Why energy bills skyrocketed in the U.S. West

By Jason Plautz | 02/21/2023 06:44 AM EST

Governors and lawmakers railed recently against high winter heating and electric utility bills. Now, market forces are shifting.

PARK RIDGE, IL - SEPTEMBER 21:  A natural gas meter, with its service piping and valve, is shown outside a newly constructed residential home September 21, 2005 in Park Ridge, Illinois. Prices for natural gas this winter could skyrocket upwards of 70 percent, resulting from the inclement weather in the Gulf; most affected may be the Midwest according to economists and the Energy Department.

A natural gas meter. Tim Boyle/Getty Images

Politicians across the U.S. West are vowing to take action after high home heating and electricity bills left some consumers paying triple their normal amounts this winter.

Surging prices afforded politicians like Colorado Gov. Jared Polis (D) a chance to tout his state’s move away from natural gas, while California Gov. Gavin Newsom (D) called on federal regulators to investigate market manipulation.

State lawmakers have warned utilities that they could face more scrutiny if prices remain high, with the Colorado General Assembly even setting up a special joint committee to investigate utility rates.


Market analysts say utility prices are expected to come down soon — but not because of anything politicians did. Instead, high natural gas prices — compounded by storage constraints and pipeline troubles — are dropping from their winter peaks, removing the biggest cause of rising bills.

It’s a reflection of how the complex global natural gas market can end up hurting consumers’ pocketbooks and the limited tools local politicians have to deal with the situation, said Bernadette Johnson, vice president of strategic analytics for research firm Enverus.

“This was really the culmination of a lot of things that were on the path coming together and happening at once,” Johnson said. “Even though this is a huge, complicated market, I look at it and say everything makes perfect sense. But as a consumer looking at your bill, it’s expected that you’d have questions and be angry.”

While utility prices typically increase in the winter as homes turn up the heat, the bill bumps in December and last month were well outside the norm as natural gas prices leapt in the West.

The U.S. Energy Information Administration (EIA) reported that daily natural gas spot prices at three hubs in the West traded above $50 per million British thermal units on Dec. 21. The cost that day was $6.14 at the Henry Hub benchmark, the pricing point for gas futures on the New York Stock Exchange.

In a Jan. 25 presentation on utility bill affordability, Colorado Public Utilities Commission staff said the typical Xcel Energy Inc. customer paid 25 percent more for electricity and 75 percent more for gas in December than a year earlier.

The largest factor in the increase, the PUC staff said, was a 40 percent rise in the gas fuel rate combined with a 30 percent increase in gas usage because of an unusually cold December.

More increases came from Xcel’s higher base rates approved earlier in 2022 and the recovery of costs deferred from high gas prices during 2021’s Winter Storm Uri.

In an email this month, Xcel Colorado spokesperson Michelle Aguayo said the utility is “ready to partner with our regulators, our customers, our energy partners and our communities to find ways to deliver more affordable and predictable electric and natural gas bills in the short-term while staying focused on delivering the transition to the energy future.”

Xcel Colorado was approved for a natural gas cost adjustment that the company says is expected to reduce the average residential bill by 11.5 percent for gas and 2.3 percent for electricity.

“Even with the high cost of natural gas, we work to keep customer bills low by purchasing and storing natural gas when it’s less expensive,” Aguayo said. “This helps protect against possible wholesale natural gas price spikes by locking in lower prices. We also contract for natural gas in advance of winter to lock in prices.”

California pain

The price shock was especially prevalent in California, which typically has higher natural gas prices than the U.S. average because it has to import more than 90 percent of its gas supply.

A 2021 explosion in Arizona damaged a large pipeline network that supplies Los Angeles, limiting imports this winter, while pipeline repairs in West Texas further cut down on imports.

According to EIA, net natural gas imports from Canada were down 4 percent in the first three weeks of December compared to the second half of November, while gas deliveries from the Rocky Mountains were down 9 percent in that period.

Since a 2015 leak at the Aliso Canyon storage site outside of Los Angeles, regulators have limited storage there, meaning there was less gas for utilities to draw on when temperatures plunged.

The end result, according to a report by the California Independent System Operator, was a fivefold increase in electricity prices in December 2022 compared to December 2021. Wholesale electricity prices in the fourth quarter were double that of a year earlier and triple that of two years earlier.

Severin Borenstein, faculty director of the Energy Institute at Haas at the University of California, Berkeley, said the incident should prompt more thought from regulators about how to handle gas supplies and imports even as the grid transitions to renewable energy.

“We still need gas, we are still using gas, and even if we phase it out fairly quickly, we have to be responsible when we need it now,” Borenstein said. “As we’re seeing, a shortage of gas storage can be extremely costly and of course the burden of this is disproportionately borne by low-income households.”

