Long Island utility exec resigns, hurricane response blamed

The Long Island Power Authority announced this week that its Chief Operating Officer, Mike Hervey, has resigned from LIPA effective at the end of 2012.

LIPA is a political subdivision of the State of New York.  LIPA was formed in 1985 as a non-profit municipal electric utility to take over the assets of former investor-owned utility Long Island Lighting Company.  Today, LIPA owns the electric grid in most of Long Island.  LIPA does not own electric generation assets on the island but serves 1.1 million customers with electricity generated off-island.  Its electric distribution network was hard hit by Hurricane Sandy, with over 1.1 million customers losing power.  As of earlier this week, 10,000 customers just east of New York City were still without power, while 35,000 more farther onto Long Island suffered significant flood damage and will need repairs before electric service can be restored.  County executives and other leaders are calling for federal involvement, and have criticized LIPA for its management of the restoration process.

In a statement released November 13, LIPA Chairman Howard E. Steinberg stated that he had accepted Hervey's resignation, with regret, on behalf of the Board of Trustees.  The announcement noted that Hervey had worked for LIPA for 12 years, including serving as CEP for two years.

Also on Tuesday, New York Governor Andrew Cuomo formed a commission to investigate utility companies' storm preparedness and management.  Governor Cuomo used his powers under the Moreland Act to form the commission, whose mandate also includes an examination of the regulatory and legal structures for oversight of utility operations.  Citing storms including Hurricane Irene, Tropical Storm Lee, and Hurricane Sandy in the past two years, Governor Cuomo also addressed the adaptation process of adjusting "to the reality of more frequent major weather incidents".

One utility executive has already resigned, and the commission's investigation will soon be under way.  What other changes lie ahead for utility companies in New York and elsewhere as a result of utility responses to hostile weather?

Hurricane Isaac disrupts Gulf energy production

Hurricane Isaac has already disrupted energy production in the Gulf of Mexico -- and is likely to cause further damage when it makes landfall late tonight or tomorrow morning.

As I noted yesterday, the storm's path across the Gulf as Tropical Storm Isaac has already caused most oil and natural gas producers in the Gulf to shut in their wells; temporarily halting the production of these fuels from the Gulf.  As of yesterday, producers had shut in 78% of Gulf oil production and 48% percent of natural gas production.  Data released today by the federal Bureau of Safety and Environmental Enforcement shows about 93.28% of the current daily oil production in the Gulf of Mexico has been shut-in, as has about 66.7% of the current daily natural gas production in the Gulf.

Offshore hydrocarbon resources in the Gulf of Mexico play a significant role in U.S. fuel production.  According to the U.S. Energy Information Administration (EIA), about 23% of all U.S. crude oil production comes from the Gulf, as does about 7% of U.S. dry natural gas production.

Subject to tropical storms and hurricanes, Gulf oil and gas production is periodically interrupted due to severe weather.  For example, EIA data shows that at its peak, 2005's Hurricane Katrina caused producers to shut in 539,074 barrels of oil production per day -- about half the amount of shut-in production as Tropical Storm Isaac caused yesterday.  EIA data also shows that up to 3,228 cubic feet per day of natural gas production was shut in as a result of Katrina, or about one-and-a-half times as much gas per day as has been shut in due to Isaac so far.  Four months after Katrina hit, 2,155 oil and gas wells, or 36.2 percent of the wells in the region, reportedly remained shut-in and incapable of producing.  Understanding the full comparative impact of these storms will require knowing when the production shut-in by Isaac can come back online, but it is clear that Hurricane Isaac is a force to be reckoned with.

Previous storms, such as Hurricane Katrina, also caused significant damage to onshore energy infrastructure like oil refineries.  At its peak, Katrina reportedly caused 4.5 million barrels per day of refining capacity to be shuttered; four months later, refinery shutdowns in the Gulf of Mexico region still totaled 367,000 barrels per day.

In preparation for Hurricane Isaac's landfall, several large Gulf Coast refineries have announced closures, with estimates suggesting a total of 1.1 million barrels per day of shutdown refining capacity or about half of the refining in the storm's path.  While Isaac is expected to remain a Category 1 hurricane, and thus may pack less of a punch than Category 3 Katrina, Isaac's impending landfall comes swiftly on the heels of a significant refinery explosion and fire in Venezuela.  Consumers can expect gasoline prices to trend higher in the near term.