DTE Gas Company One Energy Plaza, 688 WCB Detroit, MI July 31, 2017

Transcription

1 DTE Gas Company One Energy Plaza, 688 WCB Detroit, MI Michael J. Solo, Jr. (313) July 31, 2017 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 West Saginaw Hwy Lansing, MI Re: In the matter, on the Commission s own motion, to open a docket that will be used to collaboratively consider issues related to both the deployment of plug-in electric vehicle charging facilities and to examine issues germane to the use of compressed natural gas as a motor vehicle transportation fuel in Michigan in a Commission sponsored technical conference. MPSC Case No. U Dear Ms. Kale: Pursuant to the Commission s April 28, 2017 Order in the above referenced case, please find attached the Comments of DTE Gas Company Regarding the CNG Industry and the Role of Utilities and State Agencies to Advance the Market. Very truly yours, MJS/lah Attachments Michael J. Solo, Jr.

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, ) to open a docket that will be used to collaboratively ) consider issues related to both the deployment of ) plug-in electric vehicle charging facilities and to ) examine issues germane to the use of compressed ) Case No. U natural gas as a motor vehicle transportation fuel in ) Michigan in a Commission sponsored technical ) conference. ) ) COMMENTS OF DTE GAS COMPANY REGARDING THE COMPRESSED NATURAL GAS INDUSTRY AND THE ROLE OF UTILITIES AND STATE AGENCIES TO ADVANCE THE MARKET On April 28, 2017, the Michigan Public Service Commission ( Commission ) issued an Order requesting comments or a letter of interest regarding the development of regulatory approaches or guidance pertaining to the deployment of plug-in electric vehicle ( PEV ) charging facilities and/or concerning issues germane to the use of compressed natural gas ( CNG ) as a motor vehicle transportation fuel. Specifically, regarding CNG, the Commission requested comments on the following: The available technology for CNG refueling stations Role of utilities in reducing/eliminating market barriers to deployment of CNG fueling stations and maximizing benefits that accrue to all gas customers by increasing the penetration of alternative fuel vehicles (CNG) Appropriate role for the Commission in developing alternative fuel vehicle policies related to investments by regulated utilities DTE Gas Company ( DTE Gas ) submits the following comments in response to the Order.

3 Benefits of Natural Gas as a Transportation Fuel Natural gas is the cleanest burning alternative transportation fuel mature enough today to economically power medium, and heavy-duty vehicle applications as well as many non-road applications, such as rail cars and marine vessels. Whether in the form of CNG or liquefied natural gas ( LNG ), natural gas is a proven alternative fuel that significantly improves local air quality and reduces greenhouse gases. Specific benefits of using natural gas as a vehicle fuel source are as follows: 1. Environmental Benefits - Improves local air quality and reduces greenhouse gases through fewer emissions. The most significant environmental benefit associated with natural gas vehicles ( NGVs ) will be found in applications where new, high fuel use NGVs are used to replace older, less efficient vehicles. Refuse trucks and transit buses are examples of these vehicles. This is particularly true since the level of fuel consumption and the total amount of fuel consumed have a direct impact on overall greenhouse gas ( GHG ) emissions. NGVs represent the most effective form of alternative fuel vehicles for reducing emissions within the heavy duty market. Typical CNG produces 17% less greenhouse gas emissions on a well to wheels ( WTW ) basis than diesel. If the CNG is renewable based (landfill gas, food waste, etc.) the reductions can be even greater, up to 125% less than diesel. 2. Supply Abundance - Domestic reserves of natural gas are estimated to be twice that of petroleum, based upon current consumption more than 100 years. For 15 of the last 16 years, the United States has added more natural gas to its domestic reserves than it 2

