Proposed Decision Lands in CPUC's Natural Gas Price Spike Investigation

Commissioner Karen Douglas issued a proposed decision in I.23-03-008 finding that the winter 2022–2023 natural gas price spike resulted from a convergence of adverse market conditions, not misconduct by regulated utilities or storage providers.

The PD concludes that sustained cold and high precipitation significantly increased gas demand, while interstate pipeline outages and maintenance (particularly on the El Paso system) restricted supply into California at critical moments. These constraints were compounded by reduced inflows from Western Canada, the Rockies, and the Permian Basin, low regional storage inventories, and bid-week pricing that captured peak spot prices during Winter Storm Elliott.

After reviewing extensive record evidence, the PD finds no improper or imprudent conduct by PG&E, SoCalGas, SDG&E, their core procurement departments, or independent storage providers. The PD emphasizes application of the Prudent Manager Standard, rejecting hindsight-based critiques of procurement, contracting, or storage decisions. It also finds no evidence of prohibited affiliate transactions, intentional withholding of supply, or manipulation of storage withdrawals.

Rather than attempting to regulate gas commodity prices, the PD adopts a bill-shock mitigation and transparency framework for future events. It defines a “gas price spike event” as a 150% increase in the monthly core procurement charge relative to the 10-year monthly average, which would trigger a temporary cap on core procurement charges and amortization of any resulting undercollection. Under this framework, utilities would also be required to provide earlier, clearer customer notifications and information about assistance options.

The PD further orders reforms to PG&E’s Core Procurement Incentive Mechanism and SoCalGas’s Gas Cost Incentive Mechanism. Any shareholder rewards would require approval through an application rather than an advice letter, and utilities must document procurement performance and risk management more clearly. In addition, the PD directs utilities to incorporate the specific constraints observed in 2022–2023 into future procurement and hedging strategies, to expand public reporting of storage inventories, and to improve transparency for both core and noncore customers.

Comments are due February 12. The earliest the CPUC will consider this item is February 26.

INSTANT ANALYSIS

The PD treats the 2022–2023 gas price spike as a system-level stress event rather than a failure of utility conduct, concluding that extreme weather, pipeline outages, reduced regional inflows, low storage inventories, and bid-week timing combined to overwhelm California’s gas supply chain. Applying the Prudent Manager Standard, the PD clears PG&E, SoCalGas, SDG&E, their core procurement departments, and independent storage providers of wrongdoing, rejecting hindsight critiques of contracting, storage use, or affiliate activity.

Rather than pursuing commodity price intervention, the PD pivots toward future bill-shock mitigation by defining a “gas price spike event” as a 150% increase relative to the ten-year monthly average, triggering a temporary cap on core procurement charges, amortization of undercollections, and enhanced customer notice requirements. The PD also tightens oversight of procurement incentive mechanisms by requiring formal applications for any shareholder rewards and expands transparency through standardized monthly storage inventory reporting.