NM Gas Co. says a planned Rio Rancho storage facility could help stabilize costs in extreme weather. Critics say it's not worth it.

Aug. 7—Nearly 18 months after Winter Storm Uri pounded the U.S. in February 2021, New Mexico consumers are still paying for its costly impact on the state.

Unlike Texas — which suffered statewide blackouts and hundreds of fatalities as home heating shut down — New Mexicans never lost power or warmth during Uri's deep freeze.

But the Arctic chill briefly drove natural gas prices to unprecedented levels during the storm, forcing the New Mexico Gas Co. to shell out $107 million to pay for extra, extremely expensive gas purchases on wholesale markets as consumer demand for fuel spiked during a week of frigid temperatures. That's the equivalent of what the company spends annually on gas supplies in a normal year without extreme weather events.

To buffer the impact on customer bills, the state Public Regulation Commission authorized the company to recover those fuel costs from ratepayers over a 30-month period that began in July 2021, assessing reduced monthly charges on bills that started last summer and will continue through next December.

And, to help safeguard consumers from similar weather events in the future, the PRC also asked New Mexico Gas to explore alternative fuel storage options to give the utility more control over its gas supplies and potentially lower the costs for such weather-related emergencies going forward.

In response, the company filed for PRC approval in December to build a new, $180 million liquid natural gas, or LNG, storage facility in Rio Rancho on a 160-acre property just north of Double Eagle II Airport.

The company currently has no storage facility of its own, relying instead on another company that manages underground salt caverns in West Texas where NM Gas stocks up excess fuel for withdrawal as needed in cold winter months.

But by building its own LNG storage facility, NM Gas says it can provide more gas-supply reliability for its customers, while also buffering price spikes caused by extreme weather events like the 2021 Arctic chill. The company would use the facility to stock up with cheap natural gas in summer months and then draw on those supplies as needed in winter when prices are much higher, said Vice President for External Affairs Gerald Weseen.

"It could help cover demand during really cold days when prices are high," Weseen recently told the Journal's editorial board. "We could buy gas at, say, $2 per 1,000 cubic feet in summer to fill the tanks, and then, on cold winter days when gas supplies are tight and prices climb to like $6 to $12 (per 1,000 cubic feet), we can draw down on the $2 gas we stocked up. The idea is to make the facility a 'peak shaving' plant for when the weather spikes in winter."

The proposal, however, has ignited significant debate at the PRC among intervenors in the case, some of whom question whether the $180 million construction price tag, plus the ongoing operational costs associated with the plant once built, will actually generate significant savings for consumers, who will pay for the facility over time on their monthly bills.

One environmental organization, Santa Fe-based New Energy Economy, also questions how safe an LNG plant will be for the surrounding community, given accidents that have happened at other LNG facilities in the U.S. and other countries.

"We don't believe the proposed plant is worth the cost or the risks," NEE Executive Director Mariel Nanasi told the Journal. "The physical danger of leaking gas — which forms a low-lying vapor cloud that drifts until it hits something that ignites it — can cause a fiery inferno."

NM Gas says having its own facility located right outside Albuquerque will eliminate many problems it faced during Winter Storm Uri, when it lost access to some of its stored gas at the "Keystone" salt cavern in West Texas that pipeline and fuel-terminal operator Kinder Morgan manages.

During the Arctic chill, Kinder Morgan cut off full gas withdrawals from the caverns because of problems caused by the storm, said Tom Bullard, NM Gas vice president for gas management and technical services.

"Through 'force majeure,' we only got some of the gas we have under contract there," Bullard told the Journal editorial board. "The contract manager has declared 'force majeure' numerous times in winter months."

That obligated NM Gas to buy more expensive fuel on the wholesale market during Uri.

In addition, even when storage withdrawals are operating normally at Keystone, NM Gas can only access up to a maximum of 190 million cubic feet of gas on any single day, Bullard said. Even then, the facility operator requires a minimum four-hour advance warning, and, normally, 24-hour prior notice to withdraw gas.

In contrast, by having its own LNG storage facility near Albuquerque, NM Gas would have direct access, allowing the utility to immediately withdraw fuel as needed for distribution to local customers within an hour, according to the company.

An in-house storage facility would also eliminate operational costs associated with Keystone, including charges for storing gas there, charges to withdraw it, and then charges to transport the withdrawn fuel on interstate pipelines to Albuquerque.

