Tuesday, March 7, 2017

Reasons why the Nexus pipeline is not needed

From: Frank Zaski

Here are three Nexus comments submitted to FERC, March 2, 3 and 6. Please use anything here you would like.

March 2: https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14508450

FERC approved Rover because it met many CON requirements. Nexus misses on most of them.

1. Rover had precedent agreements for 95% of its capacity
2. Producers asked FERC to approve Rover
3. No pipeline company protested Rover

This is not the case for Nexus.

The EIS states that only 885,000 Dth/d (59%) of Nexus' 1.5 million Dth/d of capacity has been signed in precedent agreements. While Nexus touts tee-taps, FERC says "we did not consider the 13 tee-tap sites to be essential." Pages 45, 46. https://www.ferc.gov/industries/gas/enviro/eis/2016/11-30-16-eis/FEIS.pdf

DTE Electric had to increase their take of Nexus capacity to try to justify it.
Per DTE, "Based on recent discussions with NEXUS, we believe that an increased commitment is necessary in order to ensure that the project has sufficient customer commitments to justify proceeding with construction. For these reasons, we recommend increasing our Transition Period commitment from 8,500 Dth/d to 30,000 Dth/d."
Pages 136, 149 https://efile.mpsc.state.mi.us/efile/docs/17920/0065.pdf

Per DTE, "DTE Electric does not expect to fully utilize the capacity contracted on the NEXUS Pipeline during the first few years of the contract (through 2023 plus). Capacity utilization will increase to approximately 40% after the first new combined cycle plant is brought into service. Until the second combined cycle facility is brought on-line [possibly 2023, if then], DTE Electric will NOT be using all of the available Nexus pipeline capacity to meet DTE Electric natural gas load requirements. Instead, DTE Electric plans to release available capacity to the market in order to recover the value of the unutilized pipeline capacity." Page 28 https://efile.mpsc.state.mi.us/efile/docs/17920/0084.pdf

It is speculative to believe DTE will be granted approval for a new natural gas plant. A gas plant will have to go thru a detailed Michigan CON process competing against lower cost efficiency and renewable energy, both of which are increasing due to new legislation.

Nexus precedent agreements are largely signed by AFFILIATES; DTE, Union and Enbridge. These affiliates of Nexus's sponsors are participating largely due to the affiliation with project sponsors and seek to lock their ratepayers into long term contracts and pass substantial Nexus costs on to these ratepayers. This will reduce the likelihood of their ratepayers experiencing the advantages of quickly evolving energy efficiencies, alternative energies and suppliers. These affiliate relationships require special review by FERC.

Note, the Michigan PSC DENIED DTE Electric and DTE Gas cost recovery of Nexus expenses for not being transparent with their AFFILIATE ARRANGEMENTS and for lack of evidence that Nexus costs are reasonable and prudent. To quote the MPSC DTE Gas Order:

"The ALJ [administrative law judge] found that the evidence presented on this issue created the strong impression that THIS AFFILIATE TRANSACTION IS A PART OF A LARGELY UNEXPLAINED CONTRACTUAL SCHEME designed to foster the success of the Nexus pipeline project, involving DTE Gas, DTE Energy, DTE Pipeline, DTE Electric, and NEXUS. PFD, p. 40.

The ALJ concluded from the record that DTE GAS NEVER SERIOUSLY CONSIDERED ANY OTHER OPTIONS for the acquisition of the 75,000 Dth/day transportation capacity.

The ALJ found that, while DTE Gas was looking into and securing transportation capacity on NEXUS, other avenues for the transport of Appalachian basin gas were and still are available and that those OTHER OPTIONS MAY BE EVEN LESS EXPENSIVE THAN NEXUS.