4 has produced and used. Worldwide, natural gas reserves are greater than petroleum. In addition, 98% of all the natural gas consumed in the United States is produced in North America, while nearly 55% of the crude oil we use is imported. 3. Price Stability - The long term price forecast for natural gas is relatively flat and inexpensive. The long-term stability and low prices for natural gas relative to oil are likely to remain for many years perhaps even decades, based on well-documented economic models. Recent futures forecasts from IHS CERA (Henry Hub) have natural gas staying below $4/MMBtu through Volatility and short-term declines in crude oil and related gasoline and diesel prices mask the underlying long-term oil supplydemand imbalance. Furthermore, the commodity cost within CNG is 40% less than that of diesel protecting against large swings in prices when commodity costs unexpectedly spike. History of NGVs and Comparison to Electric The target customer base for NGVs has shifted over the last 20 years from a light- and medium-duty market to a heavy-duty market, comprised mainly of tractor trailers, transit buses, and refuse trucks. In the mid to late 1990 s, the automotive manufacturers (Ford, General Motors, Chrysler, Honda and Toyota) produced light and medium duty NGV cars and pickup trucks. However, the typical everyday consumer normally was not the target audience due to the extra costs associated with the CNG up-fit conversion for the vehicle and the limited refueling infrastructure available. In addition, a home refueling device for CNG costs approximately $7,000, plus installation and it requires an overnight period to fill further limiting the options for an everyday consumer. 3

5 By 2007, the NGV technology was refined for larger vehicles, including school buses, transit buses, refuse trucks, vocational work trucks and over-the-road class six through eight freight trucks. The market shifting from light-duty vehicles to the medium- and heavy-duty trucks caused the automotive manufacturers to exit the NGV market. The exception to this Original Equipment Manufacturer ( OEM ) exit was Ford Motor Company, which is currently the only manufacturer of NGVs in the light duty segment. However, even with Ford Motor Company they only target commercial fleets for their NGV product. They do not actively market NGVs within their product line. There is a long list of new manufacturers in the medium- to heavy-duty NGV marketplace including Freightliner, Kenworth, Peterbilt, Volvo, Mack, etc. These manufacturers focus primarily on producing NGVs for the commercial customers as described above. In summary, there is currently not a personal vehicle customer base within the NGV market. There are about 1,250 NGV fueling stations in the United States, and more than half are available for public use. Currently, there are approximately 120,000 NGVs on domestic roads today and about 15 million worldwide. This trend holds true in Michigan as well, as there are approximately 30 CNG stations within the state and 16 of them are public (10 DTE Gas, 1 CMS, 4 Blue Water Transit, 1 City of Riverview). There is limited overlap currently between the target customer base for NGVs and PEVs. Technology for PEVs has been around for a number of years and continues to get better and cheaper. Typical ranges hover around 100 miles on a charge, but all-battery PEVs in development are expected to have a range of 200+ miles. While the technology for PEVs is developed, operating medium- to heavy-duty vehicles on electricity is still not mature and requires longer battery life as well as upgraded fast charging systems. While prototype and first generation PEVs in this segment may be available, at such an early stage they are still extremely costly. For example, for a transit 4

6 bus you can expect to pay approximately $300,000 for a diesel version, approximately $360,000 for a NGV version, and approximately $750,000 for an all-battery PEV version. The significantly higher upfront conversion cost has limited the current market demand for PEVs in the medium- to heavy-duty space. As a result, DTE Gas, like many of its peer utilities across the country, believes PEVs could be the focus for the light-duty market while NGVs are better suited for heavy duty s such as refuse trucks, tractor trailers, and transit buses. DTE s NGV Operational History and Current Business Model The Energy Policy Act of 1992 requires alternative fuel providers, such as DTE Gas, State fleets and Federal fleets to operate 90% of their light-duty fleet vehicles (less than 8500 lbs. gross vehicle weight) on an alternative fuel. As a result of the federal Energy Policy Act of 1992 (EPACT), DTE Gas became involved with NGVs and the corresponding CNG fueling infrastructure. By 2001, DTE Gas had over 300 vehicles in their own fleet operation and owned and operated 12 public access fueling sites. The CNG stations were also used by other companies, such as AT&T State of Michigan, City of Taylor, City of Ann Arbor and Wayne County. These 12 stations have been owned and operated by a non-regulated subsidiary (outside of utility rates) of DTE Gas. The rationale for keeping this business non-regulated has been the lack of a defined benefit to a large customer base across DTE Gas. DTE Gas dispenses approximately 6 million gasoline gallon equivalents ( GGEs ) of CNG between both the public and private end-user stations. This CNG volume is the natural gas equivalent usage from approximately 7,500 residential homes on an annual basis. 5

