Why were natural gas prices in California nearly 6 times higher than in other parts of the US?

At Mark Zinman’s home in Moraga, his gas bill just hit back.

“When I got this bill, I was a little alarmed,” he said, “so I tried to turn off the thermostat using less gas.”

PG&E’s December bill was $575; of which $400 was for gasoline. So, Mark’s oven got a new setting.

“I set it to 68 or 69 degrees,” he said. “When the bill came in for $575, I paid it back for $66… or $65 when we sleep at night.” He expected the conservation to pay off in January. This is wrong.

“The next bill came and we spent less, but it was still $575. And it was still part of the $400 gas bill,” he said. You feel a little out of control.

You are probably in the same boat. You may have heard the explanation from PG&E and its colleagues: Demand has risen and wholesale gas prices have skyrocketed.

San Diego Gas spoke to our sister station, NBC 7 Responds. “This increase is far greater than we could ever have expected,” said Candace Hadley, a spokesperson for the utility.

Wholesale prices 4x, 5x in California

We dug. And found a discrepancy.

Wholesale natural gas prices are regional and change daily. We looked at the site in January. Gas prices in California were four, five and nearly six times higher than in most of the US for several days.

Some other parts of the country had a surplus of natural gas—so much so that some producers paid others to take it from them.

“In January and February, the weather was warmer than usual across much of the US,” said Chris Higginbotham of the US Energy Information Administration. “And that means that the demand for natural gas has declined, now it is below average.”

Three criminals – bye

So why have California prices skyrocketed? Several analysts pointed to three problems: declining storage, pipeline problems and cold weather.

The weather explanation is confirmed. It was freezing here. “Our high temperatures will only reach 40 degrees,” NBC Bay Area meteorologist Kari Hall said in a recent forecast.

We needed gas, fast. But there was a problem.

“In California, natural gas storage levels were below normal,” Higginbotham said.

Generally speaking, the state’s tanks were only two-thirds full. Why? We asked one gas storage company, Rocketpoint. A spokesman said “gas storage levels fluctuate throughout the year” and the exact storage levels are “inside information”.

So what about pumping more gas? After all, to the east was an excess. Analysts say California gets most of its gas from just three main pipelines. Some parts were turned off when the state needed maximum flow.

Old crash = new price hike?

Several experts noted the pipeline called Line 2000. It made headlines in Arizona when it exploded and destroyed a nearby house. Two people inside died. The pipeline has since been shut down.

But in August 2021, it collapsed. Why is it being blamed for price increases in 2023?

In a letter, Gov. Gavin Newsom asked the Federal Energy Regulatory Commission to investigate the recent price spike. PG&E told us that it “supports the governor’s call.”

Culprit Four: Manipulation?

To some, low reservoirs and slow pipelines are reminiscent of the state’s energy crisis of 2000 and 2001. At the time, secretly recorded phone calls exposed insiders’ plans to deliberately shut down power plants to drive up prices in California.

“We want you guys to get a little creative and come up with a reason for the fall,” a trader told a plant manager in one of the calls released by the Washington state utility regulator.

“These are difficult cases to investigate,” said Severin Borenstein, Ph.D., chair of the Energy Institute at UC Berkeley’s Haas School of Business. We asked Borenstein if he sees any parallels between the energy crisis of 2000 and natural gas today.

“At least I see parallels in the setup,” he said.

Borenstein said federal investigators should look for signs that someone was manipulating the gas market at your expense. Why were pipelines cut and storage tanks low just when California clearly needed gas?

“Did it allow some players in the market to make the situation even worse, as we saw in 2000, 2001,” he asked.

Timeline of federal investigation

Professor Borenstein says it will take time to connect the dots. “I suspect it will be many months, or even 2024, before we actually hear any real judgment on this,” he said.

Back in Moraga, Mark Zinman welcomes the investigation. “I’m sure there are cases of manipulation,” he said. “And yes, I also survived Enron.”

He’s still adjusting the thermostat and, as he says, “plugging holes.” But Zinman is not entirely optimistic.

“They got you,” he said. “You probably won’t be able to plug a single hole. You either have to use less or just keep paying.”

Fair warning: your next gas bill could be another shock. Analysts told us this is because utilities are typically about a month behind handing you wholesale prices.

Three hopeful signs

Here are three good news for your gas bill.