U.S. utilities are reporting growth in residential demand, as well as commercial and industrial (C&I) consumption, underpinning investments in more natural gas-fired generation and system reliability.
Atmos Energy Inc. CEO John Akers during a call to discuss the fiscal first quarter earnings highlighted capital expenditures (capex) for modernizing its natural gas distribution system to serve “growing demand from all of our customer classes.”
The Dallas-based natural gas utility serves more than three million customers in eight states, mostly in the South and Rockies. During the final three months of 2023, Atmos directed more than 80% of $770 million in capex to transmission and distribution pipeline, storage and compression and safety upgrades.
For its Atmos Pipeline-Texas (APT), one of the largest intrastate gas distribution pipelines in Texas spanning more than 5,600 miles, the utility completed several projects to diversify supply and improve the system.
Atmos placed into service Line PC, a 22-mile, 36-inch diameter pipeline connecting to Kinder Morgan Inc.’s Permian Highway Pipeline (PHP) running from the Waha to Katy hub. The expansion “supports the current demand and forecasted growth to the north of Austin in both Williamson and Travis counties,” Akers said.
NGI’s Waha basis for March natural gas delivery stood at minus 76.1 cents as of Friday, while Katy was at minus 25.6 cents.
Atmos also completed the third phase of the four-phased, 104-mile Line S2 project to flow more natural gas from the Haynesville and Cotton Valley formations via the APT to the Dallas-Fort Worth Metroplex. The third phase replaced 22 miles of 14- and 20-inch diameter pipeline with 36-inch line, and the final phase is slated for completion by the end of the year. The utility continued bolstering the APT system by completing 24 miles of its 80-mile, 36-inch Line WA Loop project to further increase supplies to the region.
The modernization projects are setting the stage for the vast customer growth Atmos is expecting. It added about 58,000 customers, mostly in Texas, including 11 new industrial customers, which when fully operational, would require about 2.5 Bcf/year of natural gas, Akers said.
Commercial customer growth also “remained solid,” with more than 1,000 commercial customers added to the system. “This growing demand from all of our customer classes demonstrates the value and vital role natural gas plays in economic development across our service territories,” Akers said.
C&I Optimism
Duke Energy Corp. also noted its utilities operating in the Southeast and Midwest are delivering to the “fastest growing” regions in the United States with an increased capex plan of $73 billion over five years, an increase of $8 billion from its previous four-year plan, CEO Lynn Good said during the recent earnings call.
Charlotte, NC-based Duke provides gas and electric services to more than 8.1 million customers in Florida, Indiana, Kentucky, Ohio, North Carolina and South Carolina.
CFO Brian Savoy, who joined Good on the earnings call, said, “strong growth with investments across all jurisdictions related to integrity management and to serve a growing customer base.”
In January, Duke’s Carolinas segment filed updates to its resource plans to account for a major uptick in growth. Duke’s latest capex plan “reflects an early estimate of the supplemental Carolinas resource plan” as well as investments in grid reliability. In addition, capex for generation “ramps up in the latter part of the plan as we add more renewables and storage assets, extend the life of our carbon-free nuclear fleet and make prudent investments in cleaner natural gas to better serve our growing customer base,” Savoy said.
Customer growth is improving across Duke’s territories, including in the Midwest. Savoy noted that C&I customers, which had lower demand year/year in 2023, “are very optimistic in 2024. They’ve seen a rebound happening mid-ish year.”
Similarly, Rapid City, SD-based Black Hills Corp. CEO Linden Evans also cited optimism in 2024 given “recent downward trends in inflation, interest rates and natural gas prices” that could provide tailwinds throughout the year.
Softer natural gas prices and weaker energy costs have helped in part to keep inflation below last year’s extremes, according to the latest U.S. Department of Labor Statistics Consumer Price Index report.
NGI’s Bidweek Historical Data show the National Avg. in 2023 averaged $3.710/MMBtu. That is more than 50% lower than the prior year’s average of $6.687, when Russia’s invasion of Ukraine coupled with extreme summer heat and volatile winter storms kept prices elevated. For February 2024, the National Avg. traded at $3.215.
