The eleven gas utilities that distribute natural gas (and one that distributes propanethough a gas pipeline system) in Michigan serve over 98% of Michigan's retail natural gas requirements. Consumers Energy Company and Michigan Consolidated Gas Company provide the majority of gas service to Michigan (see service area map). The MPSC regulates the rates Michigan utilities may charge, except where local government sets rates through their franchise authority. The MPSC also regulates the Michigan service area of two Wisconsin utilities that extend into Michigan's upper peninsula. All utilities providing natural gas service in Michigan are privately owned.
MPSC, via its rules
and regulations (per state
laws), requires these utilities to build and maintain their
gas facilities to minimum safety
standards and to accept natural gas within certain quality
standards. The Technical Standards for Gas Service and Customer
Billing Practices ensure that gas meters are accurate and gas customers
are treated and billed fairly. With the advance of technology,
new gas facilities are designed and built to last well into the
21st century. Michigan has over 55,000 miles of distribution main
and over 3,200,000 service lines. These gas facilities are maintained
to minimize the potential for leaks. Most new distribution mains
are made of polyethylene plastic that range in size from 1.25 inches
to 8 inches in diameter. The major cause of shorter life is outside
forces by nature and man. The single greatest threat to gas pipeline
facilities is damage from digging too close to buried pipelines.
Michigan's one-call center, Miss
Dig, is designed to prevent this damage by providing a means
to locate utility facilities before digging.
2010 Michigan Gas Utility Customers
Source: MPSC Form P-522 annual reports for 2010
View utility customer, delivery and revenue data from 1998 - 2010.
All of Michigan's gas utilities purchase their gas supply via contract from producers and gas marketers located throughout North America, and have it delivered to their service areas by Michigan transmission pipelines and by six interstate pipelines (see Transmission) that serve Michigan. The supply contracts vary in size, and generally run from 1 to 5 years in length. The utilities also purchase gas on a daily, weekly, and monthly basis on the "spot market" where prices and terms are negotiated to reflect what the gas market is at that moment. Consumers Energy and MichCon own extensive underground gas storage, and therefore can contract for their gas supply at a higher load factor (where the pipeline is used more uniformly and results in a lower unit cost) than other Michigan utilities who contract for their storage needs from other companies.
In recent years, the trend for supply contracts is to purchase natural gas under a shorter term contract with pricing mechanisms that follow the market more closely. This captures lower costs when market prices fall, and results in higher costs when market prices rise.
The cost is reflected in utility rates through a Gas Cost Recovery (GCR) factor or a Gas Commodity Charge for MPSC-regulated rates, and other recovery mechanisms for locally regulated utilities. The GCR factor is designed to recover exact costs that are reasonably and prudently incurred by the utility, so it increases and decreases as average gas market prices change from season to season.
In addition to selling gas, Michigan's gas utilities also offer transportation for gas sold by marketers directly to their customers. Recently, the MPSC has expanded the transportation services into the residential and small commercial classes for several utilities (see Gas Customer Choice).
Natural gas utilities in Michigan began over 100 years ago with the use of manufactured gas in Michigan's cities, and natural gas from gas fields discovered nearby. In those days, gas was used primarily for lighting. For example, the streets of Detroit were dark at night until gas lighting was installed in 1851 where they remained lit by gas until electric lights were installed in 1884. Each day at dusk (unless there was a full moon), lamp lighters would make their rounds to light the lamps.
New utilities that started with manufactured gas were built in Kalamazoo in 1851, Jackson in 1857, Pontiac in 1861, Saginaw and Bay City in 1868, and Flint in 1870.
Back then manufactured gas was generally made from a process that extracted gas from coal (Kalamazoo started with pine resin, then later switched to coal to prevent bankruptcy). The technology generally followed development in states east of Michigan. The process created gas by cooking the coal at high temperatures which yielded gas that had only about half the energy value of natural gas, and contained offensive impurities. Some impurities, such as hydrogen sulfide, were removed. Other impurities, such as carbon monoxide, were not removed. Carbon impurities left in the gas actually helped the gas flame burn brighter for its use as light, thus increasing its "candlepower" quality (the gas mantle would not be invented for several decades). By-products such as coke, ammonia and tar were sold. Later, the process was improved by adding steam, then carbureting with oil to produce gas with a higher heat content. By today's standards, manufactured gas was inferior quality and expensive (although gas burners later developed such that gas lights gave off twice the light of kerosene lanterns). In the 1850's manufactured gas in Detroit sold for $3.50 per thousand cubic feet (Mcf), not much different than recent rates. Only the wealthy could afford the $1.50 per month cost to light a house.
Natural gas production technology also came west to Michigan. Occasionally, a city would also be supplied by natural gas from a nearby field. The higher quality and less expensive natural gas would create utility growth and price competition. This often resulted in two gas companies serving, sometimes with gas mains down opposite sides of the same street. For example, natural gas wells in Port Huron supplied a second utility in 1886. A century ago, geologists knew little of how long newly discovered fields would last, so often a city was piped up for natural gas, only to have the company fold several years later. Its customers would then return to manufactured gas or other fuels. The natural gas utility in Port Huron went bankrupt in 1889.
Until the sustained deliveries of natural gas (see Transmission) phased out manufactured gas in the 1940's, there were many cities in Michigan were more than one gas company served for a short time. In 1874, two manufactured gas companies served Detroit, resulting in competition that led to the companies combining 3 years later. The same thing happened in Port Huron on 1897. In Jackson two utilities competed during the 1880's.
In 1973, manufactured gas made a brief reappearance when Consumers Energy built a synthetic gas plant near Marysville Michigan. In 1973 the Marysville gas reforming plant could produce up to 100 million cubic feet of gas per day. That doubled in 1974 when a second train was brought on line, providing up to 220 million cubic feet (6.2 million cubic meters) of gas per day from 50,000 barrels/day of liquid hydrocarbon feedstock. The gas was of comparable quality to natural gas. The plant was shut down for economic reasons in 1979.