DTE Electric plans to add a major amount of new combined cycle gas turbine (CCGT) capacity by 2030 and its move to secure new natural gas supply from the planned NEXUS gas pipeline project is a prudent part of that strategy, said DTE Electric official Matthew T. Paul in Sept. 30 testimony filed at the Michigan Public Service Commission.
That testimony was part of the DTE Energy (NYSE: DTE) subsidiary’s annual Power Supply Cost Recovery plan, which in this year’s case covers planned expenses in 2016.
Paul noted that DTE Electric currently supplies all natural gas to its power plants through spot MichCon CityGate purchases and interruptible local distribution contracts. With the expectation of significantly more gas-fired generation in the future and gas supply reliability concerns, DTE Electric plans to secure firm gas transportation and supply for a portion of its natural gas requirements going forward.
DTE Electric plans to enter into firm gas supply and gas transportation agreements to support its current gas-fired generation fleet in addition to future CCGT requirements. As of July 2014, DTE Electric entered into a Precedent Agreement with NEXUS Gas Transmission to provide firm natural gas transportation starting in 2017. Similar to DTE Electric’s approach to coal and coal transportation procurement, forward gas supply and transportation contracts will be secured to ensure reliability and minimize price volatility.
DTE Electric’s affiliate, DTE Gas Storage & Pipelines, and Spectra Energy Corp. are jointly developing the proposed NEXUS Gas Transmission project, which is designed to transport growing supplies of Appalachian Basin gas, including Utica and Marcellus shale gas production, to customers in the U.S. Midwest, including Ohio and Michigan, and to customers in Ontario, Canada, including the Dawn Hub. The service commencement date for the NEXUS project is currently targeted for November 2017.
The proposed path for the NEXUS project will extend approximately 250 miles from the Kensington receipt point in eastern Ohio to interconnect with the existing pipeline grid in southeastern Michigan. As currently planned, the pipeline will be capable of transporting 1.5 billion cubic feet per day (Bcf/d) of natural gas to serve local distribution companies (LDCs), industrial energy consumers, and natural gas-fired power generators in Ohio and Michigan, and the Province of Ontario.
DTE Electric committed to firm gas transportation capacity from the Utica and Marcellus shale region because this geographically logical region is a new and growing production region with substantial supply and competitive pricing, Paul noted. Shale gas is the largest and fastest growing source of natural gas supply in North America, and the Utica/Marcellus shale region is the most prolific shale basin in the country and is expected to generate approximately 30% of North American natural gas production by 2025.
The development of new pipeline capacity from the region will create basin-on-basin competition and is expected to help maintain gas supply reliability in light of the forecasted significant gas demand growth, Paul added.
DTE wanted in early on NEXUS to secure firm capacity
Asked why DTE Electric is contracting with NEXUS starting in 2017 when no new CCGTs are forecasted to be operating within this PSCR Plan’s forecast window of 2016-2020, Paul responded: “DTE Electric is contracting with NEXUS starting in late 2017 because of the growth in the Company’s gas-fired generation fleet, the reliability concerns discussed above, and to take advantage of an opportunity to be an Anchor Shipper on a pipeline with access to the Utica/Marcellus shale region.
“Since the 2015 PSCR Plan was filed, DTE Electric acquired Renaissance Power Plant and is currently finalizing the acquisition of East China Power Plant (now Dean Power Plant). Both the acquisition of Renaissance and the intention to acquire an additional approximately 300 MW of gas-fired generation capacity were discussed in the DTE Electric 2014 Rate Case. Renaissance is a 732 MW gas-fired simple cycle power plant located in Carson City, MI. Renaissance is forecasted to consume 6.3 Bcf of natural gas in 2016, approximately the same forecasted gas consumption as the Company’s previous largest gas-fired generator, Greenwood Energy Center. The Company also expects to finalize the acquisition of Dean (formerly East China) in October 2015. Dean is a 320 MW gas-fired simple cycle power plant located in East China Township, MI. Dean is forecasted to consume 1.5 Bcf of natural gas in 2016. Together, the additions of Renaissance and Dean increase the Company’s forecasted natural gas requirements by approximately 75 percent.”
