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The original item was published from 4/9/2021 11:33:53 AM to 4/19/2021 12:00:00 AM.

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City Manager Report

Posted on: April 9, 2021

[ARCHIVED] LCU Disputes Penalty and Natural Gas Price Hike from February Winter Storm

Gas Meter

Las Cruces Utilities (LCU) announced Friday, April 9, 2021 it is challenging a penalty levied by its natural gas transportation provider and contesting the suppliers’ market price hike due to the mid-February winter storm that struck most of North America. The unprecedented weather event, now referred to as Winter Storm Uri, caused a combination of heavy snow, strong winds, and bitterly cold temperatures throughout New Mexico. 

From February 14 to February 17, Las Cruces residents experienced extreme cold temperatures resulting in higher-than-normal natural gas usage. At the same time, Uri froze natural gas pipelines and wellheads, dropping production dramatically in the Permian Basin and elsewhere, affecting utility service throughout the region. LCU was continually monitoring the storm and purchased additional natural gas (at a higher price) from its supplier. The resulting supply shortages meant suppliers were unable to meet the additional gas requested for the arctic storm; therefore, LCU is facing a penalty from its transportation provider for using more of the commodity in the pipeline than was purchased.

Additionally, the supplier notified LCU on February 18, invoking a force majeure retroactively to February 12 due to weather-related events. By definition, a force majeure is unforeseeable circumstances that prevent someone from fulfilling a contract. By invoking a force majeure, the supplier is stating it could not fulfill the terms of the contract with LCU. Further, the supplier adjusted the pre-determined gas price for February’s baseload (the base quantity LCU orders for each day of the month), for the days of force majeure thus increasing the commodity cost significantly between February 12 through February 20. It is that baseload cost adjustment that LCU is disputing.

“There is no guarantee that we will succeed in our protest to the penalty and price hike, but we want our customers to know we are doing everything in our power to protect them from these excessive charges,” said Delilah A. Walsh, Utilities Director.

Between the transportation penalty and the natural gas price hike, LCU is disputing more than $10 million from the Uri storm. “We are continuing to negotiate a reasonable agreement between all parties; we believe we have a strong position to present to our supplier and transport provider. In the meantime, we will do our best to keep our customer base informed as we proceed through this process,” Walsh said.

While LCU customers did not experience a disruption of service during the February storm, the costs of the service were significantly higher. LCU is working to minimize the impact on all residential customers.

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