Roundtable: Reaction to natural gas price hike

S1: Natural gas prices rose dramatically last month , and state and local leaders want to know why. I'm Matt Hoffman and this is KPBS roundtable. San Diegans are still feeling the impacts of sky high natural gas prices in their genie bills. This even as prices have started to come back down. And now state and local officials are demanding investigations into what's behind these rising prices. Joining me to help break down all the latest developments on the energy front are KPBS environment reporter Eric Anderson and Rob Nichols. He's the energy reporter with the San Diego Union-Tribune. Glad to have both of you gentlemen here. Back on roundtable diving into this. So this week , California Governor Gavin Newsom , he sent a letter to federal regulators and he's asking them to look into whether energy companies have manipulated the energy market in raising these natural gas prices. Rob , this is going to go to you first.

S2: And one of the big reasons that they're pointing to is abnormally cold weather that caused Californians to crank up their heating units and consume a lot more energy. But in the letter that Governor Newsom said to the chairman of the Federal Energy Regulatory Commission , that's the agency that oversees transmission and wholesale electricity. And across the country , Governor Newsom said , quote , Those known factors cannot explain the extent and longevity of the price spike. So I think that's pretty much getting to the heart of Governor Newsom and a number of other people's concerns that maybe is it the investor owned utilities that are possibly manipulating something as traders in the market ? So I think that's pretty pretty much the nub of it right now. Hmm.

S1: Hmm. Sounds kind of similar to what he was saying in terms of the gasoline companies. But Eric , the governor here , he's asking for an investigation.

S3: I think that the the big thing for them and , you know , the California Public Utilities Commission also in touch with FERC , the big thing for for federal officials is that they know know the market. They can compare other local and regional market hubs and the activity there. They should be able to spot whether there's been any kind of price manipulation. And it'll be a little bit easier for them to draw conclusions as to what exactly happened this past winter. Hmm.

S1: Hmm. So the governor is making these allegations. You know , he's raising these questions. But Eric , what's been San Diego Gas and Electric ? That's Jeannie.

S3: They're not responsible for the where that price goes. What they do is they buy the natural gas from Southern California gas , which is another Sempra subsidiary , and then they pass the cost of that commodity directly through to the customers. So there's no way for San Diego Gas and Electric to really be involved in this price spike other than they're kind of on the front line. So when people open up their bills , they're opening up a San Diego gas and electric bill , and their first reaction is , Oh my , you know , the utility is responsible for these super high prices that I'm seeing. And as you can imagine , San Diego Gas and Electric officials have told me that there are a lot of angry and upset customers who are who are looking at their bills and seeing those high prices.

S1: Rob , you know , the California Public Utilities Commission , that's the CPC known by most , they held a hearing on Tuesday with power companies and regulators about these natural gas prices. What were some of your takeaways from that meeting ? And Eric , feel free to jump in after , too.

S2: Yeah , couple of things that jumped out at me was , first of all , that a line that had been down for about a year and a half taking gas from West Texas into California , that's about to come back up online soon. So that was one thing that jumped out at me. The other thing that jumped out at me was that there's been a lot of criticism at SoCal Gas , at directed at SoCal Gas , saying , you know , why didn't you have enough natural gas as the ready going into the winter time ? And an official from SoCal Gas said during the meeting that they actually had capacity and inventories of five and six year highs but that the amount that the abnormally cold weather. Was able to ended up draining a lot and using a lot of the consumption that ended up draining the amount of natural gas that they had. And then the other thing that jumped out to me was that there was , again , kind of a fleeting indirect idea that was brought up about possible manipulation at the market. You know , there was a Southern California Edison official who said there were a number of usual things going on that he thought justified this FERC investigation. So I think there were a lot of potential answers out there , but there wasn't any one real specific thing where you could point out say , aha , this is a reason why natural gas prices went up so high in the past six weeks or so. Yeah.

S3: Yeah. And I think that one of the other things that also kind of piqued my interest a little bit and listening to the California Public Utilities Commission talk about this issue was the fact that the impact on on the state's different utilities was different depending on where they are. So PGE had lower rates than San Diego gas and electric. And so you kind of wonder what happened so that there were regional differences.

S1: We're talking about these rate hikes.

