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California natural gas prices to be taken up by FERC


By Ann de Rouffignac
OGJ Online

HOUSTON, May 3 — Under fire from California lawmakers, Federal Energy Regulatory Commission members agreed Thursday natural gas is emerging as key to the power price problems plaguing the state.

Commissioners testified before the Senate Committee on Energy and Natural Resources which was seeking clarification of FERC’s Apr. 26 order instituting price caps on certain wholesale transactions in California. But much of the testimony centered on the role gas prices have played in rising power prices.

Committee members quizzed the commissioners about the Apr. 26 order and wondered why FERC had ignored natural gas pricing issues in California. Much of the power generation in California is gas-fired. Prices are consistently three times the national average and often spike much higher. Electricity prices in California are mostly tied to gas prices.

Sen. Dianne Feinstein (D-Calif) said something has to be done about natural gas.

“We are asking for a period of price reliability and stability,” said Feinstein. “And yet you do nothing about natural gas.” FERC Chairman Curt Hebert responded he recognized California has a “gas situation.”

May gas contracts fell by 9.6% every where in the US except California. Meanwhile, prices in California increased by 19.7% for May contracts. Prices climbed to $14.97/MMBtu from $12.51 in April, according to Platts, a division of McGraw-Hill.

Commissioner William L. Massey said transportation costs of natural gas to California are many times what they are to the rest of the country. For example, transportation costs for delivering gas to Chicago from Henry Hub is 9&cent/Mcf and from Henry Hub to New York about 47&cent/Mcf.

The cost of transporting gas to California is about $10/Mcf, he said.

“What got my attention was when a staffer told me that the proxy price for power during February was $430/Mw-hr and $350 of that is natural gas,” Massey said. “We will never get a handle on electric prices without a handle on natural gas.”

Hebert defended the agency and said it is taking action as quickly as possible. He noted a proposed expansion of the Kern River pipeline, a Williams unit, was permitted in 21 days.

He said FERC also expedited an investigation into El Paso Natural Gas Pipeline, clearing it of allegations of affiliate abuse but appointing an administrative law judge to hear California regulators’ charges El Paso drove up gas prices at the California border through its control over pipeline capacity. El Paso Natural Gas is one of the few interstate pipelines that transport gas to the California border.

Hebert also said FERC will sponsor a conference May 24 to look at the California gas situation, including discussions of current and projected pipelines into the state. Other discussions will center on the intrastate pipeline system and the “take away” capacity of that system, the so-called “gray market” where sellers of gas package deals set the price that power plants must pay for access to the scarce commodity.

The conference will also look into the secondary market for pipeline capacity and consider if the deregulation of that market had adverse impact on prices.

FERC’s order last week outlined a price mitigation plan for California that capped prices at generator marginal costs during electrical emergencies. Prices above the calculated marginal cost would be subject to regulator oversight and even refunds.

The committee is considering several bills that call for more stringent price caps that also would apply to the rest of the West. Some committee members said the FERC order does not go far enough to mitigate the skyrocketing prices in California and in other western states.

Contact Ann de Rouffignac at [email protected]