THE PAIN IS REAL.
None of us lives in Hearst Castle. Yet my natural gas bill shot from $44 to nearly $300 in the span of two months. Kay Kearney’s is projected to hit $368 in January — more than three times what she paid this time last year. And Burl Estes is staring down a $397 tab for having the audacity to keep warm.
“It’s not sustainable,” said Kearney, whose home in Garden Grove is a modest 1,500 square feet. “We keep the thermostat at 68, when raining and cold. Turn off the heater when it’s nicer. With the current economic issues and inflation what are we to do? There is nowhere left to cut back.”
We’ll talk about the powerful supply-and-demand forces at work here in a moment, but first, the nitty gritty, at least according to some experts: Politics, with perhaps a dash of greed.
With good intentions and pure heart, more or less, California hurtles headlong toward 100% renewable energy. We snub fossil fuel power plants and natural gas storage facilities in our quest to quell global warming. But we don’t yet have enough reliable — and affordable — energy to replace them.
“It’s like taking a ship into harbor but, before getting to the dock, saying, ‘Everyone off now!’” said Shon R. Hiatt, associate professor at USC Marshall School of Business, who specializes in global energy.
“What happens is, everyone falls in the water.”
And so here we are. Soaked.
String up the scoundrels!
Have you noticed that, when the price of essentials like gasoline and natural gas skyrocket, some of your most hard-core “let the market decide” neighbors become quasi-socialists, demanding that the government do something to control costs and/or punish the scoundrels picking our pockets?
Here’s an uncomfortable fact check: What we’re seeing in these crazy bills is pure, unadulterated capitalism — “an economic and political system in which a country’s trade and industry are controlled by private owners for profit.” Profit. Rest assured that folks are making money off our misery.
Don’t blame us! says SoCalGas, the largest gas distribution utility in the nation, serving 21.8 million consumers across 24,000 square miles of Southern and Central California.
“SoCalGas doesn’t set the price for natural gas,” the company explains (though it’s complicated — more on this in a minute). “Instead, natural gas prices are determined by national and regional markets. SoCalGas buys natural gas in those markets on behalf of residential and small business customers, and the cost of buying that gas is billed to those customers with no markup, meaning SoCalGas does not profit from gas commodity prices going up.”
The high bills, it said, are the product of historically high natural gas prices in the western United States.
How high? Around this time of year, natural gas prices in California are usually $5 to $6 a dekatherm.
Folks carped a lot last year, when prices rose to some $8 a dekatherm. But at the end of December, prices soared as high as $50 a dekatherm and averaged about $42 a dekatherm, more than 5 times last year’s high price, according to data from the U.S. Energy Information Administration.
“Due to our available natural gas storage, and other factors SoCalGas uses to help mitigate price fluctuations, the final price estimate SoCalGas filed with the CPUC for January ended up being $34/dekatherm, an unprecedented January price for our customers,” the company said.
Translated, that’s means if your highest bill last winter was around $65, it’ll be more like $160 this year. And if it was $130 last year, it’ll be more like $315 this year.
Before we go into why some folks think this is bunk, let’s say ouch, and why?
Supply and demand?
You’ve heard a lot about “perfect storms” and dark tales of market manipulation. But the official explanation, according to the U.S. Energy Information Administration, is a simple tale of supply and demand.
Demand: From the Canadian border to the Mexican border, the West Coast has been shivering thanks to widespread, below-normal temperatures that force us all to sleep with socks on. This increases demand for natural gas — which is, by far, the greatest source of our energy supply for all but eight hours of the day, when the sun is shining and solar power is plentiful, according to the California Independent System Operator (which runs our electric grid).
Supply: Unfortunately, supply has dropped precisely as demand has shot up. Folks up north aren’t shipping natural gas down our way because they’re cold, too. An interstate pipeline in Texas that feeds the West Coast has been down for maintenance. And we’re just not banking as much natural gas as we might; storage levels on the West Coast are low, as one can see in the tale of the troubled Aliso Canyon natural gas storage facility, which is allowed to operate at 60% of capacity and is on the chopping block.
Result: Crazy high prices.
