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DTE Energy wants to build a natural gas plant near Detroit that could become a customer of a pipeline co-owned by one of its affiliated companies.
Critics of Michigan’s DTE Energy say the utility’s proposal to build a $1 billion natural gas plant would pose a conflict of interest if the plant becomes a customer of a gas pipeline under construction by one of DTE’s affiliated companies.
Nexus Gas Transmission Co. is building the 255-mile NEXUS pipeline from eastern Ohio to southeastern Michigan. The company is co-owned by DTE and Spectra Energy Partners, a subsidiary of Enbridge. It’s expected to be in service later this year.
Meanwhile, DTE is seeking approval from Michigan regulators to build a 1,100-megawatt natural gas plant northeast of Detroit. Company officials say it is seeking proposals for the plant’s gas supply. The pipeline’s capacity is only about 60 percent subscribed so far, and DTE’s gas plant would give it a new customer and help ensure its profitability, said James Clift, policy director for the Michigan Environmental Council.
“When an affiliated company is looking to make money off of a natural gas pipeline, we’re worried that this is basically biasing the company in favor of natural gas” over other options, such as renewables, energy efficiency and demand response, Clift said.
The Michigan Environmental Council and Union of Concerned Scientists are among groups challenging the proposed gas plant before the Michigan Public Service Commission. The groups filed detailed testimony this month claiming the plant would be significantly more expensive than clean energy options.
“It’s sort of the embodiment of a wholesale shift to natural gas,” Sam Gomberg, a senior analyst with the Union of Concerned Scientists, said. “It’s not about just owning gas plants, it’s about having an interest in the extraction and transport as well. I think it’s a risky business model.”
The company recently issued a competitive bid for the transportation, storage and supply for the proposed power plant in St. Clair County, DTE Electric President Trevor Lauer said. Currently, DTE’s electric and gas companies combined account for less than 10 percent of NEXUS’ subscribed capacity, he said.
“We’re not a significant off-take to the NEXUS pipeline,” Lauer said, adding that there are several other gas pipelines near the proposed plant site.
“We have not made a decision. NEXUS and all others are welcome to bid” to supply the proposed plant, Lauer said.
Conflict of interest?
Clift doesn’t buy it.
“In the short term they might be doing some competitive bidding, but in the long term they’re hanging their hat on the NEXUS pipeline,” Clift said.
Multiple regulatory filings suggest DTE is interested in contracting with NEXUS for additional gas supplies, Clift said. The gas plant would more than double the amount DTE would already take from NEXUS, increasing the pipeline’s subscribed off-take by 3 percent. The pipeline will have a capacity of 1.5 billion cubic feet per day.
Philip DiDomenico, who testified this month on behalf of the Michigan Attorney General’s Office, said DTE committed to a “maximum daily quantity” of 30,000 decatherms per day at the time of Nexus’ in-service date. The company also requested the right to more than double that amount to 75,000 decatherms per day with the addition of the proposed power plant.
Using NEXUS means DTE is “less dependent on marketers and more in control of its own destiny as it increases natural gas-fired electric generation capacity,” DiDomenico added.
When asked during testimony if he had concerns about the NEXUS contract in relation to the proposed plant, DiDomenico said, “Yes, I do. While the company does not request approval of the NEXUS contract in this proceeding, it is clear that this contract is a key component of its strategy to support increasing gas-fired generation with firm gas supply service.”
Despite the Federal Energy Regulatory Commission’s approval of NEXUS in August, analysts have raised questions about whether its capacity is needed based on the availability in existing pipelines and Michigan’s large storage capabilities.
DTE Electric and DTE Gas sought approval from state regulators in 2016 to spread their share of NEXUS costs among ratepayers. Opponents raised concerns about a potential violation of the Public Service Commission’s code of conduct rules involving regulated utilities and affiliates.
Because NEXUS had not yet incurred costs for the project, the commission effectively punted on the issue and declined to issue a warning to the company.
“Costs associated with NEXUS should not be recoverable absent a transparent evidentiary presentation examining the full nature of the NEXUS arrangements,” the order said. “The Commission prefers to examine these issues more holistically.”
Clift said potential code of conduct violations are still a concern.
“DTE should have the extra burden of showing this contract is in the best interest of ratepayers since clearly it’s a conflict of interest on behalf of DTE and its holding company,” Clift said.
Lauer said there are clear rules regulated entities like DTE have to follow when doing business with unregulated affiliates. The company competitively bids for resources in the interest of getting the best deal for ratepayers, he said.
“We have no bias at the electric company towards a DTE affiliate,” Lauer said.
The cheaper option?
Meanwhile, state utility regulators could decide in April whether to approve DTE’s plan for the natural gas plant. The company and its opponents disagree on whether the 1,100 MW plant is the most “reasonable and prudent” option for customers.
Clean energy groups say DTE’s modeling is biased to favor gas over renewables, which they claim could save DTE customers hundreds of millions of dollars over the life of the plant. Specifically, the company’s models didn’t value energy efficiency and renewables enough into the future, they said. Clift and Gomberg also said the company forecasted unreasonably large blocks of renewable energy would have to be purchased at a time, and they underestimated the volume of contracts likely to come in from independent producers under Public Utility Regulatory Policies Act (PURPA) changes that are expected to boost the number of solar projects in Michigan.
“This tends to bias the modeling and analysis towards what they want to do, which is build natural gas plants,” Gomberg said. “Do I think DTE has met their burden of proof (that gas is the more cost-effective option)? No.”
Renewable and demand-side options also don’t rely on fuel prices, making them “much less risky” than natural gas, Clift said.
Paul Proudfoot, director of the Public Service Commission’s electric reliability division, said in testimony that DTE showed a need for the new plant but also said that commissioners could still deny it or require “a more robust analysis and presentation.”
Meanwhile, industrial energy users say it would be cheaper for DTE to keep three coal plants open due to anticipated savings under federal tax reform and other federal energy policies favoring coal.
Lauer says the company ran more than 50 different scenarios that relied on varying degrees of natural gas, renewables and demand-side options like efficiency. He said the company will continue to pursue renewable energy as part of a “balanced portfolio.”
“The best (scenario) for our customers was to build this 1,100 MW plant, but to continue to build renewables and do energy efficiency,” he said. “We reject (claims) this was biased to favor gas generation.”
Last year DTE announced plans to reduce carbon emissions by more than 80 percent by 2050, which includes adding 4,000 MW of renewables. The proposed gas plant would help replace 2,000 MW from three aging coal plants in southeastern Michigan the company wants to retire. Lauer added that while the company has been experimenting with battery storage projects that could accompany renewables like wind and solar, “the technology isn’t mature enough today.”
Critics ultimately hope new statewide energy laws passed at the end 2016, which require utilities to do detailed forecasting on generation needs and outlines new rules when showing the need for new generation, will act as a stopgap to DTE’s proposal as the utility replaces aging coal plants.