As the weather warms and demand has dropped, experts suggest that gas prices will also come down from their highs.

In February, EIA lowered its U.S. natural gas price forecast because of warmer-than-average weather. It projects that the $3.40 per MMBtu average price at Henry Hub this year will be 47 percent lower than in 2022.

As of Feb. 15, EIA reported that Henry Hub prices were $2.44 per MMBtu after dropping 41 percent from December to January. Western hub prices have also come down from their peaks, although they remain higher. EIA reported a $7.68 price at SoCal Citygate in Southern California and $6.64 at Malin, Ore., both increases from the previous week.

But that doesn’t mean policymakers can expect the market to resolve everything, Borenstein said.

“There’s not much that can be done to relieve the pain now, but there are some lessons we could take away from this,” he said. “I’d hope to see an aggressive and realistic stand on how to deal with gas costs.”

Limited political options

Even a drop in prices by the next billing cycle isn’t enough to address the long tail of a single month where costs were double or triple their normal amount, said Denise Stepto, spokesperson for Energy Outreach Colorado.

The nonprofit organization works with consumers dealing with high energy costs by connecting them to state resources and helping to set up payment plans, which can provide aid in the short term but still leave households on the hook.

“It’s helpful to not have your power shut off, but then a big portion of your bill rides along to the next month and the next thing you know there’s another enormous bill coming up,” Stepto said.

Stepto added that the recent focus on high prices should signal to policymakers that more needs to be done to protect consumers from swings in international markets. “Something has to change and something has to change now,” she said.

However, the power of state governments is limited when it comes to utility costs.

In California, regulators were able to expedite delivery of an expected credit that consumers get from the state’s greenhouse gas cap-and-trade program.

Utah Gov. Spencer Cox (R) said in a statement this month that his administration had “met with the refinery and public utility providers to ensure they are doing all they can to actively seek out low-cost production and keep costs low.” But Cox did not announce any additional aid programs beyond the state’s existing energy assistance.

While there’s little that can be done to influence the global gas market, high prices do offer a bully pulpit.

California’s Newsom, who has challenged oil and gas companies over their profits, sent a letter to the Federal Energy Regulatory Commission seeking “immediate attention” as to whether gas companies had engaged in any anti-competitive practices to drive up prices this winter (Energywire, Feb. 7).

In a statement announcing the request, Newsom acknowledged that the state’s aid programs provide “only temporary relief from soaring bills” and said an investigation was needed “because Californians deserve to know what’s behind these exorbitant bills.”

In Nevada, members of the state Assembly Committee on Growth and Infrastructure used a hearing this month billed as an introductory session to question officials from utility NV Energy about higher bills, among other issues. State Assemblywoman Sarah Peters (D), who is on the committee, said ratepayers were being “kicked while we’re down” with high prices coming after a storm that resulted in more than 53,000 customers losing power.

Colorado State Senate President Steve Fenberg (D) announced last week a joint select committee to investigate utility rates and explore actions to prevent future increases.

“Democrats are committed to making Colorado a more affordable place to live, which is why we’re convening this critical committee so we can uncover the root cause behind high prices and hopefully find solutions that will better protect consumers, improve stability, and save people money on their energy bills,” Fenberg said in a statement.

That came more than a week after a news conference in which Polis — Colorado’s governor — asked the PUC to incentivize utilities to lower costs, expand aid programs and increase public engagement.

But he also used the platform to tout ways to shift away from gas, announcing an energy retrofit program for homeowners, calling for tougher building performance standards and incentivizing microgrid programs that could help customers reduce reliance on large utilities.

While Polis acknowledged that many of the measures wouldn’t do much to lower bills this year, he said they would help in the long term by moving away from the volatile gas market.

“Everyone wants lower energy bills including the Governor which is why he is leaving no stone unturned in his efforts to help save people money and we will continue to find ways to lower costs,” Polis spokesperson Conor Cahill said in emailed comments.

Cahill added that the governor “appreciates” the General Assembly’s committee announcement.

“We think this committee’s mission dovetails well with Governor Polis’s action plan to reduce the cost of utility bills for Coloradans,” Cahill said.

However, Polis’ comments prompted a rebuke from oil and gas companies.

In a news conference, Lynn Granger, executive director for the American Petroleum Institute Colorado, said the group was “disappointed” the governor’s recommendations did not include “working with the natural gas and oil industry to incentivize production to increase supply at the end of the day.”

Danny Katz, executive director of the consumer interest group CoPIRG, said the price spikes and the increased political pressure marked a “critical moment” in the public conversation around natural gas use.

“At this point, we know the price of gas is volatile and anything we do that locks us deeper into depending on gas as a fuel to heat our homes or power our buildings is not the right approach,” Katz said. “The biggest thing to me that Polis said was underscoring the need to reduce our dependence on this volatile fuel.”