUC President Alice Reynolds said to start the four-hour meeting, noting that consumer natural gas bills are up between 2 and 2.5 times what they were a year ago.

Though gas bills for California customers are beginning to drop due to lower costs for natural gas in February, the compounding effects on electric bills may still be coming.

William Walsh, an executive at Southern California Edison, said his company had filed for a June 1 rate increase, totaling $595.6 million. The increase, which would be 4.4% for the average customer, is still pending approval by the CPUC. Edison serves about 15 million customers in Central, coastal and Southern California.

The utility had already increased electricity rates by about 7% on Jan. 1, along with a 3% hike by Pacific Gas and Electric Co. and 16% by San Diego Gas & Electric Co., according to filings with the CPUC.

Marlon Santa Cruz, manager of fuel and purchased power at the Los Angeles Department of Water and Power, told the CPUC that a $5 increase in cost per million BTUs in wholesale natural gas prices can more than double DWP’s cost of power production. He noted that gas price hikes are usually short-lived but the recent two-month price jump is “no longer a spike, this is an event.”

Experts at the hearing suggested several factors led to the rise in gas prices, such as problems with gas pipelines and an increase in demand during an unusually long cold spell.

Aleecia Gutierrez, director of the California Energy Commission’s Energy Assessments Division, pointed to similar weather events in Chicago and Boston this winter during which wholesale gas prices did not spike nearly as much as they did in the West.

She pointed to five “force majeure” events in pipeline infrastructure that reduced natural gas flow into the West, where California imports more than 90% of its natural gas and therefore relies on pipelines.

Rodger R. Schwecke, the chief infrastructure officer of Southern California Gas Co., spoke to higher demand in November and December 2022 due to cold weather. He was the first of several speakers to suggest the need for additional natural gas storage at Aliso Canyon, the troubled facility that in 2015 was the site of the biggest methane leak in U.S. history.

Several representatives for PG&E said futures prices usually create incentives for traders to buy and store natural gas in the spring and sell it for use in the winter. But futures prices were flat last year from May to December, and many independent storage facilities were left unfilled.

The low level of stored natural gas, combined with less gas coming through pipelines, caused a supply constraint, according to experts at the hearing. This combined with increased demand from residents due to cold weather and a 19% year-over-year increase in natural gas demand for electric plants to produce durably higher wholesale prices, according to PG&E representatives.

Most agreed that more stored gas could help stabilize prices in the future, with some members of the CPUC discussing a reserve for natural gas akin to the U.S. Strategic Petroleum Reserve.

The emphasis on storing more natural gas downplays the root cause, according to Fred Heutte of the NW Energy Coalition. The problem, he said, is “overdependence on gas.” He said the gas price spike had a $4-billion impact on customers and pushed for a move away from fossil fuels and toward batteries and hydropower storage.

Callers to the hearing voiced frustration with the utilities, which one ratepayer accused of price gouging. Several attendees spoke favorably of Gov. Gavin Newsom’s call for the Federal Energy Regulatory Commission to investigate whether “market manipulation, anticompetitive behavior or other anomalous activities” contributed to the higher prices.