According to the ALJ, it is DTE Gas's responsibility to show that the contractual arrangement is in its customers' best interest.
Page 11. http://efile.mpsc.state.mi.us/efile/docs/17691/0144.pdf

ANR is protesting Nexus in both the MPSC DTE Electric and DTE Gas cost recovery cases.
ANR strongly stated that DTE failed to adequately consider Rover and existing alternatives that were and remain much less costly than Nexus. ANR further contends that DTE Gas's existing capacity could be upgraded "with minor facility enhancements" to provide the capacity DTE Gas is seeking from the Appalachian Basin to its city gates.
DTE bid only three years for ANR capacity as a bridge to Nexus capacity and not 15 years that it agreed to pay Nexus.

The last comment strongly suggests that DTE plans to severely cut ANR gas supplies. This will hurt ANR and their existing shippers.

Nexus misses on FERC's basic CON requirements, plus, it simply is not needed. Other pipelines can supply far more gas to DTE, Michigan and Canada than what the forecasts suggest.
The recently approved Rover and Northern Access pipelines, and potentially TransCanada's newly reduced terms for shipping 1.5 PJ/day to Michigan and Dawn, make Nexus irrelevant. More to come.

March 3: https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14508722

The quickly growing pipeline CAPACITY SURPLUS to Michigan and Ontario actually would make the addition of Nexus harmful. Adding Nexus would add to the capacity surplus and adversely affect existing pipelines and their captive customers, landowners and the environment.

FERC must consider the increasing pipeline capacity to the Midwest and Canada provided by: Rover, the trend towards Canada sourcing more gas thru New York and the addition of NY gas capacity provided by Northern Access, TransCanada drastically reducing tolls, plus with Rex now flowing westward, additional Oklahoma capacity to the Midwest is available on NGPL, PEPL, ANR and Northern Natural pipelines. This is in the face of rather tepid gas demand forecasts for the area.

FERC, please note DTE's map of their pipeline system in Michigan and to Canada. https://efile.mpsc.state.mi.us/efile/docs/17999/0015.pdf

ROVER AND EXISTING PIPELINES CAN FILL ALL NEXUS GAS CONTRACTS WITH DTE, UNION AND ENBRIDGE. The one, small Nexus customer in Ohio can be served by other pipelines.
Rover connects with ANR and Panhandle at Defiance and Vector at Milford. These pipelines feed into DTE's pipeline systems at Willow, Milford and Belle River. Vector also feeds Dawn and Chicago. TransCanada's GLGT pipeline feeds ANR and Belle River in Michigan and the Dawn hub.
Nexus could attain agreements for only 885,000 Dth/d of their 1.5 million Dth/d capacity. However, Rover has signed a joint precedent agreement with Vector to provide up to 950,000 Dth/d of firm transportation service on existing facilities for delivery in Michigan and to the Union Gas Dawn Hub in Ontario. Page 2 https://www.ferc.gov/CalendarFiles/20170202210009-CP15-93-000a.pdf

Rover can supply even more gas to Michigan if needed; their Market Segment pipeline has the capacity to transport up to 1.3 Bcf/day of natural gas to the Vector system.
Vector connects to DTE pipes, Canada and Dawn hub and can easily put gas into DTE, Union and Enbridge gas supply systems and meet all their needs. http://www.vector-pipeline.com/~/media/EepEeqMep/Site%20Documents/Vector/News%20Releases/2015%20Customer%20Meeting%20Presentation.pdf?la=en

Plus, other pipelines that service DTE and Michigan connect to Rover at Defiance Oh. This includes ANR and Panhandle. http://roverpipelinefacts.com/documents/Volume-II-A-Public/VIIA_RR10.pdf

This has occurred in just the last 5 years. Considerable Marcellus gas is already flowing thru New York to Ontario and the Dawn Hub. This flow has increased 745% from 2011 to 2016.
In July and October 2016, the flow of gas to Ontario through New York was greater than that through Michigan. https://www.eia.gov/dnav/ng/ng_move_poe2_a_EPG0_ENP_Mmcf_a.htm

