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DTE expected to keep midstream portfolio as other utilities divest gas assets

DTE Energy Co. is unlikely to sell off its entire midstream portfolio even as other large utilities move away from the gas transmission business to speed up decarbonization efforts, industry experts said.

Following an Oct. 7 report that DTE is looking into unloading or spinning off its natural gas pipelines and nonutility businesses, analysts at Guggenheim Securities LLC told clients Oct. 8 that a recent discussion with the company's management team indicated no rush to the bidding table.

"DTE is not looking to sell non-utility assets at fire-sale levels despite where the industry trends are heading," they wrote. "It is not the right time to capitulate when fundamentals are strengthening and DTE's midstream assets are performing well with organic growth opportunities as they harvest the existing infrastructure."

CBRE Clarion Securities portfolio manager Hinds Howard agreed that price is a key concern. He said in an email that spinning off DTE's midstream portfolio would be more feasible than an outright sale because "finding a buyer who would pay a similar multiple to what they paid to build their portfolio I believe will prove challenging in this environment."

When it comes to the gas gathering assets in Louisiana's Haynesville Shale that DTE acquired from Momentum Midstream LLC and Indigo Natural Resources LLC in 2019, Guggenheim noted DTE's C-suite "sees there could be some modest incremental organic capital opportunities with high returns." The utility's advantage as a 50% owner of NEXUS Gas Transmission LLC alongside Enbridge Inc., they continued, is that the pipeline anticipates "attractive pricing opportunities" for recontracting capacity, while Dominion Energy Inc. and Duke Energy Corp.'s July decision to cancel the 1.5 Bcf/d Atlantic Coast Pipeline LLC has also turned into an opportunity for moving gas.

At the same time, CBRE's Howard noted, DTE could still sell part of its midstream business, adding that Enbridge could take a look at expanding its stake in NEXUS.

Investors welcomed news of a potential transaction involving DTE, sending the stock price up nearly 6% in early afternoon trading just months after fellow multiutility company Dominion struck an agreement to divest its natural gas transmission and storage assets for roughly $9.7 billion to Berkshire Hathaway Energy. At the end of August, Consolidated Edison Inc. Chairman, President and CEO John McAvoy said the company will no longer invest in long-haul natural gas pipelines and may sell its existing portfolio.

"We made those investments five to seven years ago, and at that time we — and frankly many others — viewed natural gas as having a fairly large role in the transition to the clean energy economy," he said. "That view has largely changed, and natural gas, while it can provide emissions reductions, is no longer ... part of the longer-term view."

As of mid-July, 13 of the 30 largest U.S. publicly traded electric and gas utilities had set goals to achieve either zero or net-zero greenhouse gas emissions by 2050 or earlier or have set a goal of 100% clean electricity. At least 10 plan to reduce emissions of greenhouse gases, primarily methane, from their gas distribution and retail sales operations. Many of these efforts involve replacing older gas delivery pipelines.

CenterPoint Energy Inc. may also be gearing up to unload its stake in Enable Midstream Partners as the utility undertakes a strategic review.

Mizuho Securities USA LLC's Anthony Crowdell said he expects more utilities will follow Dominion, ConEd and potentially DTE and CenterPoint.

"The transition to pure-play regulated [businesses] has probably gone faster than I would have imagined," he said in an interview.