The coming years will bring policy wrangling over distributed resources – what’s economic and what’s not.
Key to the Citygate
Have gas prices fallen victim to speculation?
On Thursday, Dec. 8, as natural gas hit $40 at the citygate for Southern California (prices hit $60 that Friday), I found myself in Colonial Williamsburg, a guest of Michigan State University's Institute of Public Utilities, at the group's annual conference, watching a panel of industry experts try in vain to explain what was happening.
First came David Costello, from the U.S. Energy Information Administration. He put some recent forecasts on the overhead projector, showing gas "spot" commodity prices at $6 this month and falling by January 2002 to about $4.50, give or take 75 cents. Say what? Costello shrugged and admitted that EIA had missed the mark. "The New York citygate price was about $30 yesterday," he said, adding that "yesterday's closing price on the NYMEX was more than remarkable." Does EIA have a clue? "Forget about this winter," he advised. "We're concerned about next winter."
Next up was Michael Shames, director of California's UCAN consumer advocacy group. Shames put up his own set of graphs. They showed retail gas price spikes in a virtual mirror image of recent electricity price curves. The 6.5-cent retail cap, enacted this summer in California to protect residential electricity customers against rate increases for standard-offer utility service, doesn't cover gas. "The gas price spike hasn't hit customers yet," said Shames, "but it will in a month or two. And there's no safety net, like there is for power."
That left it to Stephen Adik, senior executive vice president and chief financial officer at NiSource to offer some insight, and he didn't hold back.
"It's my firm belief," said Adik, "and you can quote me on the record on this, that today gas prices are being manipulated.
"It's not the pipelines. It's not the LDCs. It's pure raw speculation on Wall Street."
"WE DON'T UNDERSTAND HOW INCREASES OF THIS MAGNITUDE CAN OCCUR IN A 'COMPETITIVE' NATURAL GAS MARKET." That was J.A. Gomes talking. Gomes is executive vice president of California Dairies Inc., a dairy cooperative owned by farmers that runs five milk processing plants in California, using about 1.76 million therms of gas per month.
"We have seen our costs increase from $670,000 in May to $2.2 million in December to a forecast of over $4.4 million for January," said the dairy in a letter sent to the Federal Energy Regulatory Commission on Dec. 6.
"This is a sixfold increase amounting to over $100,000 per day. It puts our business in jeopardy."
Of course, some might attribute California's gas price crisis to the pipeline explosion that occurred Aug. 19. That incident blew out a 30-inch pipe and forced the shutdown of two more lines at El Paso Natural Gas Co.'s Pecos River crossing in Southeastern New Mexico. For several weeks it curtailed about 1.2 billion cubic feet per day of gas flowing to Arizona and California markets.
But dairy farmer Gomes was talking about something different, one of two cases now pending at the FERC about whether markets for importing gas into Southern California are workably