San Diego’s grim winter energy forecast is likely to get worse before it gets better, and consumers aren’t the only ones dreading a colder climate. Several industry insiders are also frustrated.
Rick Morrow of San Diego Gas & Electric Co. is a 30-year industry veteran, having started his career at the height of the energy crisis in the 1970s. Morrow said today’s marketplace irregularities concerning the price and supply quantities of natural gas is making his job much more difficult.
“I’m outraged because of the impact it has on our customers and the way we have to do business,” said Morrow, the vice president of customer service for major markets for the Sempra Energy utility. “I’ve never seen anything so ugly as what we’ve got right now.”
The California Public Utility Commission is reporting that natural gas prices have risen 47 percent since August 2004, and the effects of the recent hurricanes to oil refineries off the Gulf Coast have further strained the situation.
“It’s a real issue but the good news is there is, in fact, plenty of gas,” said Commissioner John Bohn.
Although Bohn, a commission representative from San Francisco, doesn’t fear shortages in the near future, he also doesn’t see relief from higher energy bills anytime soon.
“The reality is whether anyone likes it or not, prices are going up and they’re going to stay up in my economical opinion,” Bohn said. “I don’t see the economics and I don’t see the political pressure making (prices go down to where they were a year ago).”
Bills from SDG & E; are calculated in two parts. The first accounts for delivery costs, the other reflects a pass-through cost of what the utility paid to acquire the natural gas for its customer. A typical monthly SDG & E; bill that was $125 last winter is expected to be between $150 and $165 this winter, thanks to a 45 percent to 55 percent spike in the natural gas pass-through cost portion of the bill.
Ed Van Herik, a spokesman for SDG & E;, said the utility has been stockpiling natural gas supplies since April as required by the state’s utility commission, which requires companies to store gas in underground tanks between April and October in preparation for the winter months.
Van Herik said SDG & E; has stored 6 billion cubic feet and was still looking to buy more before the Nov. 1 cutoff. He declined to say what percentage of gas needed for winter use is bought in advance, citing a need to protect a competitive buying process.
In addition to helping to prevent shortages, the requirement to store gas early traditionally helps utilities save money in purchasing because natural gas typically costs less in the spring and summer months. But Van Herik said that is not the case these days, because demand and competition for natural gas in the spring and summer has increased with population growth and other trends, causing a less significant difference in price.
“You’re not seeing the low price that was once typical,” Van Herik said.
When SDG & E; calculates the cost it paid for gas to pass it through to consumers, the utility does not differentiate between what lower price was paid in the spring and summer storage months and what was paid in the peak winter months, and who’s receiving which gas supply. Instead, a “blended price” averaging out both costs is determined. Van Herik said that there is no profit being made from buying low and selling high when it comes to winter bills.
Meanwhile, the utility’s competitive practices are being called into question in court this month.
In the midst of bracing for a tough winter ahead, SDG & E;, its sister company Southern California Gas Co. and the siblings’ parent company, San Diego-based Sempra Energy, are embroiled in a class-action lawsuit alleging that the three conspired with competitor Texas-based El Paso Natural Gas Corp. to split up Southern California’s energy market, eliminating pricing competition and compounding the state’s 2000-01 energy crisis.
On Oct. 26, during opening statements in the trial, which is being held in San Diego, representatives for Sempra and the two public utilities denied all conspiracy allegations. A similar case against El Paso was settled for more than $1 billion in 2003. If Sempra, SDG & E; and SoCal Gas lose their case, it could cost the firms nearly $24 billion.