Duplication and in some cases quadrupling of Southern Californians’ natural gas bills in recent months came from rapid price increases on the so-called spot market, a real-time wholesale market for the fuel. The lack of transparency in the California spot market for gasoline played an equally important role in the beating California drivers suffered at the pump last year.
The secrecy surrounding transactions in both markets keeps the public in the dark about who is making a fortune off their pain. Transparency would not only reveal profiteers, but could also discourage future extortion.
Southern California Gas Co., the monopoly that provides gas in Southern California, generally uses your stored gas inventory in the winter instead of buying it during the colder months, when it is more expensive. However, this year, instead of tapping into its inventory, the utility chose to buy massive amounts of gas on the spot market, where someone made a fortune off natural gas prices that were 10 times higher than expected. usual.
The public doesn’t know who reaped this windfall, but we want to know. SoCalGas’ parent company, Sempra Energy, has an energy trading arm that sells gas to the utility. Did SoCalGas’ decision to buy in the spot market at a peak drive up the price and help an affiliated company make a killing?
Unfortunately, that remains unclear because natural gas spot market transactions are shielded from public scrutiny. Comparable electricity transactions, by contrast, went public after Enron traders took advantage of deregulation to loot California. Now every electricity trade in the spot market is publisheddeterring such misconduct.
The Federal Energy Regulatory Commission, or FERC, has the power to publish natural gas spot market transactions, but has never done so. The nonprofit group Public Citizen has required the agency to change that. Southern Californians, who just paid the highest natural gas bills in America, have a right to know who got their hard-earned money.
Natural gas isn’t the only fuel Californians have paid significantly more for in recent months. At one point in October, California gasoline prices rose to $2.60 more per gallon than the US average. The huge gap boosted record profits for oil refiners, which doubled its profit per gallon in the West last year, according to its own public reports to investors. Gasoline prices that exceeded $6 a gallon caused untold pain for low-income families, some of whom had to choose between filling their tanks or putting food on the table.
How can oil refineries charge Californians so much more when their production costs, as evidenced by their profits, don’t justify it? California oil refineries set the price they charge station owners for gasoline based not on their costs but on the price of California gasoline on the spot market, a market controlled by the five oil refineries that produce 98% of our gasoline, along with a small group of merchants
Like the analogous natural gas market, the California gasoline spot market is shrouded in secrecy, making it vulnerable to manipulation. The California Attorney General’s Office is suing traders SK Energy and Vitol for allegedly manipulating the spot market after Exxon’s Torrance refinery low in 2015. The companies are accused of, among other things, conducting swaps in which no gasoline changed hands solely to increase the price of fuel.
This is possible because there is no public ledger of transactions in the gasoline spot market, only voluntary reporting for the Oil Price Information Service, an oil industry news service. Nothing requires disclosure of a trade, its amount, or the identity of the buyer or seller. There is also no record of how many transactions occur on any given day. The service publishes only a spot market price.
That means a single transaction can set the price for all retail gasoline in the state for days or weeks. When the spot price is high, there is no incentive to report a trade. Robert McCullough, an economist who has studied energy markets for decades, testified before a state senate committee recently that at the height of the spikes last fall, the spot price of gasoline did not change for two weeks. If that had happened to the Dow, he wondered, wouldn’t someone have noticed?
The California Legislature, which is considering how to prevent future spikes in gasoline prices, should make spot market transactions public. Meanwhile, federal regulators already have the power to impose similar transparency on the natural gas market. Shedding a little light on prices could help Californians weather future winters.
Jamie Court is the president of Consumer Watchdog, a Los Angeles-based nonprofit organization.