The newly approved Northern Access pipeline will give New York pipes the ability to surpass Michigan as the principal Marcellus gas supplier to Dawn and Canada. It will enable 350,000 Dth per day of NEW firm transportation service to Ontario through Niagara Falls. Page 4 https://www.ferc.gov/CalendarFiles/20170203194955-CP15-115-000.pdf
Northern Access to more than double their capacity into Canada and the Dawn hub from 208,000 Dth/d to 558,000 Dth/d. Slide 39 http://s2.q4cdn.com/766046337/files/doc_financials/2017/q1/20170202_NFG-IR-Presentation_FINAL.pdf

TransCanada Corp. just renewed its push to ship 1.5PJ/day of Western Canadian natural gas to the Dawn Hub and Toronto region. "TransCanada continues to offer a 10-year term and a targeted total subscription of 1.5 PJ / day at a simplified single rate toll of $0.77/GJ," [$0.77 Canadian is a very low $0.58 US]
http://transcanada.mwnewsroom.com/Files/28/28331468-62a2-450c-972d-3465516a0da5.pdf http://www.transcanada.com/customerexpress/2866.html
Analysts have concluded that TransCanada, Rover and Nexus gas flowing to Dawn would collapse prices and hurt all shippers involved.
REX pipeline flows west from Ohio have been displacing gas from the Midcontinent to the Midwest and East, including flows from Oklahoma. This is leaving an aggregated 2.0 Bcf/d of capacity (or more during low-demand months) open on average across four major pipelines: NGPL, PEPL, ANR and Northern Natural.

RNB also reports that with the final REX capacity addition, Marcellus/Utica production DID NOT increase in spite of winter premiums. The gas supply is being redirected from other takeaway capacity out of Ohio. They add, "As more of new pipeline projects to the south and west are completed, expect to see a lot more of this kind of competition – mostly NEW PROJECTS "STEALING" GAS FROM LEGACY PIPES."

As previously stated, Nexus falls short on some of FERC's basic CON requirements; (1.) it has agreements for only 59% of its capacity, (2.) no gas producer has asked for Nexus approval, and (3) another pipeline company has strongly protested Nexus at the Michigan PSC.

Another FERC requirement is the avoidance of OVERBUILDING. Adding Nexus to the Midwest pipeline system would add to the growing capacity surplus and adversely affect existing pipelines and their captive customers. As RBN puts it, new projects "stealing" gas from legacy pipes."

FERC must consider natural gas prices in this area are relatively low and there has been a significant reduction in basis differentials.

The above suggests significant capacity, reliability and resiliency has already been achieved.

March 6: https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14509926

FERC has stated, "The Certificate Policy Statement established a new policy under which the Commission would allow an applicant to rely on a variety of relevant factors to demonstrate need,… These factors might include, but are not limited to, [1] precedent agreements, [2] demand projections, [3] potential cost savings to consumers, or a [4] comparison of projected demand with the amount of capacity currently serving the market." P16 https://www.ferc.gov/CalendarFiles/20170202210009-CP15-93-000a.pdf

Nexus falls short on all four of these factors:

Note details in https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14508450

Nexus affiliates account for 27% (460,000 Dth/d) of its 1.5 million Dth/d capacity. They are seeking to pass considerable Nexus costs on to their captive ratepayers for 15 years plus.
Market support for the project (by nonaffiliated entities) is only 32%, 475,000 Dth/d.

FERC, with only 59% filled, how can Nexus rates be fair to all customers and how can the rate of return be positive? It is assumed FERC does not approve newly created companies with negative rates of return.

It appears unlikely that Nexus will obtain more customers given that Rover has beaten Nexus to Michigan and Dawn with their considerable capacity. Plus, there is growing gas oversupply to these markets and Chicago provided by Rex (and their interconnection), TransCanada, Northern Access and others. Overbuild and lower costs will hurt Nexus particularly at renewal time.