S3: Now , they do kind of have this indirect responsibility because so much of the state's electricity is produced by natural gas. So there's an interest there. But the impression that I got from Alice Bushing Reynolds , who's the president of the CPSC , was that she was trying to put all the pieces together. She was trying to understand what the situation was currently , not necessarily with an eye toward , you know , fixing it by the end of the meeting , but but understanding what the issues were so that they can look at it and see what what they as utility regulators in California can do about it if if a similar situation happens in the future.

S1: You know , Rob , I actually listened to some of that CPAC meeting this week and one comment from the president of it that stood out to me , you know , she said that Eric just touched on it , but she said that the Public Utilities Commission , nor any of the state agencies that were there actually regulate natural gas prices , saying that they're ultimately determined entirely by the market.

S2: I guess the the state and the CPC could look at reregulating the energy industry as it was in California back in the 1990s. That would be a big lift. Then on the other hand , I guess you could take a look and see what the agencies like the CPC could do to influence the market. You know , for example , if we're having problems getting natural gas into California in 90% of the of the natural gas that goes into California , it comes from outside state. Well , maybe you could theoretically think about maybe building more natural gas plants or try to encourage pipeline people to build new pipelines , although I think that would be doubtful considering the the state's commitment towards trying to get to 100% clean energy by the year 2035 or 2045.

S1: And Eric , can you go back and remind us , you know , what led to the big jump in these natural gas prices ? They've come down a little bit. But during that CPAC meeting , they said that California prices at the end of January were still 215% higher than the national benchmark. We heard some of it was a result of colder weather this winter , but that's not the only factor , they say. Right ? Yeah.

S3: And as Rob pointed out earlier , there was a major pipeline that funnels gas into Southern California that was down due to some maintenance that needed to be done. So some of the supplies coming from outside of the region and we do import 95% of our natural gas. But some of the supplies coming from outside of the region were interrupted. We had a long extended spell of cold weather , cold for California. And people were using more natural gas and that drove up the price a little bit. And also , as they used more natural gas , it drew down the. Orange here in Southern California. You know , there was a little interesting aside , a little theme that kind of bubbled up a little bit through the course of that hearing when utilities were talking about the supply of natural gas that was available. They referenced a couple of times the Aliso Canyon Reservoir , an underground reservoir that had this massive natural gas leak for months and months just a couple of years ago. You know , Southern California gas paid , you know , more than $100 million to to compensate for that. And it was bad for for greenhouse gas emissions. And as a result of that incident , they restricted the amount of natural gas that can be stored there. And they changed the protocols of how it gets in and out and that they seemed to hint might some of these new rules that were put in after the massive leak may have impacted their ability to store natural gas there ? And they seem to be suggesting that maybe loosening some of those rules to allow for more storage might be a thing that could , in the future help keep the price down.

S1: In terms of impact here. We're hearing about some bills that are hundreds of dollars above average.

S2: It's distributed. You know , it's not paid out by the California Public Utilities Commission. It's distributed through the state. And it's happens every single year. They give out one climate credits to natural gas customers once a year and to climate credits to electric customers once a year. What they've decided to do , what the CPC voted on very recently , was they decided to move to expedite the timing of that , all those credits. So gas customers will get a $43 deduction on their next billing cycle and the electric customers will get $60 knocked off in March. And then that second electric credit that will be done in the second half of next year. So that'll give people a little bit of a relief.

S1: I think even the CPC president called that a Band-Aid fix for this situation. But , you know , we've heard that natural gas prices are dropping a little bit. Do you have any idea of what bills are expected to look like , you know , maybe this next cycle ? Yeah.

S2: Overall , the natural gas prices for Genie estimates that they'll drop by about half the commodity price is set by or submitted by SoCal Gas each month , the first day of each month. And in January , the sky high in February , it was down about 68%. So they're thinking that it'll probably for a typical customer instead of paying $225 like they did in January , they'll pay about $110 in February.

S1: You're listening to KPBS roundtable. And our guests this week are Eric Anderson from KPBS News and the Union Tribune's Rob Nicholas. Let's talk a little bit about where our gas comes from. You know , at the California Public Utility Commission meeting this week , we heard that 95% of natural gas in Southern California comes from out of state. Eric , do we know how that factors into like the costs that customers ultimately see ? Sure.

