Gas company official argues LNG storage facility necessary for reliability

In February 2011, about 28,000 customers statewide lost access to natural gas. That was the last time NM Gas Co. had to cut off service to customers due to lack of adequate supplies.  Now the utility is seeking to build a liquified natural gas storage facility in Rio Rancho near Albuquerque that utility officials say […]

Gas company official argues LNG storage facility necessary for reliability

In February 2011, about 28,000 customers statewide lost access to natural gas. That was the last time NM Gas Co. had to cut off service to customers due to lack of adequate supplies. 

Now the utility is seeking to build a liquified natural gas storage facility in Rio Rancho near Albuquerque that utility officials say would help prevent another event like what happened in 2011. That facility would cost an estimated $180.9 million.

The New Mexico Public Regulation Commission kicked off a week-long hearing regarding an application by NM Gas Co. for the controversial storage facility.

The gas company says the facility will help provide more affordable and reliable service, especially in winter months. But opponents say it will put nearby schools and houses at risk.

Additionally, opponents allege that the gas company wants the facility as a way of making money off of customers.

The 2011 event where thousands of New Mexicans primarily in the Española, Questa, Taos and Red River areas were left without heat during the dead of winter was a central part of the hearing. 

“That morning we saw loads spike and we weren’t getting gas early that morning. And that’s when we saw the pressures drop on our transmission system,” Tom Bullard, vice president of engineering, gas management and technical services at New Mexico Gas Company, said about the 2011 event.

As the pressures dropped, the utility had to make a tough decision: risk losing pressure in other parts of the system or cut off customers. It chose to cut off service to customers. 

It took an entire week to restore service to all customers.

Having a LNG storage facility in New Mexico would “greatly reduce the risk” of not having enough gas to meet customer demands, Bullard said. He said that if the proposed LNG storage facility had been in existence, NM Gas Co. would not have had to curtail customers because they would have had access to gas.

Bullard said there were various factors that led to the inadequate supplies in 2011.

NM Gas Co. contracts with Kinder Morgan to store liquified natural gas at its Keystone facilities in Texas. It must then move gas through a series of interstate pipelines before it reaches NM Gas Co.’s system. 

Problems can arise anywhere in that process that have cascading effects down the line. Supply challenges can also exist if cold weather leads to increased demand.

Bullard said NM Gas Co. is further concerned about recent “force majeure” events both at the Keystone facility and on interstate pipelines. When a force majeure, which occurs when something unavoidable reduces availability of gas, is declared, the company that declares the force majeure does not have to meet contractual obligations in terms of how much gas must be provided to NM Gas Co. A force majeure requires unforeseeable and unavoidable conditions that limit the ability to fulfill contractual obligations.

A force majeure is not the only time when Keystone is unable to provide NM Gas Co. with its full share of stored gas. Bullard said Keystone frequently tells NM Gas Co. that it can only ask for a certain amount of gas. When that happens, NM Gas Co. makes requests based on the amount that Keystone has informed the company that it has available.

While NM Gas Co. has not had to cut off customers due to inadequate supplies since 2011, it has seen several force majeure events at both the Keystone facility and interstate pipelines that it relies upon.

Most recently, Bullard said there was a force majeure event lasting over the recent Thanksgiving holiday weekends.

That occurred due to an equipment failure that limited Kinder Morgan’s ability to inject liquified natural gas into the salt cavern storage, according to company reports.

Bullard said that if there are cuts at either the storage facility or the interstate pipelines, it could leave NM Gas Co. in the situation where it can’t provide enough gas to customers. That could occur because of the increasing risk of extreme weather or even cold conditions leading to increased demand for gas.

Hearing Examiner Anthony Medeiros requested additional information about Keystone force majeure events. 

Winter storms can also lead to spikes in gas prices that are then passed on to customers, as was seen during the winter storm of 2021.

“Having something like this, a storage facility, on our system, would help mitigate those impacts to customers,” Bullard said.

New Energy Economy argues increased revenue is the main reason

But Mariel Nanasi, executive director of the advocacy group New Energy Economy, argues that reliability is not the real reason why the company is seeking an LNG storage facility in New Mexico.

Nanasi claims that documents she has obtained from NM Gas Co. indicate that it is seeking a revenue stream through leasing of seasonal storage as well as providing backup fuel for power generation as well as for national laboratories and defense sites.

The documents also highlight the location and emerging LNG transportation markets as a way to leverage the investment into the facility to “pursue future growth and obtain new revenue.”

When questioned about this during the hearing on Monday, Bullard said those are potential opportunities in the future and NM Gas Co. does not know if they exist or if it would even pursue those options.

Should they pursue options like those listed in the documents, Bullard said any revenue made that way would offset costs to customers.