Black Hills’ Todd Jacobs, senior vice president of Growth and Strategy, highlighted during the 4Q2023 earnings call with Evans that demand from artificial intelligence, blockchain and data center customers is increasing nationally. Last year, Black Hills partnered with several power-hungry customers. Microsoft Corp. added two data centers in Cheyenne, WY, as well as a blockchain customer “that we expect to grow even more in 2024,” Jacobs said.
Black Hills’ renewable natural gas (RNG) investments also are “an area of optimism and opportunity, and is a small but growing piece of our business,” Jacobs added. The utility is adding four interconnect projects this year, and recently purchased an RNG production facility in Dubuque, IA.
Southern Company, meanwhile, reported strong residential customer growth across its territories. The company provides gas and electricity to more than 9 million customers in Alabama, Georgia, Illinois, Mississippi, Tennessee and Virginia. The gas and electric utility added 27,000 gas and 46,000 electric customers last year, noted CEO Chris Womack during the 4Q2023 earnings call.
And while industrial gas and electric sales were lower year/year in 2023, “economic development in our Southeast service territory remains incredibly strong,” Womack said, with much of the emerging energy demand coming from data centers.
As such, subsidiary Georgia Power Co., which delivers electricity to 2.7 million customers, is planning to add more natural gas fired-generation to its portfolio, according to the company’s latest integrated resource plan. The utility is seeking approval for three dual-fuel combustion turbines to an existing generation plant that would generate up to 1,400 MW when running on gas, or up to 1,100 MW when operating on oil.
Meanwhile, WEC Energy Group Inc. management detailed how customers in Wisconsin are expected to benefit from more natural gas storage, while its Illinois segment faces some regulatory hurdles.
CEO Scott Lauber said during the company’s earnings update that the company’s Bluff Creek LNG storage facility has been brought online in Walworth County, WI. The liquefied natural gas storage facility, the capacity for which was not disclosed, “provides a solution to meet peak customer demand for heating as well as gas supply needed for power generation,” Lauber said.
Economic expansion driven by commercial and industrial investments in southern Wisconsin also spurred WEC subsidiary Wisconsin Electric Power Co. LLC, aka We Energies, to seek regulatory approval for two new natural gas-fired generation projects and more LNG storage to support the additions.
The electric utility, which serves 2.2 million customers in Wisconsin, filed in early February for approval to build the Oak Creek Power Plant (OCPP), a 1,100-1,200 MW simple-cycle combustion turbine plant. It is aiming to bring OCPP in-service between fall 2027 and summer 2028. We Energies also requested to construct and bring online a 130 MW generation project by summer 2026 near its existing 400 MW Paris Generation Station.
In its filing, the utility told regulators it would, in the future, seek approval to add an LNG facility near OCPP by summer 2027, “primarily to ensure a firm supply of natural gas” and to ensure access to the fuel “during peak demand and system upsets.”
Regulatory Hurdles
WEC, which provides gas and electric services to more than 4.6 million customers in Illinois, Michigan, Minnesota and Wisconsin, faced regulatory setbacks at the end of 2023 with the Illinois Commerce Commission’s (ICC) pause on the utility’s safety modernization program (SMP).
WEC had anticipated directing $800 million from 2024-2028 to the SMP to replace more than 2,000 miles of aging natural gas pipelines in Chicago. Executive chairman Gale Klappa told analysts that a 2020 study commissioned by WEC and filed for regulators “concluded something pretty stark…more than 80% of the remaining iron pipes under Chicago have a remaining useful life of less than 15 years.
“That material was reintroduced in our rate case this past fall” but was dismissed “as old data,” Klappa said.
ICC regulators over the last few months have challenged gas utilities on pipeline replacement programs. In November, ICC approved new rates for four gas utilities, including two WEC subsidiaries, that came in between $6 million and $101 million below companies’ requests. For each rate case, ICC also directed utilities to start a “future of gas proceeding…to evaluate the impacts of Illinois’ decarbonization and electrification goals on the natural gas system.”
Kappa cited optimism for both PGL’s SMP and the future of gas proceeding, “particularly with the fact that…from a safety standpoint, these cast iron pipes, 80% of them have a remaining life of less than 15 years.
“I think we're going to get to a very reasonable point. This policy is just too important to the future, not only from an energy supply standpoint, but from an economic standpoint for the state of Illinois.”