S3: As it is with some other things here in San Diego County , we're kind of at the end of the cul de sac , so to speak , when it comes to natural gas energy. We ship a big chunk of our natural gas from the Colorado Rockies where they have a lot of fracking operations and they send it to our region. We get some from the Pacific Northwest as well and some of the other regions. But the big thing I think that adds cost even when there's no price pressure on it. But one thing that adds cost is moving that natural gas from a geographical location that's far away here to San Diego , where it gets used.

S1: And Rob , something that you touched on a little bit earlier , you reported that one key pipeline that's delivering this gas has been shut down , but it's going to be reopening soon.

S2: It's a pipeline that goes from the Permian Basin in west Texas and goes all the way to California. It's been down for about a year and a half because there was an explosion in a small rural town in Arizona that killed a couple of people. And it took a long time for them to get the line back up and running. And also , they had worked with federal regulators to make sure everything was safe. And at that meeting the other day , it was announced that line would be back into service , estimated for February 15th. So , so pretty quickly. So that thought is that's going to add a little bit more supply. They didn't really know the officials from SoCal Gas at that meeting were able to put a dollar sense figure on it. But they did say that it would help this winter and also during the summertime when things are going to get really hot and we're going to need every megawatt we can get in California.

S1: But , Rob , Eric sort of touched on this earlier , mentioned that we were at the end of the proverbial or I guess the actual pipeline , natural gas pipeline. But when it comes to storage for natural gas , it sounds like in Southern California , we just don't have a lot of it.

S2: It's at about 60% capacity because of that massive leak that ran in 20 late 2015 and 2016 and forced residents from the Porter Ranch area of Los Angeles to evacuate. There's been talk about bringing that back up and increasing that capacity to above 60%. And if that happens , and maybe that might be able to solve some of these problems as well.

S1:

S3: And one of the things that they're looking pretty hard at is reducing the reliance on natural gas. So if the demand drops , it's just like anything else in an economy. If the demand for the product drops , of course the price is going to drop as well. But as the state moves away , there's going to be this transitionary time period where we still need and rely and use natural gas because the transition is not going to happen overnight and it's going to involve a little bit of pain , I think , for for both individual residents and for big companies that make their profit from from natural gas. So I think it'll be interesting to watch moving forward what the state does in terms of decarbonizing , decarbonising , how quickly , you know , no new housing projects built in the state of California now can have natural gas in them there. They have to be electrified. So it's a it's a movement away from something that we've been comfortable with. And and I think as steps are taken in that direction , you'll start to see some of the pressure for natural gas delivery , for natural gas prices to kind of ease a little bit.

S1: This discussion about natural gas. It doesn't just impact those bills , but also electric bills. It's maybe something people don't think a lot about. But at least to power companies want to raise electric rates. And Rob and Eric , feel free to jump in here , too. Is that because natural gas is used to create , you know , a good chunk of energy in our state ? And can you kind of describe what the relationship is between these two energy sources ? Yeah.

S2: So gas is a major source of energy for California. It's the largest. It's not a majority , but it's where all these you take a look at the power mix. And for example , San Diego Gas and Electric relies on natural gas for production. It has up , for example , a 500 megawatt combined cycle natural gas power plant called the Palomar Energy Center in San Diego. So that gives you an idea when natural gas prices go up , they're not just going to affect natural gas. Customers are also going to affect electricity customers because a lot of the energy that's being produced is being produced by natural gas. Yeah.

S3: Yeah. And I think that the the the other situation that's kind of complicating , although a little bit difficult to sort out too , is sort of this incestuous relationship that the utilities here in San Diego County have. Southern California Gas is a Sempra subsidiary , San Diego Gas and Electric , also a Sempra subsidiary. A lot of the power plant projects that were built in in the last ten or 15 years have been natural gas power plants , which creates electricity that the utilities buy like San Diego gas and electric. And it creates a customer for Southern California gas because they need to supply the the natural gas to those power plant projects. The discussion has always been renewable energy. How does that factor into the future energy picture ? Is renewable energy capable of , you know , carrying the load as the plan for storage of renewable generated energy caught up to the reality of demand. So those are all questions. I think that the the state's going to have to work through as it moves through to its future and figures out exactly where natural gas fits into the equation when it comes to power in California.

