Monday, February 07, 2011

Energy Industry Now Playing Defense; How Gas Crunch Could Change Political Game, Plus: Our Readers--Expert And Nonexpert--Weigh In On the Big Story 

It's the unexpected that can change the direction of public policy as fast as a flip of a coin and that makes political sport as fascinating to watch as Super Bowl Sunday.

So it is in New Mexico this week as all of a sudden we see an energy industry that has gone from being on top of the political world with a new and sympathetic governor to one that is going to be playing defense in the wake of a natural gas and electric outage that forced thousands out of their homes or into a triple layer of long johns.

Never mind that the outages came amid bitterly cold temperatures that we see once in a generation, if ever. The finger-pointing and blame game will be in high gear.

And there's nothing wrong with that. We make things better in New Mexico and America by questioning our performance, even if it is put to the test under extraordinary circumstances.

Although the problems were centered with the utilities delivering the energy, we don't hesitate for a moment in saying that the fallout is going to cover all aspects of the industry. That's because the push for deregulation of all sorts is now going to have its own energy shortage.

For the better part of a year and a half oil and gas interests have dominated the energy debate, decrying the environmental "Pit Rule," becoming the #1 industry contributor to Republican Governor Susana Martinez and fighting any efforts to repeal tax breaks that total over $130 million as the state and its budget struggle through an unrelenting recession.

The energy crisis for the energy companies comes in the middle of an industry media campaign touting the number of jobs and the amount of tax revenue it pays to the state. Mr. and Mrs. New Mexico are happy for that, but not before they have turned up the heat in their humble abodes and had their first cup of hot morning coffee.

That the industry is mighty important to New Mexico and deserves a place at the public policy table is not in dispute. The state needs oil and gas revenue like never before and for 80 years the industry has been a good neighbor. But rarely does a blatant political tilt toward (or against) one industry last long. But who would have thought it would be the weather that would make the playing table more even?


The new chairman of the state House energy committee, Brian Egolf (D-Santa Fe), an aggressive questioner of the industry, wasted no time. He set an oversight hearing on the shortage for 8 a.m. today. Last week Republicans walked out of that committee claiming Egolf had called a biased and unqualified witness against oil and gas.

There will be no walking out in Santa Fe today. New Mexicans want answers--from both Republicans and Democrats. Let's see if the committee gets the right questions asked, or will it all be dismissed as a fluke of nature?

A bunch of other hearings and inquiries can be expected over the events of the memorable and frigid days the state endured. The Public Regulation Commission will hold hearings. Governor Martinez promises an investigation, and she's going to have to be careful as her campaign donation list will be made an issue if she tilts too much. (Oil and gas contributed $807,000 of her $6.9 million in campaign contributions). She may try to use the shortage to recite the "drill, baby, drill!" mantra, but in light of the recent traumatic events, don't count on that resonating.

And then there's the question that arises again in the aftermath of the deep freeze--how close are the regulators to the regulated?

Northern Dem Congressman Ben Ray Lujan comes first with the federal angle, asking the Federal Energy Regulatory Commission (FERC) to take a look. His district, including Taos, Questa, Espanola and Raton, were especially hard hit by the shortage.

As we mentioned above, while the oil industry was not directly involved in this weather-energy drama, the smart money says the outages will make the public more skeptical toward the overall energy deregulation agenda. In other words, don't expect that "pit rule" to go away anytime soon.

In fact, a bet that way is as safe as the one you made on Green Bay beating Pittsburgh.


Our reader email revealed how quickly the mood can go sour when citizens start shivering and go unshowered. We weren't very critical of Governor Martinez's initial handling of what we called her first "mini-crisis." But that was hardly a view shared by all. We still think Susana gets a passing grade, but never mind us. Jean Reid of Placitas fires first:

Joe, you wrote Friday: "...Martinez did impart a basic confidence that probably left most citizens satisfied, even as they hunted for their long lost thermal underwear."

Excuse me? To make such a statement I assume you have taken a shower sometime in the last three days. Most of us in Santa Ana, Bernalillo and Placitas have not. As of 10 AM Sat. 9 percent of service to Santa Ana and Bernalillo and 11% to Placitas has been restored. Three days!

The Governor's "emergency declaration" stated that propane truck drivers could work longer hours - what do propane deliveries have to do with natural gas service? We should turn down our thermostats? Thanks, but NM Gas is doing that for us. No platitudes about how concerned she is, how she is working frantically to solve this problem...

Your third-worldish and Texas comments were were spot-on. But the questions that many of us in Placitas have (and can't find quick answers to) include why doesn't NM have its own gas supply, why doesn't NM (and apparently TX) have back-up systems to prevent this, and who is going to pay for this: the reverse 911 calls, all the techs coming from other states, etc. Somehow I doubt that we are going to get an apology and a rebate from the gas company for the inconvenience.


