Insurance Technology Industry News

TMCNet:  Gas Co. acted 'prudently' in 2011 freeze

[December 31, 2012]

Gas Co. acted 'prudently' in 2011 freeze

Dec 31, 2012 (Albuquerque Journal - McClatchy-Tribune Information Services via COMTEX) -- Given the urgency and options at hand, New Mexico Gas Co.'s decision to cut off service to thousands of customers during the February 2011 deep freeze likely prevented a far worse crisis.

That's among the conclusions in an order adopted this month by the Public Regulation Commission, which acknowledges the company was dealing with situations outside its control and found it generally responded "reasonably and prudently." "There was no evidence that once they got hit with the shortage of gas on the interstate lines, they had any alternative other than what they did," Commissioner Jason Marks told the Journal, conceding he was skeptical at the beginning of the investigation. "The final report confirms the gas company did not do anything wrong, they did behave appropriately under the circumstances.

"We did find that they fell short on communications," he added. "... Local officials were having a lot more difficulty than they should have getting accurate information." The PRC in November tightened the rules governing utilities' emergency preparedness, including requiring them to have plans for communicating with customers, government agencies and others during emergencies.

Improved communications NMGC officials say they already have a vastly improved communications plan in place and have taken a number of other steps called for by the commission to address future emergencies. They were pleased with the findings in the PRC's final order.

"They are consistent with the evidence that was presented at the hearing back in May of 2011 and they are favorable to the actions and conduct of the gas company and its employees during the outage," General Counsel and Vice President Thomas Domme said.

The company isn't out of the woods legally. It still faces two class-action lawsuits seeking damages related to the ordeal, as well as a subrogation case brought by Allstate and other insurance companies to recoup expenses for claims they paid out, Domme said.

"We are defending those at the present," he said.

The PRC ordered the investigation shortly in the wake of the company's decision Feb. 3, 2011, to shut off gas to 28,707 customers in the Taos, Espanola, Bernalillo and Placitas areas and in parts of southern New Mexico during the state's coldest spell in 40 years. NMGC maintained the actions averted what could have been a complete system failure.

There were no reported deaths or serious injuries attributed to the outage, but service for some customers wasn't restored until Feb. 8.

Chain of events The PRC determined system emergencies on the northern and southern segments of the NMGC system were caused by upstream producers' inability to supply and deliver gas due to the severe weather, freeze-offs of wells, rolling electrical blackouts in Texas and high demand for gas.

It said the company properly planned for the storm, scheduling more than enough gas supplies, but "could not have anticipated" pressure drops on an interstate pipeline serving the southern segment and failure of two scheduled gas deliveries to the northern segment on Feb. 2 and Feb. 3.

That, combined with the high demand, caused supplydemand imbalances in the system and the need for NMGC to declare system emergencies, it said.

In line with the state's curtailment rule, NMGC first sought voluntary reductions in gas use by large users and customers on Feb. 2, followed by calls for voluntary reductions by all customers. Involuntary curtailments of service for large users began Feb. 3, with NMGC subsequently deciding to shut off service to parts of Alamogordo and Silver City on the system's southern segment, and to the area served by the Taos mainline and to Bernalillo and Placitas area customers on the northern segment.

Without those actions, "uncontrolled outages would have occurred that would have threatened the public health and safety as well as continued gas utility service to the remaining segments of the NMGC," the PRC said.

Slow restarts The commission said that given the nature of the geographic areas and number of communities involved, along with technical issues, NMGC was able to get customers back on line in a timely manner.

Marks said he believes the company was overly optimistic about the length of time it would take to restore service, which ultimately involved hundreds of NMGC workers, technicians from other states and National Guard personnel and others who received training to assist.

He said it would have been useful to have more facts about how upstream events of that week -- such as the electric outages in Texas and southern New Mexico and compressor station issues -- contributed to the problems.

"People were presenting speculation as fact about what happened upstream and we really don't know other than the freeze-offs," Marks said.

"When we did the evidentiary hearing, the gas company really didn't know other than 'we ordered it (gas), it didn't come,'" he said. "They speculated why it didn't come and the pipeline people never did say." In an August 2011 report, the Federal Energy Regulatory Commission, which does have pipeline jurisdiction, attributed the regional electrical blackouts and gas outages to mostly weather-related causes. Marks said FERC is taking steps to ensure greater upstream reliability, such as requiring pipe insulation and better lines of communication between gas and electric systems.

Contingency planning NMGC has done a number of things to handle future emergencies, including contracting for more underground storage in Texas and installing isolation valves in the Albuquerque metro area to be able to more quickly respond to supply disruptions, Domme said.

In hearings last year, officials testified that shutting off gas in places such as Rio Rancho would have been more than enough to stabilize the system, but would have taken hours. The Taos mainline, on the other hand, could be shut down easily and quickly.

The company also has applied to the PRC build a $38 million storage facility on the West Side to increase the system's reliability. The PRC will have to balance the benefit and the cost, which would be passed on to ratepayers.

___ (c)2012 the Albuquerque Journal (Albuquerque, N.M.) Visit the Albuquerque Journal (Albuquerque, N.M.) at Distributed by MCT Information Services

[ Back To Insurance Technology's Homepage ]