California Gov. Gavin Newsom (D) continues to blame the oil and natural gas industry for high energy prices. California consumers’ energy costs have increased over the past due to a combination of statewide policies, regional weather fluctuations, pipeline availability and increased wholesale prices.

In a move reminiscent of his baseless allegations against the state’s gasoline refineries, Gov. Newsom and other California politicians are now alleging anti-competitive behavior among the state’s natural gas distributors. Earlier this month, Gov. Newsom wrote a letter to Federal Energy Regulatory Commission Acting Chair Willie Phillips asking FERC to investigate wholesale prices of natural gas in California. Newsom believes that anticompetitive factors are causing the increase in price:

“These wholesale natural gas price increases were exacerbated by early cold weather in the Western states,” Newsom wrote, “but those known factors cannot explain the extent and longevity of the price spike… I therefore ask that FERC immediately focus its investigatory resources on assessing whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in the western gas markets.” (emphasis added)

Last week, FERC Chairman Phillips the agency’s office of enforcement is undertaking “enhanced surveillance” on market participants but did not commit to launching an investigation into California’s natural gas prices.

The reasons for high energy prices are not a mystery despite the Governor’s misplaced blame and can be traced back to the inconsistent energy policies that have banned fracking, increased energy imports, and limited infrastructure build-out in the state.

High Natural Gas Prices for CA

California has consistently higher natural gas prices than the U.S. average partially because it has to import majority of its supply, following years of restricting natural gas production, natural gas storage, and pipeline and infrastructure development.

In 2021, Gov. Newsom mandated his administration take action to halt hydraulic fracturing by 2024, despite the fact California still relies heavily on natural gas to meet consumer demand. To make matters worse, California also has less natural gas storage today than it did previously. This leaves the state in a predicament where it has fewer reserves when demand is high.

Severin Borenstein, an energy economist at the University of California Berkeley, observed how California’s energy issues have compounded over the last few months, explaining:

“It has been a near-perfect storm of factors to boost the price of natural gas.”

Beyond California’s policies, the state is also grappling with the externalities that put pressure on its fragile system. In recent months California has experienced extreme cold weather, which created high demand for heat. Additionally, the state has had to deal with scheduled and unscheduled maintenance limiting the full capacity of natural gas supplies able to reach the state, exacerbating the effects of high wholesale prices globally. On top of these factors, California is uniquely vulnerable to price fluctuations due to imports comprising of 90 percent of the state’s natural gas volume.

Seasonal Variability

Earlier this month, California’s largest natural gas utility, SoCalGas said in a statement:

“After unprecedented highs due to West Coast market conditions, market prices for natural gas have dropped, resulting in a 68 percent decrease for SoCalGas core customers, when compared to prices seen in January.”

What this means for California customers and their gas bills is that if a bill was $300 in January, that same usage should result in a bill totaling $135 in February.

As prices continue to fall, the Kinder Morgan El Paso unit, a key pipeline for supplying natural gas to California will be restarting soon after 18 months of shutdown. Following a disruption that left California unable to import gas from Texas, the restored pipeline could boost supply for the state and region by about 600 million cubic feet a day. With a renewed steady flow of domestic natural gas, the increased pipeline capacity will reduce natural gas prices for California consumers and alleviate some of the imbalance between supply and demand.

Another Gas Probe Is Not The Answer

Gov. Newsom’s requested FERC probe into high natural gas prices in California follows the same playbook as the Governor’s baseless gasoline from last year. In December, Gov. Newsom convened a special session of the legislature to consider a “penalty” on refiners’ profits, although these claims were thoroughly debunked that same month during a California Energy Commission hearing where experts testified that it was California policies causing high gas prices, not domestic energy producers.

Just this week, “five months after Gov. Gavin Newsom said California needed to address a historic surge in gas prices,” a California Senate Committee held the legislature’s first hearing on gas prices. According to the Sacramento Bee, details of Newsom’s proposed “penalty” are still sparse:

“Sen. Nancy Skinner, D-Berkeley, in December introduced a bill containing Newsom’s price gouging penalty. But it still provides no details on where or how a profit cap would be set and who would be eligible for rebates.”

During the hearing, state Senators from both parties – including the Committee chair – were skeptical that a “penalty” on refiners would ultimately lower energy prices for consumers. According to Politico, “Sen. Bill Dodd (D-Napa) put it most forcefully”:

“What I try to look for are what the hell are the unintended consequences, the possible unintended consequences that could hurt those people to a greater extent?”

Moreover, in their discussion of the complex downstream factors that result in higher gasoline prices in California, experts testifying at the hearing compared the gasoline market in the state to “the electricity and natural gas markets” where “many of those details” impacting price “are already available” – a claim that contradicts the claims Gov. Newsom laid out in his letter to FERC.

The reality is that poor state-level policies have turned California into a “gasoline island,” thus making the state and consumers vulnerable to price swings and supply disruptions. These policies have become market signals resulting in underinvestment in energy resources and capacity expansions amid soaring demand.

Bottom line: While momentum for Gov. Newsom’s proposed gasoline price gouging “penalty” stalls in the state legislature, Newsom appears to have turned his attention to natural gas companies, leveling baseless claims and demanding investigations. In the meantime, it’s consumers and businesses that suffer the effects of California’s anti-energy policies.

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