Medeiros asked if the facility could be expanded and Bullard said that it could and there is limited room for additional tanks, but room for expansion of liquefaction and vaporization.

Nanasi obtained these financial forecasting documents through the discovery process in the PRC case.

These documents also state that the LNG facility will increase reliability and state that there are several reasons that NM Gas Co. wants the facility, including avoiding force majeure events at the Keystone facility.

New Energy Economy argues that customers could be forced to pay the $180 million to construct the facility through rates and that “dwarfs the projected $44M that could be saved in a hypothetical (winter) storm.”

NEE attorney Christopher Dodd questioned Bullard on Monday about the company’s lack of experience operating a LNG storage facility.

“So you don’t have any experience with down time, do you?” Dodd asked.

Bullard confirmed that the company does not

“If something went wrong with the LNG facility, it could go offline, right?” Dodd then asked.

Bullard initially confirmed that, but then clarified to state that the facility could go offline in the sense that it would not be able to liquify natural gas, but he said that it could continue vaporizing it.

“I couldn’t imagine a scenario where you would not be able to vaporize and deliver gas,” Bullard said. That is because there are three systems in place to vaporize the gas.

Dodd then pointed out that there is only a single tank. “Should there be a fault with the tank, the LNG facility could potentially go completely offline,” he said.

Bullard confirmed that.

“If that happened, the outcome for the gas company would be far more severe than the partial curtailments caused during the force majeure at the Keystone facility right?” Dodd asked.

Bullard disagreed with that assessment, but acknowledged that when Keystone has had force majeure events, NM Gas Co. has still been able to withdraw some of the stored gas even if it was not the full amount.

Dodd also questioned Bullard about the utility’s revenue streams.

The utility does not profit from the sale of natural gas. Instead, the company charges customers for the cost it pays to acquire the gas.

To make money, the utility invests money on infrastructure and receives a return on equity for that.

Dodd questioned if it is in the utility’s parent company’s best interest to make capital expenditures as high as possible.

Bullard disagreed with that statement and said that would put them out of business. He said there are a lot of pieces to the calculation and that higher capital expenditures do not necessarily mean a higher return on equity.

The PRC also sets a level for return on equity. NM Gas Co. currently has a rate case pending before the PRC in which it has requested a 10.5 percent return on equity. The rate case could result in an 11 percent increase in utility bills.

The costs of storing gas at Keystone are passed through to customers without a profit for the utility. The LNG storage facility would be a capital expenditure that would allow for return on equity.

“The LNG facility is a good opportunity for the gas company to make money,” Dodd said in questioning Bullard.

Bullard said the decision to invest in LNG “has nothing to do with long-term forecasts, with earnings.”

He said that the decisions on where to spend money are made based on assessments of what the customers need.

Resolutions and petitions protest proposed facility

New Energy Economy participated in a rally last week to oppose the proposed facility. During the rally, nearby residents and customers delivered a petition to the company asking for it to withdraw its application. Nearly 700 people signed the petition, which outlines risks related to liquified natural gas storage facilities as well as the impact of continued fossil fuel use on climate change.

The Bernalillo County Commission has also passed a resolution to oppose the facility. This resolution states that the proposed facility is within ten miles of 51 public schools, residential neighborhoods and a housing shelter.

The resolution also highlights that the gas company has made significant improvements to its system since the 2011 storm and that a winter storm in 2021 did not result in customers being cut off or service being disrupted.

The commission also pointed out that the future of natural gas is uncertain as the state is working to move away from fossil fuels.

The West Side Coalition of Neighborhood Associations, which represents neighborhoods in Albuquerque, also opposes the facility. In its resolution, the coalition states that the risks of the facility outweigh the benefits. Those risks, listed in the resolution, include leaking gas igniting and hydrocarbons like ethane and propane along production lines increasing risk of explosion. These fires would be more challenging to control and would require emergency responders to undergo special training and acquire new equipment, the resolution states. 

Furthermore, the resolution alleges that increased traffic of liquified natural gas tanker trucks will place drivers and communities at risk.

The resolution also says that associated emissions such as venting will impact air quality and exacerbate existing pollution problems.

Several state legislators have also signed a letter opposing the facility.

Officials with NM Gas Co. say that the utility has a letter of support from the City of Rio Rancho and has met with tribes, including the All Pueblo Council of Governors, as well as Petroglyph National Monument.

Next steps

Following the hearing, the various intervenors such as New Energy Economy and the utility will have a chance to file post-hearing briefs.

Medeiros will then produce a recommended decision and the parties involved in the case will have the chance to respond to that recommended decision.

Afterward, the commission will issue a final order either granting or denying the request for an LNG storage facility. 

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