Doubling and in some cases quadruple of Southern Californians’ natural gas bills in recent months have been driven by rapid price increases in what’s known as the spot market, a real-time wholesale market for the fuel. The lack of transparency in California’s gasoline spot market played a similarly large role in the pumping California drivers who came to the pump last year.
The secrecy of transactions in these two markets keeps the public in the dark about who is turning their pain into fortune. Transparency will not only reveal beneficiaries, but may discourage future engravings.
Southern California Gas Co., the gas monopoly in Southern California, usually discharges its stored gas in winter rather than buying them in the colder months when they are most expensive. This year, however, instead of tapping into its reserves, the utility decided to buy massive amounts of gas on the spot market — where someone was making a fortune off natural gas prices 10 times higher than normal.
The public does not know who reaped 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 at a spike in the spot market drive up the price and help an affiliate? commit murder?
Unfortunately, this remains unclear because spot market transactions in natural gas are protected from public scrutiny. In contrast, similar power deals arose after Enron dealers used deregulation to invade California. Now all electricity trading takes place on the spot market publishedwhich discourages such misconduct.
The Federal Energy Regulatory Commission (FERC) has the authority to disclose natural gas spot market transactions, but has never done so. That is what the non-profit organization Public Citizen did made an application the agency to change it. Southern Californians, who just paid the highest natural gas bills in America, deserve to know who got their hard-earned money.
Natural gas isn’t the only fuel that Californians have paid dramatically more for in recent months. At one point in October, gasoline prices in California rose to $2.60 per gallon, more than the US average. The huge gap has brought historic profits to oil refiners double their profit per litre in the West last year according to their own public reports to investors. Gasoline prices that have climbed above $6 a gallon have caused untold pain for low-income families, some of whom have had to choose between filling their gas tank or putting food on the table.
How can oil refiners charge California so much more at the pump when their production costs, as evidenced by their profits, don’t justify it? California oil refiners determine the price they charge gas station owners for gasoline based not on their cost but on the price of California gasoline on the spot market – a market controlled by the five oil refineries that supply 98% of the gasoline we produce, together with a small dealer group.
Like the comparable natural gas market, California’s gasoline spot market is shrouded in secrecy, making it vulnerable to manipulation. California Attorney General’s Office Sues Traders SK Energy and Vitol Over Alleged Spot Market Manipulation After Exxon’s Torrance Refinery sunk in 2015. The companies are accused, among other things, of making deals where no gasoline changed hands, just to drive up the price of fuel.
This is possible because there is no public ledger in the gasoline spot market, only voluntary reporting to the Oil Price Information Service, an oil industry news service. Nothing requires disclosure of any transaction, the amount or the identity of the buyer or seller. There is also no record of how many trades take place on any given day. The service only publishes a spot market price.
This means that a single transaction can determine the price of all retail gasoline in the state for days or weeks. If the spot price is high, there is no reason to report a trade. Robert McCullough, an economist who has studied energy markets for decades, testifies recently told a state Senate committee that the spot price of gasoline had not changed in two weeks at the height of last fall’s spikes. If that had happened to the Dow, he wondered, wouldn’t anyone have noticed?
California lawmakers seeking to avoid future gas price increases must disclose spot market transactions. Federal regulators already have the authority to enforce similar transparency in the natural gas market. Shedding some sunlight on prices will help Californians weather future winters.
Jamie Court is the president of the Los Angeles-based nonprofit Consumer Watchdog.
Source: LA Times
Roger Stone is an author and opinion journalist who writes for 24 News Globe. He is known for his controversial and thought-provoking views on a variety of topics, and has a talent for engaging readers with his writing.
