At this time, there is global natural gas shortage due to harsh winters, the Ukraine crisis, and increased demand.
However, the current prices hikes for customers of Southern California Gas, SDG&E, and ultimately, Sempra Energy, may be completely unjustified and should command the attention of energy regulators. So far, SDG&E has claimed that it is unlawful for them to make a profit on natural gas sales to their customers, and that they are simply passing the costs along to consumers.
Both SDG&E and Southern California Gas are “affiliated” companies because they are both owned and controlled by the same parent company Sempra Energy. Public Watchdogs’ is concerned that SDG&E may be selling its cheap natural gas contracts to other natural gas buyers and then repurchasing replacement natural gas from its sister company, Southern California Gas at much higher prices. In this manner, SDG&E does not make money on the transaction, which would violate the law. Instead, SDG&E’s sister company makes an enormous profit by re-selling SDG&E’s cheap natural gas contracts at much higher prices.
This has happened before with electricity prices
Public Watchdogs is concerned that the high prices being charged to ratepayers for gas may be a replay of the type of artificial price manipulation and opportunistic price gouging that we saw back in the “bad old days” of the 2000 to 2001 electricity crisis. In 2000, SDG&E was not allowed to make money on the sale of electricity or natural gas.
In 2000, San Diego Gas & Electric found a way to short-sheet its customers by selling its long term contracts for cheap electricity at 4¢ to 6¢ a kilowatt hour (kWh) to its affiliate companies. At that time electricity on the spot market was selling for as much as 35¢ a kWh. So SDG&E sold its electricity to its affiliates (who could legally make a profit) and then re-purchased the electricity that had just sold at prices that were as high as 20¢ to 35¢ per kwh from the same affiliate. This unnecessary reselling and re-buying of the same electricity made retail prices skyrocket, while keeping the unwitting regulators in a fog of confusion about the “principles of supply and demand.”
This “laundering” of cheap electricity into extremely expensive electricity put hundreds of thousands of ratepayers into debt, and drove many energy-intensive businesses into bankruptcy. And today we know that the markets were ruthlessly gamed and manipulated by companies like SDG&E and Enron.
There is no shortage of natural gas in Southern California
Our regulators need to step in and start asking tough questions (see below). Here’s why:
First, the second largest underground storage facility for natural gas in the USA is owned by Southern California Gas (SCG). SCG is the supplier of gas to SDG&E and Southern California Edison customers. SCG stores its vast supplies of natural gas from more than a hundred gas wells inside a largely hollow mountain in the Porter Ranch/Aliso Canyon community in Los Angeles. The Porter Ranch facility can hold an estimated 86 Billion cubic feet of natural gas.
On October 23, 2015, the public became aware of exactly how vast the supplies of natural gas were that were stored at Porter Ranch when a well began leaking (or more accurately shooting) natural gas into the atmosphere to the tune of 97,000 Tonnes over a four month period (get video). The leak was so massive that it was visible from outer space.
The Aliso Canyon Porter Ranch natural gas leak became the world’s largest single point-source for natural gas pollution.
86-Billion cubic feet
The Southern California Gas Porter Ranch facility can hold an estimated 86 billion cubic feet of natural gas, which has been estimated as four times the amount of natural gas consumed in Southern California over the course of a year.
Questions that regulators should be asking
Why doesn’t SDG&E have Forward Contracts? Forward Contracts are a common way of ensuring price stability.
Why doesn’t SDG&E hedge against gas price shocks on the futures market? The sole reason for futures markets is to offer price stability to large corporate buyers such as utilities. Why hasn’t SDG&E purchased futures contracts to protect its customers from this type of price shock?
Has SDG&E sold off its rights to buy cheap natural gas using futures contracts? Is it repurchasing expensive natural gas on the spot market to replace contracts for cheaper gas?
Are SDG&E affiliated companies (i.e. companies owned by Sempra) making extreme profits from this crisis?
Who, exactly is SDG&E buying its gas from, and why was it so unprepared for this particular crisis?
2 thoughts on “Questions about the so-called “Natural Gas Shortage” and why your utility bills are increasing”
Why didn’t SCG prepare for the winter gas needs of it’s customers??!!! There was no warning. Customers had already been using, cold weather was already evident. Only after these events did SCG “warn” it’s customers of a huge price increase in rates.
Instead of price gouging, how about a cap on household usage each month to “save” the gas available for everyone??! Each consumer can see what they’e allotment is and can plan accordingly. If the usage goes over then increase usage fee. Damn, water and power does this on a tier system??!!! How does SCG not know any of this to help prepare it’s customers or rather it’s captured market?!
It doesn’t snow in most of California, yet rates are highest here than in the East Coast where it DOES snow hard!!!
How stupid do they think we are?!
It’s a filthy manipulation of rates and practices. Those policy making execs should be taken down.
Elf, we are concerned that SoCAl Gas may have engaged in opportunistic price gouging.