Doubling and in some cases quadruple Southern Californians’ natural gas bills in recent months have stemmed from rapid price spikes in the so-called spot market, a real-time wholesale market for fuel. The lack of transparency in California’s gasoline spot market also played a major role in the blows California drivers took at the pumps last year.
The secrecy surrounding transactions in these two markets prevents the public from knowing who is making a fortune from their pain. Transparency would not only reveal the profiteers, but could also discourage future scams.
Southern California Gas Co., the monopoly that supplies gas to Southern California, generally draws from its inventory of gas stored in winter instead of buying it during the coldest months when it is most expensive. This year, however, rather than tap into its inventory, the utility opted to buy huge amounts of gas on the spot market – where someone made a fortune with natural gas prices 10 times higher. than usual.
The public does not know who harvested this windfall, but it is in our interest to find out. 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 spike drive up the price and help an affiliate make a killing?
Unfortunately, this remains unclear because natural gas spot market transactions are shielded from public scrutiny. Comparable electricity deals, on the other hand, were made public after Enron traders took advantage of deregulation to plunder California. From now on, each exchange of electricity on the spot market is publisheddeterring such misconduct.
The Federal Energy Regulatory Commission, or FERC, has the authority to publish transactions in the natural gas spot market, but has never done so. The non-profit group Public Citizen has petitioned 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 found themselves paying significantly more for in recent months. At one point in October, gasoline prices in California rose to $2.60 more per gallon than the US average. The huge gap fueled historic profits for oil refiners, which doubled their profits per gallon in the West last year, according to their own public reports to investors. Gas prices that have soared past $6 a gallon have caused untold pain for low-income families, some of whom have had to choose between filling their tanks and putting food on the table.
How can oil refiners charge Californians so much at the pump when their production costs, as evidenced by their profits, do not justify it? California oil refiners set the price they charge station owners for gasoline based not on their costs but on the price of California gasoline in the spot market – a market controlled by the five oil refiners who manufacture 98% of our gasoline, as well as a small group of traders.
Like the analog natural gas market, the gasoline spot market in California is shrouded in secrecy, making it vulnerable to manipulation. California attorney general’s office sues traders SK Energy and Vitol for allegedly manipulating the spot market after Exxon’s Torrance refinery went down in 2015. The companies are accused, among other things, of making exchanges in which no gasoline changed hands only to drive up the price of fuel.
This is possible because there is no public record of gasoline spot market transactions – only voluntary reports to the Oil Price Information Service, an oil industry information service. There is no obligation to disclose a transaction, its quantity or the identity of the buyer or seller. There is also no record of the number of trades made in a given day. The service only publishes a spot market price.
This means that a single trade can price 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 peak of last fall’s peaks, the spot price of gasoline did not change for two weeks. If that had happened with the Dow Jones, he wondered, wouldn’t anyone have noticed?
The California legislature, which is considering how to avoid future gasoline price spikes, is expected to make spot market transactions public. Federal regulators, meanwhile, already have the power to impose similar transparency on the natural gas market. Shedding some light on pricing could help Californians weather future winters.
Jamie Court is the president of the Los Angeles-based nonprofit Consumer Watchdog.