Paul noted that the NEXUS Open Season allowed potential customers to qualify as an Anchor Shipper for the NEXUS project by submitting a bid of 150,000 Dth/d or greater for a term of 15 years or more. Although DTE Electric is only contracting for 75,000 Dth/d, the NEXUS Open Season allowed bidders who are affiliated with a single entity to aggregate their bids. Because the company’s gas utility affiliate, DTE Gas, is also contracting for 75,000 Dth/d, both the electric and gas utility were able to qualify for Anchor Shipper status. Anchor Shipper status provides incentives including a most-favored-nations clause that assures the rate paid by DTE Electric would be the lowest rate paid by any similarly situated shipper on NEXUS.
Ask why DTE chose NEXUS over the competing Energy Transfer-sponsored Rover Pipeline or the TransCanada-sponsored ANR East pipeline, Paul wrote: “The Rover and ANR East projects did not exist at the time DTE Electric initially accepted the precedent agreement offered by NEXUS Pipeline. When the open seasons for the Rover and ANR East projects were announced, DTE Gas performed an assessment of its NEXUS commitment in contrast to the competing Rover and ANR East pipelines. The results of that assessment showed that NEXUS was not only the least cost alternative, but also held several other advantages including the ability to qualify for Anchor Shipper status.”
NEXUS will help drive down natural gas prices in Michigan
DTE Electric customers will benefit from the infusion of affordable Utica/Marcellus shale gas into the Michigan market caused by NEXUS since such infusion is expected to lower spot gas prices at MichCon CityGate by an average of $0.25/Mbtu from 2017 through 2032, said Paul. These lower MichCon CityGate prices are expected to reduce PSCR cost for DTE Electric customers by more than $100 million from 2017 through 2032. In addition to reducing DTE Electric’s customers’ costs, these lower gas prices are expected to significantly reduce natural gas costs for all Michigan consumers. Based on projected natural gas demand and the lower prices expected from NEXUS, the company expects that overall Michigan natural gas costs will be reduced by $2 billion from 2017 through 2032.
The July 2014 Precedent Agreement with NEXUS Gas Transmission provided firm natural gas transportation for 8,500 Dth/d starting in November 2017 and increasing to 75,000 Dth/d starting on the later of May 2020 or when DTE Electric has added the required natural gas generation capacity necessary to utilize the increased volume requirement (e.g., one 680 MW CCGT with a capacity factor of at least 70%). Based on the current long-term plan, the company expects it will meet that requirement in 2022, said Paul, without giving details of this prospective CCGT addition. The cost of the NEXUS transportation is $0.695/Dth plus a fuel rate currently estimated to be 1.9%. The Precedent Agreement specified a term of fifteen years.
In September 2015, the NEXUS Precedent Agreement was amended by modifying the amount of transportation capacity and increasing the term. The amended precedent agreement provides firm natural gas transportation for 30,000 Dth/d starting in November 2017 and increasing to 75,000 Dth/d starting on the later of May 2020 or when DTE Electric has added the required natural gas generation capacity necessary to utilize the increased volume requirement, which is currently expected to occur in 2022. The term of the initial 30,000 Dth/d is twenty years and the term of the additional 45,000 Dth/d is fifteen years. The amended precedent agreement also adds an option for DTE Electric to extend the term of the agreement by up to ten years for 75,000 Dth/d at the same rate.
Including the ten year option, the NEXUS Precedent Agreement could extend as far as 2047, Paul said. “This long-term, fixed rate agreement will allow for reliable and economic operation of the Company’s first CCGTs for the majority of their expected lifespans,” he said.
At another point in his testimony, Paul dropped this further hint about new CCGTs in the works: “Based on the Clean Power Plan Final Rule, DTE Electric expects to retire more than half of the Company’s coal-fired generation capacity by 2030. DTE Electric’s natural gas requirements are estimated to increase to in excess of 100 Bcf per year as the current long-term plan includes three new CCGTs being built by 2030.”