EIA's AEO2017 projects that demand for natural gas will increase ONLY 5% from 2016 to 2025 in the East North Central region (including OHIO, MICHIGAN, WI, IL, and IN.). They forecast a small DECREASE in gas used to generate electricity during this period.

Demand for natural gas in Michigan has been trending downward for residential, commercial and industrial use. Gas usage for electric generation has increased but accounted for only 28% of all gas consumed in Michigan in 2016. http://www.eia.gov/dnav/ng/ng_sum_lsum_dcu_SMI_a.htm

DTE Electric stated they expect a 0.2% average annual DECREASE in electric sales through 2026. Industrial sales are expected to decrease the most.
P34 http://efile.mpsc.state.mi.us/efile/docs/18014/0002.pdf

DTE Gas forecasts a DECLINE in natural gas sales for all rate classes due to energy efficiency. Discussion on Pages 547-552 http://efile.mpsc.state.mi.us/efile/docs/17999/0114.pdf
Data on page 3 https://efile.mpsc.state.mi.us/efile/docs/17999/0015.pdf

NO newly approved or built gas plant in the region will rely on Nexus. In Michigan: Holland, Lansing, Indek and Wolverine and NW Ohio; Oregon Clean Energy.

ONTARIO gas and electric demand is expected to remain flat as economic growth is balanced by additional conservation. http://www.ieso.ca/Documents/marketReports/18MonthOutlook_2016dec.pdf

ANR stated "By contracting for transportation from ANR's interconnections with pipelines already connected to the Appalachian Basin, DTE Gas could save $13.5 million per year or over $200 million over the 15 year term it seeks."

ANR also stated that transportation service on any of these existing alternatives [to Nexus] would
provide additional benefits in terms of economic FLEXIBILITY and RELIABILITY of service. By
obtaining firm transportation on ANR's system, DTE Gas would have the right to access other
points on ANR's system on a firm secondary basis. This right would enable DTE Gas to
purchase gas from suppliers at any other points on ANR's system, and deliver the gas on a
secondary basis, thus increasing its choices and its negotiating leverage with gas sellers. Pages 25, 26 https://efile.mpsc.state.mi.us/efile/docs/17691/0141.pdf

"Alternatives for supplying DTE Electric's gas-fired generation would likely be more FLEXIBLE and less expensive than holding 20 years of 365-day firm capacity all the way back to the Marcellus/Utica region on NEXUS." http://efile.mpsc.state.mi.us/efile/docs/17920/0065.pdf

By locking DTE and their ratepayers into long-term Nexus contracts will decrease the diversity of supply and flexibility to take advantage of changing prices, rates, demand, etc.

The Ontario Energy Board staff had similar conclusions:
"It is OEB staff's position that there are alternatives to the proposed NEXUS contracts that can achieve the same benefits at an overall LOWER RISK TO RATEPAYERS. OEB staff submits that purchasing delivered supplies at market hubs (Dawn and/or Chicago) will be a lower risk option for ratepayers than the NEXUS contracts due to the supply FLEXIBILITY offered by the ability to purchase natural gas supplies over shorter contract terms. http://www.rds.ontarioenergyboard.ca/webdrawer/webdrawer.dll/webdrawer/rec/507056/view/

The price differentials between Henry, Dominion, Chicago, MichCon, Dawn and Niagara hubs have already converged. This suggests that these markets already have adequate pipeline capacity. https://www.ferc.gov/market-oversight/mkt-gas/midwest/ngas-mw-yr-pr.pdf

This hub price convergence has already happened now before new, substantial capacity is availability from Rex, Rover, Nexus, Northern Access, Oklahoma and lower TransCanada pricing and terms. As noted above, natural gas demand in Michigan and Ontario is expected to increase only gradually over the next 10 years. It is speculative to approve another gas pipeline based on rosy industry forecasts (and utilities affiliate pricing power) beyond a decade into the future.

It appears Nexus does not meet FERC CON requirements.

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