S1: Well , Rob , you actually spoke to one analyst who referred to the recent price jump in natural gas as a scarcity pricing bubble and one that could happen again.

S2: And he took part in the the meeting earlier this week with the CPC. And I'll just quote what he told me or what he told at the meeting. Quote , This is a Pacific and Western states regional problem. We have multi-billion dollar impacts. It could happen again. The root cause is not markets , though. They have problems , but rather overdependence on gas. So that's one of the issues here , is are we too reliant on gas ? And it should be pointed out that the gentleman from Northwest Energy Coalition , this is a green group and they're trying to get rid of natural gas , that they have an interest in trying to eliminate natural gas from the systems. I just want to point that out , in fairness.

S1: Well , along those lines , you sort of brought up that question about reliance on natural gas. And it sounds like at least 45% of the electricity we use for natural gas.

S2: And the big reason why is because wind and solar , the big renewable energy sources that we have , are interim bit. So when the sun doesn't shine , we don't have solar. We have a lot of it when the sun shines. Fact we in California generate so much solar energy during the day that sometimes we have to essentially give it away. And also when the wind doesn't blow , we're not able to get any megawatt edge from from wind. So what you need is you need something to fill in the gaps. And natural gas works as that stopgap measure. Now , looking down the road , the thought is that will be able to replace natural gas , something like battery storage , things like that , to to make up that difference , to fill in those gaps. But right now , A , we don't have enough battery storage even though we're adding more into the system. And B , battery storage is more expensive than conventional storage. But that's the nub of the problem right there.

S1:

S3: We used to have a very big power generating nuclear station in northern San Diego County that generated a lot of power for the region , 24 hour power on around the clock when it was running. If you think back to the South Bay Power plant , which sat on San Diego Bay and the southern part of the county before it was torn down , and that was a baseline power producer , they could run that plant all the time and it would produce energy all the time. And I think that the mix of energy that we are going to be relying on the future is a little bit different than that. And the system is taking some time to kind of adjust to what those changes are. But if you listen to people who have argued against the construction of natural gas plants in the last decade , you know , they all think that there is the possibility that renewable energy like solar and wind and other things will be able to to to meet that demand at some point. It's just I don't quite think there yet.

S1: Well , we know that state officials are certainly pushing for that toward more of those green energy solutions. But Eric and Rob , before we go here , any quick final thoughts or anything else you guys are looking for ? You know , we've talked about this before.

S3: They can look at the markets. They can decide exactly what was going on there. And I think they have the kind of expertise that's required to kind of pull that apart in such a way that that they understand exactly what happened and if there are any bad actors that were profiting. I think they'll be able to find it. But it's going to take a little time for them to do.

S2: Yeah , from a 50,000 foot view. I think this is touching on some a number of things that Eric and I have been talking about for the last few minutes here is that this California energy transition is going to be complicated. It's going to be complex. And the one thing that I keep going back to is reliability , because , yes , prices spiked and they are really high and people are understandably upset. There were protesters in front of Jeannie's building this week. But people are going to be really upset if they switch on the lights. They think they're going to switch on the lights and the lights don't come on. And there is a reason why Gavin Newsom , who back in 2016 led the charge to shut down Diablo Canyon , is the last remaining nuclear power plant in California , but then did an about face in 2022. This is 2023 now , but there is a reason why he did , and that was because there were concerns about reliability. We're making this transition. We're not there yet. And making this transition is going to be tough. And I think that anyone who says this is going to be a clean and easy transition , I think. Maybe they're right , but I if I were a betting man , I would think that it's not. And as long as we've got higher prices and prices , as Eric mentioned , have every indication going up higher , you're going to get more attention. You're going to get more anger from people and the California policymakers and the energy companies and the energy officials in the state have their work cut out for them.

S1: We're going to have to end it there for this week's edition of KPBS roundtable. We could go on for much longer. I want to thank our guest so much , Erik Anderson from KPBS News and the San Diego Union Tribune's Rob Nicholas Ski. Be sure to stream our show any time as a podcast. Roundtable is produced by Andrew Bracken and Rebecca Chacon as our technical director. I'm your host , Matt Hoffman. Thanks so much for being here with us. And have a great weekend.