NEXUS Sticks to In-Service Date

A key topic included in DTE Energy's earnings call on Wednesday will likely be the possibility that its jointly sponsored (with Spectra Energy) NEXUS Project will be in-service by the end of 2017. Last week, this topic was debated in an exchange of pleadings before the Michigan Public Service Commission (PSC) in a matter concerning DTE's electric power supply cost plan for 2017. Nearly one-year and a half ago, at the time NEXUS filed its application, our statistical models showed an in-service date of late February 2018. This analysis, in combination with the time period needed to appoint FERC commissioners, suggests a different potential timeline for the Project. Moreover, a delayed in-service could strain the contractual obligations between NEXUS and DTE for firm service.

The Michigan Attorney General, the Michigan Environmental Council and the Sierra Club asserted that the lack of a quorum at FERC would make it impossible for NEXUS to be in-service by the end of this year. DTE Electric countered with a March 31, 2017 letter it received from NEXUS stating that despite the lack of a FERC certificate, the estimated in-service date remains November 1, 2017. Nonetheless, all parties agreed that the lack of a quorum at FERC means that the Project's Certificate cannot be issued until a quorum is reestablished. The first step of that process is, of course, President Trump identifying a nominee and sending his nomination to the Senate for confirmation. Our review of the timeline for appointment of FERC commissioners since 1981 indicates that the median time for approval is approximately 45 days, calculated from the date the Senate receives a nomination until the nominee is confirmed, with the lower quartile time being 24 days and the upper quartile being 124 days.

This means that even if President Trump were to nominate a new FERC commissioner today, it would, based on the median historical data, be early June before a quorum is re-established at the FERC. Despite efforts by the FERC to develop transition teams to get the incoming commissioners up to speed as quickly as possible on all matters, it's unlikely that the new commissioner(s) will be prepared to rule on their first day in office. But, assuming that FERC then promptly acted on the NEXUS application, approval would not likely occur until July. Based on our analytics, an optimistic projection (25th percentile) for the time from certificate to in-service is a little over 9 months and a conservative estimate (75th percentile) would be 18 months. This, of course, means that with a July certificate approval an in-service date of November 2017 is very unlikely.

A legal question that was also raised in the exchange of pleadings at the Michigan PSC is whether the PSC must approve the contract with NEXUS, which may create yet another constraint for the project. It seems all parties other than the Staff of the Michigan PSC believe that some type of approval is being sought in the proceeding, but they disagreed over whether that approval should be contingent on whether NEXUS would be in-service by the end of the year.

While the Precedent Agreement for the DTE capacity on NEXUS is not public, the Negotiated Rate Agreement is. The Negotiated Rate Agreement does not indicate whether DTE's use of the committed capacity is conditioned upon the approval of the Michigan PSC. The Precedent Agreement may have such a condition, but if that were the case, it seems likely that DTE would have raised the issue in its pleadings to the PSC. The only condition referenced in the Negotiated Rate Agreement is that DTE Electric is not obligated to increase its capacity from the initial 30,000 Dth/d to 75,000 Dth/d until DTE Electric has added the required natural gas generation capacity necessary to utilize the increased volume requirement (e.g., one 680 MW Combined Cycle Gas Turbine with a capacity factor of at least 70%), which DTE currently does not expect to meet until 2022. Therefore, it does not appear as though Michigan PSC approval is a constraint for the NEXUS Project.