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In Antitrust Filing, Sierra Club Alleges NEXUS Pipeline Would Raise Retail Rates Excessively

November 21, 2016 By Cheryl Kaften

The Sierra Club – a grassroots environmental advocacy groupfiled a complaint (Docket No. CP-16-22-000) on November 16 against Michigan’s largest electric utility, DTE Electric, alleging that a 255-mile, multi-billion dollar interstate gas pipeline project owned by its affiliate, NEXUS Gas Transmission, threatens to monopolize the market for the generation of electricity in Michigan.

The complaint alleges that the pipeline project, if permitted to continue, will raise retail electricity customers’ rates above competitive levels and exclude more cost-effective energy suppliers, including renewable energy sources.

The complaint was filed with the Federal Energy Regulatory Commission (FERC), U.S. Department of Justice, and the Federal Trade Commission. It alleges that while electric utilities like DTE Electric have legal monopolies to sell electricity to ratepayers, they cannot use that monopoly to gain control over the market for generating capacity.

According to the complaint, the NEXUS project uses DTE Electric’s power to charge ratepayers for the project’s above-market costs in order to expand its presence in the generation market. DTE Electric already controls about 50 percent of the local electricity generation market, according to the complaint.

 “The dirty and dangerous NEXUS project is a payoff scheme for corporate polluters with Michigan consumers footing the bill,” David Holtz, chair of the Michigan Chapter of the Sierra Club, commented in a formal statement, adding, “Solar and wind power continues to be a better and cheaper alternative to dirty fuels, which only gives further indication as to the real reason behind this pipeline.”

 “Our complaint shows that there is no plausible competitive justification for DTE Electric to make a long-term commitment to buy gas at above-market prices, said Pat Gallagher, director of the Sierra Club’s Environmental Law Program. “The federal competition authorities should take notice because ratepayers, the environment, and competition in the generation market all are harmed by this deal.”

The Sierra Club said its complaint refers to statistics published by the U.S. Energy Information Administration showing that 46 percent of the nation’s gas pipeline capacity is unused, even as new pipeline projects continue to be approved by federal regulators.

The group said its complaint highlights “perverse incentives toward overbuilding gas pipelines” that arise when the pipelines are owned and operated by utility affiliates, pointing out that the Federal Energy Regulatory Commission typically allows high profit margins on new pipeline projects, even as state regulators permit developers to pass off the costs of pipeline construction to retail ratepayers. According to the complaint, “the combination of abnormally high profit margins with the ability to shift project risks to ratepayers creates a powerful incentive to overbuild natural gas pipelines.”

The complaint charges that DTE Electric has taken the trend of overexpansion one step further by using this low-risk, high-profit transaction structure to gain control over the market for the generation of electricity in Michigan.

 The club’s FTC complaint in the FERC proceeding is part of a motion to dismiss filed on November 16 by Michigan members who oppose NEXUS’ application for a certificate of public convenience and necessity. There, the advocacy group charges that DTE’s ratemaking scheme is clearly not in the public interest.

For its part, DTE defended the proposed NEXUS Pipeline, saying it would bring “cleaner burning energy at affordable and stable prices to Michigan and Midwest consumers,” according to a November 17 report in The Detroit News.

“This project will give Michigan utilities and their customers access to the lowest price natural gas reserves in the nation,”  DTE spokesperson Pete Ternes said in an emailed statement. “In addition, it will reduce the distance natural gas has to travel compared to current sources thousands of miles away.”

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