Regulators in Michigan agreed with an administrative law judge’s finding that plans by DTE Electric Co. to contract with Nexus Gas Transmission LLC to buy natural gas for power generation appear “reasonable and prudent,” despite the pipeline being partly owned by a utility affiliate.

But the Michigan Public Service Commission (PSC) also conceded that plans by DTE Energy Co. to jointly develop the 255-mile pipeline with Spectra Energy Corp. represented “perhaps the greatest area of controversy” in the proceedings, and denied the utility permission to recover power supply costs for the $2 billion project from its customers.

The Nexus pipeline would move 1.5 Bcf/d of Marcellus and Utica shale gas from eastern Ohio into Michigan, connecting Appalachian gas to markets in the Midwest and Canada. It received a favorable draft environmental impact statement (EIS) from FERC last July.

In an order last Thursday [Case No. U-17920], the PSC approved DTE Electric’s power supply cost recovery plan for the 2016 calendar year at a factor of 20 cents/kWh. The commission also accepted the utility’s five-year forecast, covering 2016 through 2020, of projected power supply requirements and the cost of that supply.

The PSC said it supports the proposal for decision issued by Administrative Law Judge Dennis Mack last October, and would adopt his findings. But the commission added that “the issues raised by the intervenors merit the close and thorough discussion undertaken in this proceeding.” The intervenors include ANR Pipeline Co., environmental groups and the state’s attorney general.

DTE Energy’s participation in the proposed pipeline “appeared to be at the very root of the many objections presented [by the intervenors],” the PSC said. “Resolute allegations of violation of the [state] Code of Conduct, lack of arm’s length negotiations, failure to consider viable alternative pipeline companies, failure to obtain economic pricing, and failure to have an appropriately transparent contractual process, were vehemently denied by DTE Electric.”

The commission added that it “finds that costs associated with Nexus should not be recoverable absent a transparent evidentiary presentation examining the full nature of the Nexus arrangements. Only under such circumstances will the commission be prepared to determining the viability of said costs.”

According to PSC records, in its initial application in September 2015, DTE Electric requested approval of a uniform monthly maximum power supply cost recovery factor of 0.20 mills/kWh for its customers. Mack noted that DTE Electric estimated that it would need more than 47.3 million kWh to meet its customers’ needs in 2016, and total system power supply costs would be $1.4 billion, including total base transmission costs of $316 million.

In 2014, ANR, a subsidiary of TransCanada Corp., proposed building the ANR East Project, a scalable, multi-part project that would transport shale gas from the Marcellus and Utica shales to the Midwest, Gulf Coast and Ontario through multiple pipeline interconnections.

The Nexus Pipeline is also in competition with the 700-mile Rover Pipeline, which would follow a similar route and bring 3.25 Bcf/d of natural gas from the Appalachian Basin to Michigan. Rover, backed by Energy Transfer Partners LP, received a final EIS from the Federal Energy Regulatory Commission last July and awaits a final authorization decision.

Last year, DTE Energy announced plans to retire eight coal-fired generation units in Michigan over the next seven years, replacing them with a mix of generation including natural gas and renewables. It also announced plans to invest up to $1.5 billion to replace coal-fired plants by 2023. The company also agreed to purchase two natural gas gathering systems in Pennsylvania and West Virginia for a combined $1.3 billion, adding to its midstream portfolio and expanding its presence into the southwest Marcellus and Utica shales.

DTE Energy serves 2.2 million electric customers and 1.2 million natural gas customers in Michigan.