Who’s reaping these profits? We’re looking at you, fossil fuel titans Exxon Mobil, Shell, Chevron, TotalEnergies and BP. But Sempra Energy, of which SoCalGas and San Diego Gas & Electric are regulated subsidiaries, is a player, too.
“As we buy natural gas … at retail, the utility’s parent company (Sempra) is helping to ship huge quantities of natural gas out the back door at wholesale,” said an op-ed by Craig Rose, who sits on the steering committee of Public Power San Diego. “That’s a market factor.”
Sempra has joined ventures investing billions in facilities and pipelines to export natural gas, Rose writes. We asked Sempra to chat a bit about this; the company didn’t get back to us by deadline.
Calls for action and investigations are hitting a crescendo.
“Customers already struggling to pay their utility bills so that they can keep their heaters and stoves running during the winter will face increased hardship if their bills potentially double in the month of February,” said the Public Advocate’s office — the consumer arm of the California Public Utilities Commission — in an emergency filing.
“(A)mong the areas of highest concern for natural gas affordability, most are located in Southern California. Given the ongoing increases in both electric and gas utility bills, customers cannot afford to see such steep spikes in their bills.”
The Public Advocate urges the PUC to OK automatic enrollment in COVID-19-type relief payment plans, to spread the price spikes over a period of months to ease the shock and to distribute consumer credits that usually hit in the spring a couple of months early.
“The Commission also should investigate the cause(s) of the natural gas market price spikes,” the filing said.
Katy Morsony, staff attorney with The Utility Reform Network, which keeps a critical eye on the PUC, agrees.
“No one should have to choose between making dinner and heating the house,” she said. “We’re calling on the CPUC and the utilities to use all the tools they have to help maximize the ability of customers to pay their bills. And we certainly would call on the CPUC to investigate exactly what is driving these spikes and how we can prevent them.”
The group Consumer Watchdog isn’t buying the explanations we’re being fed.
“I am calling on you to launch an investigation into Southern California Gas’s role in the recent dramatic increases in the costs of natural gas and its parent company SEMPRA’s role in the cost increases,” the group wrote to the state Attorney General.
“The doubling of natural gas prices is unique to California. While the utility has made natural gas available to its customers as it is required to do, it has purchased gas at unreasonably high prices, with higher profits for SoCalGas’s parent company SEMPRA, that sells natural gas to So Cal Gas through its other subsidiaries. Most importantly, Southern Gas has deceived its customers about the fact that it is profiting from the increase in natural gas costs.
“So Cal Gas widely stated that ‘SoCalGas and SDG&E do not profit from gas commodity prices going up.’ In fact, SEMPRA, the parent company of both utilities, and its other subsidiaries, profits greatly from the increase in natural gas prices ….”
The CPUC, California’s utility regulator, is very concerned, said spokeswoman Terrie Prosper.
“(W)hile the CPUC does not regulate gas prices or gas producers, given the impact of these high prices on ratepayers, we will … soon hold an en banc (hearing) to bring in market experts to highlight publicly what we are seeing with gas prices and electric prices, examining all the possible drivers behind the gas price spikes and exploring potential actions that can be taken.”
There’s some help available to consumers through the Gas Assistance Fund and payment plans that can be arranged directly with the utility.
SoCalGas also offers tips for cutting your bill, including lowering the thermostat three to five degrees, which can save up to 10%, installing proper caulking and weather-stripping, which can save up to 15%; washing clothes in cold water, which can save up to 10%; as well as lowering the temperature on your water heater and not using gas-fueled spas and fireplaces.
Take heart that natural gas prices are dropping: It’s been trading at about $17 to $20 a dekatherm as of late, far higher than usual but far lower than January’s peaks.
Even if prices drop dramatically, the underlying issues of switching from fossil fuel to green energy remain. California’s insistence on doing that quickly means no investment in new pipelines and new storage, which means we’re forced to rely on the expensive spot market.
“The goals are just too far-fetched and unrealistic — unless you want to inflict major economic pain,” said Hiatt of USC. “The problem is, so much political capital has been built into this that no one wants to admit they did something wrong. Just push forward until something breaks.”
A more sober, and less painfully expensive approach: Plan for a longer transition period, he said.
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