It’s a pure travesty for a state agency to lock in a future of high prices for millions of California consumers when its specific mission is to protect those consumers.
Yet that is just what a recent natural gas decision by the California Public Utilities Commission would do.
Besotted by the idea of high-tech foreign liquefied natural gas entering California via a group of coastal receiving terminals, the commission has authorized the state’s largest gas companies to give up their rights to a huge amount of reserved space on two of the three largest pipelines now bringing gas into the state.
If the companies follow up this summer, as expected, natural gas prices will likely stay sky-high in California forever, exceeding even today’s levels.
The wintertime PUC order allows the Southern California Gas Co., San Diego Gas & Electric and Pacific Gas & Electric to terminate their right to the pipeline capacity needed to ship 1.4 billion cubic feet per day of gas to California. That’s equivalent to almost one-fourth of the state’s entire daily consumption of natural gas.
It was no accident this ruling came at a time when Sempra Energy, parent company of both SoCal Gas and SDG&E, was finalizing plans to build an LNG terminal on the Baja California coast just north of Ensenada. Most of the more than 750 million cubic feet per day of gas from that plant would be “sold” by Sempra to its own subsidiaries for use in California, driving up the cost of natural gas everywhere in the state.
Also benefiting could be San Francisco-based Chevron Texaco, now seeking to build another LNG terminal in Baja, with the bulk of its gas to be sold in California. Some consumer groups are already charging that Chevron Texaco, a $200,000-plus contributor to Gov. Arnold Schwarzenegger, would not have bought Unocal Corp. and its massive Far Eastern natural gas properties this month if there were any doubt the governor and his aides would approve selling that gas in California.
The LNG, arriving in sub-freezing liquid form aboard tankers loaded at Far Eastern plants, would cost more than $4 per thousand cubic feet to produce and deliver. Current domestic prices top even that near-record level, but the federal Department of Energy has said today’s price is a rare spike, and forecasts that prices will drop back to about $3.40 per thousand cubic feet or lower. An average home might burn about 8,500 cubic feet of gas per month.
For California, giving up pipeline capacity means that prices would stay high here even if they drop everywhere else. For the pipeline companies have said that if domestic gas prices drop, they won’t automatically give California back the gas it gets now, if California companies don’t maintain their capacity reservations.
“If utilities decline to hold capacity now, it may be unavailable to California in the future,” an official of the pipeline-operating El Paso Co. told the PUC before the commission decision. “The commission should consider requiring utilities to continue to hold this capacity as a prudent hedge against an uncertain future.”
Added a statement from Transwestern Pipeline Co., “It is important that utilities not sacrifice long-term supply reliability.” El Paso and Transwestern operate two of the three largest gas pipelines serving California.
The PUC decision amounted to commission acceptance of self-serving Sempra predictions for large drops in domestic production of natural gas and large increases in California’s consumption.
The company forecasts contrast sharply with government projections. The U.S. Energy Department, for instance, estimates that by 2025, domestic American gas production will have increased about 20 percent over 2001 levels. At the same time, the agency says California consumption will remain about constant.
Those numbers reflect a large-scale emphasis on conservation that began in California with the energy crunch of 2000-2001.
What’s more, several independent analysts maintain there is little justification for current high gas prices. With the cost of production about $2.25 to $3 per thousand cubic feet for gas from Canada, the Rocky Mountains, the Gulf of Mexico and the Permian Basin of Texas and Oklahoma, for consumers to pay anything more than about $3.50 amounts to price gouging.
Which means that by allowing California utilities to give up reserved capacity on domestic pipelines, consumers here will be deprived of cheaply produced gas and tied forever to LNG, whose cost of production far exceeds that of domestic gas.
The PUC took its action without holding even a single evidentiary hearing, relying strictly on energy company pleadings. The only ones to benefit from its decision will be companies wanting to build LNG plants on or near the California coast.
If the PUC won’t reopen the case that led to this misguided decision and hear evidence from consumer groups and others independent of the big energy companies, it will be incumbent on state legislators or Atty. Gen. Bill Lockyer to act somehow to protect the public.