7 DTE Gas owns and operates 12 fueling stations (10 of which are made available for public use). The 12 stations are operated under the umbrella of a non-regulated subsidiary of DTE Gas. We currently service customers such as our own internal fleet, AT&T, UBCR, and other trucking and service companies at these stations. The annual aggregate volumes for these stations has been between 1.2 million and 1.5 million GGEs over the past few years. We have seen the growth from this business stall and decline over recent years due to several factors including: 1. Sharp decline in diesel and unleaded prices 2. Expiring tax incentives for alternative fuels (state and federal) 3. Shift in customer preference to own and operate their own CNG stations In addition, DTE Gas supplies natural gas for eight privately owned CNG fueling stations within our gas service territory. The shift in customer preference to own and operate their own CNG stations has led to the increase in our CNG business from a private end-user station perspective. We have seen in recent years, large commercial customers such as FCA Transport and Waste Management decide to convert a large percentage of their fleet to NGVs and build and operate a station at on-site locations. DTE Gas does not have any ownership interest in these stations; however, DTE Gas does provide the natural gas which is used within the CNG fuel application. These private stations account for approximately 4.5 million GGEs of CNG consumption annually. The Grand Rapids area transit bus system (the RAPID) has recently implemented a plan to convert their entire fleet of buses (about 160) to CNG over the next seven years. The RAPID was successful in obtaining federal dollars to offset the cost of constructing their privately owned CNG fueling station for its operation. As a means to increase revenues and to reduce the transit buses 6

8 operating costs, the RAPID is planning to issue a Request for Proposal to establish a private-public partnership opportunity, with an established CNG retailer such as DTE Gas, to market CNG sales to third party fleet vehicles. This station model allows for the large fleet to have private behind the fence fueling for their own vehicles but also creates a new truck class station available for public use. DTE Gas feels the future of the CNG market will be primarily predicated on large commercial fleets that make a decision to proactively move towards CNG as a vehicle fuel option, likely leading to more of a private end-user station model and less of a public retail operation. If we work together with these large fleets to include a third party public access lane (similar to the RAPID) we will be increasing the amount of available CNG infrastructure for public use along with meeting the demands of our target customers. Prospective new commercial fleet customers in the State who represent the demographic for CNG conversion include the following: 1. Transit Systems - Ann Arbor, college campuses, Detroit, etc. 2. Detroit Metropolitan Airport rental and terminal shuttles, on site vehicles 3. Private Waste Haulers - GFL (f/k/a Rizzo), Granger, Republic, etc. 4. Private Long Haul Trucking Meijer, Central Transport, etc. 5. Delivery Services USPS, UPS, FedEx, DHL, etc. It is important to understand that while DTE Gas advocates that its NGV program be on the non-regulated side of the utility, it should still be a priority for the regulated utility to promote natural gas vehicle growth. 7

9 The customers of the DTE Gas do benefit from CNG usage at both our own (non-regulated owned) stations and our end-user customers (i.e. FCA Transport, Waste Management). Each gasoline gallon equivalent (GGE) of CNG dispensed results in additional distribution revenue to DTE Gas as the Utility provides the natural gas used in the CNG fuel. This is a non-traditional revenue source which helps the larger residential and commercial customer base of DTE Gas by lessening the burden on customer rates. In summary, higher CNG volumes produce more natural gas consumption, which in turn generates distribution revenue from a non-residential customer and this in turn helps to grow our Gas Utility and achieve financial targets without impacting the larger customer base. Challenges of NGV Adoption Widespread adoption of NGVs by commercial fleet trucking customers encounter many more challenges and obstacles, such as: 1. Lack of Station Availability - In Michigan, there are currently only 16 public access CNG fueling stations, all located in the lower half of the lower peninsula of Michigan. 2. New Station Construction Cost - The cost to construct and put a new heavy-duty vehicle class CNG station into operation can range between $3 - $5 million depending on the size and specific configurations. Our internal economic models indicate a payback period of 10 years if we were to build and operate a new station for public use, under the following assumptions: - Annual volume of approximately 500,000 GGEs - CNG fuel price of $2.20 charged to customer (includes taxes) 8

