CA regulators grill state energy executives over soaring utility bills

California regulators grilled executives of the state's largest natural gas providers over a price spike that has caused utility bills in the state to skyrocket in a hearing Tuesday morning.

The four-hour hearing was attended by representatives from the state’s two largest gas companies — Pacific Gas & Electric Co. and the Southern California Gas Company — as well as employees of various regulatory agencies and smaller players in the state’s natural gas industry.

Relations between the state’s top energy regulators and the companies responsible for providing power and gas to the vast majority of the state’s 39 million residents have been strained in recent weeks, as state agencies scramble to manage a volatile natural gas market that saw prices spike 300% in January.

Gov. Gavin Newsom has taken a particularly hard line against the state’s utilities, asking the Federal Energy Regulatory Commission in a letter Monday to investigate “Whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in the western gas markets.”

The state’s regulators were more staid in their remarks, but expressed alarm and confusion over the size and extent of the price spike.

“It’s concerning that, as we look at the many factors that clearly are contributing to natural gas prices, it’s just really difficult to understand what the factors are that have led to this extensive a price spike,” said Karen Douglas, the longest-serving member of the California Public Utilities Commission, which regulates energy prices in the state.

John Reynolds, another member of the commission, stressed that increased utility prices have serious economic effects for individual consumers.

“A bill price spike of this amount ... puts Californians in a position where they’ve got to make some really tough choices about what bills they can pay and what they can afford for their families,” Reynolds said.

Energy executives were quick to stress that the price spike was exclusively the result of market forces arising in response to abnormally cold weather and supply issues.

Gillian Clegg, a Pacific Gas & Electric Co. executive responsible for natural gas procurement, said that a number of factors out of the company’s control, such as storage issues, increased demand, and an August 2021 pipeline explosion were responsible for the price increase.

“Year-over-year we’ve had a 19% increase in demand — that’s our portfolio alone — that’s needed to generate electricity,” Clegg said. “Lower pacific region storage, ... the El Paso Pipeline delivery constraints, ... I don’t know that any one of these in isolation would have caused the impact to prices that we’ve seen, but the accumulation of both increased demand and deceased supply, ... those factors combined would increase prices.”

PG&E also pointed the finger at new state regulations that aim to make natural gas wells safer and prevent leaks by requiring a more robust well design, called dual-barrier construction.

“In late 2018, CalGEM regulations became effective and required that all gas storage operators bring existing wells into conformance with dual-barrier construction. ... PG&E, on average, has seen an almost 40% decline in our well capacity with these changes,” said Lucy Redmond, PG&E’s top natural gas storage engineer.

Redmond also argued that state inspection requirements for natural gas wells contributed to supply issues. She stressed, however, that PG&E had still met its storage obligations under state law.

“Performing these inspections ... includes taking several wells out of service. PG&E is exacerbated due to our facility layouts, where wells are spaced 25 feet on center. Again, we’ve maintained our deliverability obligations each winter.”

The Energy Information Administration, a federal agency responsible for collecting and analyzing energy information, did not include state regulations as a root cause in their assessment of the price spike, but did mention low natural gas storage levels as a contributing factor to the spike in a Jan. 24 report.

Storage came up again in an exchange between Alice Reynolds, the Public Utility Commission’s president, and Rodger Schwecke, SoCalGas’ chief infrastructure officer. Asked why gas companies bought on the open market instead of using natural gas that they had placed in storage to ease price increases, Schwecke responded that uncertainty over long-term conditions meant that utilities could not use all their reserve gas to ameliorate the effects of one supply shortage.

Utility prices have long been a politically sensitive topic for governors and regulators. The 2000-2001 energy crisis, which saw many consumers’ electric bills triple amid widespread electricity shortages and rolling blackouts, led California voters to topple Gov. Gray Davis in the state’s first successful gubernatorial recall effort.

That crisis caught California regulators flat-footed. A Congressional Budget Office report from September 2001 pointed to extensive failures in the state’s deregulation and restructuring of its energy markets as a major cause of the crisis.

Included in the deregulation plan was a set of rules, championed by the Public Utilities Commission, that effectively required state utilities to buy much of their electricity on volatile, short-term markets called “spot markets.” This left utilities with no option except to continue to buy electricity at inflated prices after the 2000 price spike, driving PG&E to declare bankruptcy the following year.

In 2003, the Federal Energy Regulatory Commission found that Enron, among other companies, was able to take advantage of shortcomings in spot market rules to engage in widespread market manipulation that contributed to the massive spike in power costs.

The January spike was far less devastating by comparison, but regulators have been poised to respond quickly to reduce its effect on consumers.

On Thursday, the Public Utilities Commission voted to accelerate the distribution of the California Climate Credit, which would reduce most Californians’ utility bills by between $90 and $120 during the next billing period, according to a press release from the agency.

But a more substantial answer to the question of how to fix the problem was not forthcoming. Still, the state’s regulators projected a desire to continue their inquiry into the subject.

“I do believe we need to have follow-up on this question. ... I very much look forward to continuing to examine the causes of the situation that we saw to look for ways to mitigate similar situations in the future,” Reynolds said, concluding the hearing.