But another reader writes and says the folks in Placitas should look in the mirror:

I don’t have much sympathy for some of these folks. For years they have tried to block new natural gas pipelines--especially the residents of Placitas. Several years ago when Enterprise was putting in a new gas pipeline from Hobbs to Wyoming, 1400 miles of construction in existing right of way--right of way that existed before homes were built--the only community that provided negative information in the Environmental Assessment was Placitas.
We have reached capacity, there have been no new power stations or major improvements in many, many years. You sow what you reap.


Taos was one of the hardest hit towns because it is at the end of the natural gas pipeline. Governor Martinez visited there Friday, but she did not get much sympathy from Dem activist and local lawyer Helen Laura Lopez. She also thought our initial analysis of the Guv's performance was off the mark:

Ace Hardware In Taos did more than the Governor and acted faster. They brought in 1200 space heaters from Colorado Springs Thursday night and stayed open til 11.

Joe, you didn't get cold enough to give the Governor's weak "too late to the party" performance a more critical eye. Big Bill was good at emergencies. He would have been outside in his winter gear checking on people as an example for others, after he sent the National Guard to the rural communities with water and blankets. (No one reported that when the electricity goes out, community water goes out too.) Up here it was not a mini-crisis. It's the real deal.

Gov. Martinez did on Saturday mobilize 50 Army National Guard members to help restore gas service in the North.

We did characterize the gas shortage as a "mini-crisis" because at its peak it impacted 30,000 residences, not 300,000. But we get it. If you're out of a job, the economy is in a depression. And if it's your home without heat, it's a crisis.

As for not getting cold enough to look at the story with a critical eye, we note that our own domicile suffered burst pipes and several shut-offs of heat and water. But fear not. We promise to shower thoroughly before going to Starbucks later today.


Another reader wanted to talk about this explanation by El Paso Electric for the company's inability to deliver electricity down south during the record cold:

This is a once-in-a-long-time cold freeze," (El Paso electric spokesman) Souza said. "Our area hasn't experienced something like this in years. This isn't common for our area. We knew it was coming, because we'd heard reports from the National Weather Service...so in preparation we tried to bring some of our generation units out of maintenance mode, put them to work, but the cold freeze, it was just too much and everything froze. The instrumentation froze."

Our reader retorts: "So how come the instruments work in states like North Dakota? Sounds like El Paso Electric got a few of their parts on the cheap."


We asked several of our readers expert in the natural gas area for their comments. Longtime energy investor and ABQ Republican Spiro Vassilopoulos comes with an explanation that those investigating this shortage are going to want to pursue:

My guess is that cold weather in the Northeast "pulled" (from a price stand-point) the natural gas to higher net-back markets. What does that mean? In anticipation of colder than normal weather in the Northeast, gas buyers rented temporary pipeline transportation capacity and bought natural gas on the cash market.

Temporary capacity is that portion of the fixed percent of the line capacity (that is permanently subscribed to by a gas producer or utility) that is rented out to another buyer to temporarily transport his gas. I suspect that the NM Gas Co. blundered by renting out a portion of their subscribed capacity and got caught with their pants down.

You mean it was an inefficiency in the "free market" that contributed to our woes, Spiro? Well, that's a reminder of why we have regulation.


Ward Camp is a veteran industry consultant who is a former GOP candidate for the NM Public Regulation Commission:

Joe, The problem is the gas company's infrastructure. If you look at New Mexico Gas Company's lines, the Taos area is the end of the line. This has been a problem for at least 20 some odd years and many times in the past the pressure has gotten too low...

The problem can be rightly blamed, in part, on the NM Public Regulation Commission. The PRC has not allowed a sufficient rate of return on such projects for the gas company to proceed. As you know the company does not make money on the gas, it earns a rate of return on its facilities. The PRC in its efforts to "protect" the consumer has imposed extremely low rates of return historically on the company (why do you think PNM dumped them?). This has starved infrastructure expenditures that become readily apparent when we have severe weather conditions...

Thanks, Ward. But if you're right, who pays for this additional infrastructure? Can the ratepayer be expected to shoulder all of the burden? We question how many of those customers would consider the company having "extremely low rates" as you assert.


TV viewers checking in here reported that KOAT-TV was the only station to carry Governor Martinez's mid-day Thursday news conference on the natural gas shortage live, and we blogged it as such. But KOB says it also carried the remarks. It appears what happened is that KOB joined the news conference moments after KOAT and viewers switching back and forth saw only KOAT coverage in the initial moments. The intense competition in TV news continues, and our Alligators are keeping score.

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