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Sunday, 17 April 2016 16:13

DTE to spend billions on natural gas infrastructure amid transition from coal

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Detroit-based DTE Energy is in the middle of a five-year, $2.5 billion gas and electric infrastructure upgrade that will have the utility investing millions into projects in West Michigan. 

The changes come as the utility — like others across the country — prepares for a more natural gas-dependent future and shifts away from fossil fuels, like coal.

DTE Energy (NYSE: DTE) plans to invest $1.4 billion for natural gas pipeline infrastructure, including spending $9.4 million annually on systems in West Michigan alone.

Mark Stiers, president and chief operating officer of DTE Gas (DTE Energy’s natural gas utility), said the program will modernize cast iron and steel main pipelines “with newer, more durable material.” The plan also calls for new service lines to homes and businesses and upgrades at compressor stations. 

The average on-bill charge for customers is $1.54 a month, he said.

“DTE this year is on track to replace more than 100 miles of gas main lines and plans to accelerate the pace of replacement over time,” Stiers said in an email to MiBiz. “Replacing older gas lines with the latest in pipeline material ensures that our natural gas system remains safe for our customers.”

Of DTE’s 1.2 million natural gas customers, about 400,000 are in Northern and West Michigan.

DTE’s infrastructure upgrades come as states will likely rely more on natural gas, both for its relatively low prices and for meeting federal carbon dioxide emission rules. Additionally, customers continue to convert to natural gas as a low-cost alternative to heating oil and propane, Stiers said.

“Longer term, with the transition of the electricity sector to a lower carbon future, and while renewables will certainly play a role, natural gas will be a key element of the transition away from coal-fired generation,” he said. “Ensuring there is reliable and affordable supply will necessitate adequate infrastructure to meet this growing need. Good news is Michigan sits on the doorstep of some of the lowest cost and most prolific natural gas formations in Ohio and Pennsylvania.”

Jackson-based Consumers Energy (NYSE: CMS), Michigan’s other major investor-owned utility, announced last year it was spending $200 million on its natural gas infrastructure.

UPGRADES VERSUS EXPANSION

While DTE’s infrastructure improvement program primarily addresses its existing system, the utility has a stake in a proposed natural gas pipeline that would move supplies from Pennsylvania and Ohio through Michigan and up to Ontario, Canada.

The 255-mile NEXUS pipeline “will allow the state access to these basins (in Ohio and Pennsylvania) to ensure reliable and affordable supply.”

However, clean energy advocates have warned about the potential overbuilding of natural gas infrastructure and relying on it almost exclusively as a way to meet emissions regulations under the U.S. Environmental Protection Agency’s Clean Power Plan.

In testimony before the Michigan Public Service Commission in March, James Wilson — a Maryland-based energy consultant speaking on behalf of the Michigan Environmental Council and the Sierra Club — said the NEXUS pipeline isn’t yet needed.

“While DTE Electric may need incremental firm natural gas transportation capacity some time in the future, it does not need it at this time or during the five-year PSCR (Power Supply Cost Recovery) plan forecast window; its plans to build combined cycle units are tentative, and beyond 2020,” said Wilson, referring to the utility’s plans for new natural gas power plants over the next few years.

Moreover, Wilson said DTE’s estimates on the value of NEXUS’ new capacity are based on projections with “flawed assumptions.” 

“It assumes there will be a chronic shortage of pipeline capacity out of the Marcellus and Utica basins, depressing prices there through 2037,” Wilson said. “This will not occur, because producers operating in this region have and will continue to support construction of new pipeline capacity to deliver their supplies to various markets.

“The NEXUS capacity’s cost is likely to substantially exceed its value over the period of the commitment and result in a large net cost to DTE Electric’s customers through the PSCR.”

Wilson recommended that the Public Service Commission reject DTE’s plan for the NEXUS pipeline because “the capacity is not needed and would impose a cost that is contrary to the interests of DTE Electric’s customers.”

DECLINING PRICES FOR GAS

A DTE official testified the utility needs the NEXUS capacity in 2017 because of planned growth in its natural gas generation and concerns about reliability. The utility expects natural gas to make up 30 percent to 45 percent of its energy mix by 2030, according to a report last month in Crain’s Detroit Business

However, Wilson pointed out the company has no firm plans for new natural gas plants until 2020.

Indeed, natural gas production is “growing rapidly,” Wilson noted, and dozens of pipeline projects to move Marcellus/Utica natural gas have started service within the past few years or are in some stage of development.

Advocates also point to the historic volatility of natural gas prices and the zero fuel costs in sources like solar and wind, which may become even more prevalent as their costs come down and energy storage technology advances.

But Stiers from DTE said Michigan is uniquely suited to protect against those volatile natural gas prices. Additionally, DTE Gas has lowered its natural gas prices for customers by 16 percent so far this year. In November, natural gas was at nearly 41 cents per hundred cubic feet. It was at 34.4 cents in March, according to DTE. In 2008, the market price for natural gas was $1.13 per hundred cubic feet. 

But it’s a different story at DTE’s electric utility, which asked the Public Service Commission for a $344 million rate hike in February, which followed a $238 million increase granted in December.

“Natural gas prices have been dropping steadily for the last eight years, mostly because of more plentiful supplies, but also because of less demand due to warmer temperatures and energy efficiency measures customers have been implementing,” Stiers said. “Prices are the result of market forces of supply and demand. But Michigan’s unique geology allows DTE to buy large quantities of natural gas when prices are low and store it underground until it is needed during the winter season. That gives DTE customers price stability.” 

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