San Diego Gas & Electric residential customers are paying slightly less for natural gas than they were at this time last year.
The commodity cost for natural gas dropped to 26 cents a therm last month from 33 cents in February 2015. (A therm equals 100,000 British thermal units and is roughly the equivalent of burning 100 cubic feet of natural gas.)
SDG&E’s transportation cost — expenses from pipes, regulators and equipment needed to deliver the gas — went up from 87 cents a therm to almost 91 cents, according to figures SDG&E provided to the Union-Tribune.
But since the dip in commodity price was larger than the transportation cost increase, the net effect was a drop in the total baseline charge from $1.21 to $1.18.
The baseline rate is a calculation set by the California Public Utilities Commission’s estimate for what the basic cost should be for customers to heat their homes.
If a ratepayer goes over the baseline rate, the more expensive, non-baseline rate goes into effect, in order to encourage energy conservation.
SDG&E’s total non-baseline charge dropped to $1.35 last month from $1.39 a year ago.
“It’s a happy accident for SDG&E ratepayers, because the cost to procure the gas is down but the transmission charge is up a little,” said Mindy Spatt, communications director at The Utility Reform Network (TURN), a consumer advocacy group.
The commodity component to a ratepayer’s bill essentially boils down to the price that the company paid to buy the natural gas. A spokesman for SDG&E said the commodity charge represents a simple pass-through the company does not take a mark-up on.
Natural gas prices have been plummeting, recently hitting 14-year lows across the country. In June 2008 the Henry Hub spot price for natural gas was $12.69. In February 2015 it was $2.87. Last month, it was $1.99.
But those price declines don’t automatically translate into a drop in transportation costs. A lot depends on how much revenue is collected from natural gas.
“Last winter was one of the warmest on record in San Diego and customers used a lot less gas than we expected in the early winter months,” said Hanan Eisenman, SDG&E communications manager.
Eisenman said the utility makes a forecast on how much revenue it will collect. If the prediction is off and less revenue is collected, the transportation cost goes up.
On the other hand, if more revenue is collected than anticipated then the transportation rate will go down.
“When that happens, we ‘true-up’ the numbers the following year, which is what’s happening now,” Eisenman said. “That’s why the transportation rate is slightly higher now.”
TURN’s Spatt said SDG&E’s primary job “is to deliver the gas at the lowest possible price. It’s unfortunate if their flawed forecast caused the rate to go up.”
Across the country, natural gas prices have dropped for two reasons: Explosive production numbers due largely to hydraulic fracturing and horizontal drilling, and relatively mild winter temperatures in large swaths of the U.S. in recent years.
Most natural gas analysts anticipate prices to stay remain low for the rest of this year, and possibly beyond.
“We’re not expecting prices to improve much unless we have more extreme summer weather,” said Brian Youngberg, senior energy analyst for St. Louis-based Edward Jones. “Unless we see that, it’s hard to see natural gas prices moving much from where they are now.”
SDG&E is a regulated public utility with 3.4 million customers through 1.4 million electric meters and 868,000 natural gas meters in San Diego and southern Orange County, covering 4,100 square miles.