10 The largest barriers to achieving the scenario described above is the difficulty in finding 500,000 GGEs worth of volume fleets are not seeing the economic advantage of converting to CNG due to the low gasoline and diesel prices and lack of incentives available. It is difficult to attract new customers by offering a CNG price of $2.20 with unleaded and diesel prices currently being so low. 3. CNG Conversion Cost - There is a significant vehicle upcharge cost on a CNG truck, typically in the range of $40,000 - $50,000 for a heavy-duty truck. Without available incentives to offset this upfront cost, the fleets will need to make up the difference through fuel savings. The general guideline in the industry is a fuel spread of approximately $1.00 between diesel and CNG in order to recover the conversion costs. 4. Recent Decline in Gasoline Prices The recent upheaval in international oil markets has led to a steep decline in trading prices, as reflected in the benchmark West Texas Intermediate (WTI) and Brent oil price indices. In January of 2014, WTI closed as high as $98 a barrel but now is trading at less than $50 a barrel oil prices peaked in June at $101 (WTI) and $111 (Brent). As a consequence of the change in oil price, gasoline and diesel fuel prices have experienced steep declines as well. Even though most fleet operators know that the cost of diesel can be unstable and volatile compared to natural gas, there is still difficulty in implementing a natural gas powered truck and recovering the incremental cost of the vehicle over its life cycle. 5. Maintenance Garage Modifications - Significant dollars may need to be spent on adapting the vehicle maintenance facilities and parking areas for natural gas. Typically, these facilities were designed for diesel-powered vehicles which generate emission 9

11 issues and spills on the ground. The natural gas fuel is lighter than air, which requires that the facilities are modified to provide protection near the ceiling levels instead. Pathway to More NGVs in Michigan In lieu of placing a NGV program on the regulated side of the utility business, where a select group of commercial fleet trucking customers will benefit, there are many other options for creating a better pathway to more NGVs in Michigan, including the following: 1. Volkswagen Settlement - The total amount of dollars available from the Volkswagen Emission Mitigation Fund totals approximately $65 million and will likely be spread amongst various fuel sources including clean diesel, electric, propane, and NGVs. NGVs provide higher NOx emission reductions than clean-diesel and cost significantly less than an electric option, thus presenting a unique alternative for targeting project dollars from the Volkswagen Fund. 2. Tax Incentives DTE Gas, along with Clean Fuels Michigan (a recently formed advocacy group for promoting alternative fuels in Michigan) is advocating for tax incentives on the purchase cost of natural gas vehicles and the rollback of the Michigan Motor Fuel Tax for NGV s (currently $0.263 per GGE). In addition, the national NGV trade association, NGV America, is working with Washington legislators to reinstate the federal CNG tax credit, which amounts to $0.50 per gallon equivalent of natural gas. Either or both of these tax incentives could provide a much needed differential in the cost of CNG as compared to gasoline or diesel and spur an increase in demand. 3. Utility Rebates - Investigate the opportunity for a utility rebate program, similar to the one implemented by PG&E in California, where utilities provide a rebate on a GGE 10

12 usage basis. As mentioned previously, more natural gas usage from CNG is beneficial to other gas utility customers as it creates additional gas distribution revenue. An appropriate rebate level could be supported by other gas utility customers as it would incentivize additional CNG / natural gas usage, which in turn increases distribution revenue, which in turns lowers rates for all customers (those supporting the rebate program). A key variable to this type of program would be to determine the amount customers would be willing to pay in the form of a rebate to potentially increase the CNG usage for the utility. 4. Renewable Natural Gas Adoption DTE Gas is currently pursuing renewable natural gas as the source of natural gas to be used in all of our CNG fueling demands (public and private). Renewable natural gas, when used in vehicle fuel generates potential monetary value through energy credits which are valued currently in excess of $3.00 per GGE or $30 / MMTBU. Several national CNG providers such as Clean Energy, Gain, etc. have implemented similar programs where they generate a renewable credit, sell it to a third party who needs it for compliance, and then pass some of the value received onto their CNG customers through a reduction in the CNG price. Dated: July 31, 2017 Respectfully submitted, DTE GAS COMPANY 11