The Michigan Public Service Commission Tuesday approved Michigan Consolidated Gas’s (MichCon) request to sell 3.6 Bcf of natural gas in 2008 and 2009 at an average price of $9/Mcf — nearly a 92% markup from its $4.70/Mcf book value.
MichCon, the gas utility subsidiary of DTE Energy, plans to sell half of the natural gas on the open market and half to customers at a discounted rate. MichCon will keep as profit about half of the $32.4 million gross generated by the gas sales. By enabling the company to retain the profit from the sale, the settlement will allow MichCon to earn its authorized 11% return on equity without raising customer rates. The company said selling some of its natural gas reserves will save customers approximately $45 on their utility bills — a total of $40 million — over the next 12 months.
The native base gas is currently held in the Belle River Mills Storage field and will become available for sale as a result of a planned permanent gas storage decrement made possible through the addition of new gas storage facilities at Belle River Mills and the company’s West Columbus storage field. MichCon intends to invest a total of $76.4 million in new facilities at the two storage fields, and expects previously inaccessible gas to become available for cycling as a result. Improvements at the Belle River Mills facility will allow deeper cycling, providing MichCon access to 4 Bcf of native base gas. MichCon will make, in total, a 17 Bcf decrement to its systemwide gas storage accounts.
In the settlement, MichCon agreed to not file a base rate case before Jan. 1, 2009. The company had been planning to file a rate hike proposal at the end of 2008. The rate case filing moratorium can be set aside if unanticipated changes in tax law, legislation or new accounting rules will affect MichCon’s annual net income by more than $5 million, according to the settlement.
DTE recently reported second quarter earnings of $385 million ($2.20/diluted share), which included MichCon’s operating earnings loss of 1 cent/share versus a 5-cent/share loss in the second quarter of 2006 (see Daily GPI, Aug. 15). Driving MichCon’s improvement were better spring heating weather and higher gas sales volumes.
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