Aside from costs, pipeline transport from Texas to Albuquerque can also cause problems. During a severe winter storm in 2011, for example, Kinder Morgan didn't declare force majeure on Keystone withdrawals. But pipeline problems impeded NM Gas from moving the fuel to its facilities in New Mexico, Bullard said.

The majority of the company's roughly 540,000 residential and commercial customers are located in Albuquerque, making rapid access to a local, company-owned storage facility a significant asset.

"Cold winter days are when customers count on us the most, and that's what this facility is designed to address," Weseen said.

Savings and safety debateDespite the $180 million price, NM Gas says the storage facility will save customers money over time.

If approved by the PRC, the company could break ground on the project in spring 2024 and bring it online in 2026. After that, it would request PRC approval for cost recovery from ratepayers to start in 2027. That could add about $3 per month to customer bills.

The company would wait two or three years after plant startup before ending its contract with Keystone to first ensure operational stability. But once it withdraws from Keystone, the company's third-party storage costs would be eliminated, offsetting customer costs for the new plant by 50%, in effect cutting in half the $3 per month additional charge on customer bills to $1.50 a month, Weseen said.

Based on an analysis of gas prices over the past five years, the company estimates consumers would have saved between $2 million and $3 million per year if the LNG storage facility were up and operating by stocking up on cheap summer gas to offset expensive winter gas. And that's excluding the hefty additional costs for Winter Storm Uri, which would have been cut by about $30 million had the LNG facility been operating, Weseen said.

Still, some parties intervening in the case at the PRC say those estimated savings are inflated. That's because, even with the LNG storage, NM Gas would still need to buy a lot of expensive gas on wholesale markets during cold winter days, said Aaron Gould, clean energy senior policy analyst for Western Resource Advocates.

For one thing, the new LNG facility will only store up to 1 billion cubic feet of gas, or bcf, for an entire winter, significantly less than the 2.6 bcf it stores at Keystone. And with average daily winter consumption by customers estimated at about 200 million cubic feet per day even without severe weather, the 1 billion bcf storage capacity doesn't add up to much, Gould said.

"The company will still end up buying most of its gas on the wholesale market during winter," Gould told the Journal. "...During Winter Storm Uri, the bulk of the $107 million in extra gas purchases by the company wouldn't have been mitigated much by the proposed LNG facility. I'm not saying the storage facility wouldn't help with price spikes, but only for a small amount of gas, so the price offset is limited."

And, as for supply reliability, NM Gas didn't have to curtail customer consumption during Uri, because even with the cutoff from storage withdrawals at Keystone, the company still supplied its customers with gas from the open market, Gould said.

"The real question is, is the limited benefits from the LNG storage facility really worth the $180 million spent to build it?" Gould said.

New Energy Economy also questions the savings and reliability benefits, which it says NM Gas could achieve through other means, such as diversifying third-party storage contracts beyond Keystone and investing in things like energy efficiency to reduce consumer demand for gas. In addition, as the state and country continue to transition from fossil fuels to renewables — including electrifying heating systems and home appliances and installing rooftop solar systems — NM Gas should not be "doubling down" on investments in gas infrastructure that down the road could become a superfluous, "stranded asset," according to NEE.

The group is also concerned about potential, catastrophic events, such as explosions and massive fires that have engulfed some LNG facilities on the Gulf Coast and other places over the past decade. In fact, NEE held a community forum in July to discuss those concerns, asking local residents to speak out against the project during upcoming public comment at the PRC, scheduled for October.

NM Gas says recent accidents along the Gulf Coast happened at LNG import-export terminals, and at a facility that used LNG to power up an electric generating system, which are very different and much more complex facilities than an LNG storage plant. A major accident did occur at one storage facility in Washington state in 2014, but there are some 100 LNG storage plants currently operating safely in two dozen states.

"Our design engineers looked at all other plants to incorporate design safety into the facility," Bullard said. "It will be a state-of-the-art plant from an operational standpoint."

PRC hearings this fallNEE is so far the only party directly opposing the project at the PRC, which will hold public hearings on the NM Gas proposal in October.

Apart from Western Resource Advocates, which has not yet taken a firm stance on the project, other case intervenors include the Attorney General, the Coalition for Clean Affordable Energy, and the PRC's utility staff division. Some of those parties are currently in negotiations to reach a settlement, or "stipulation," with NM Gas that could diminish opposition to the company's proposal when hearings begin in October.

The three-member commission is expected to rule on the issue either late this year, or in early 2024.