OREANDA-NEWS. DTE Energy's Michigan utility is looking to expand gas-fired generation capacity as it prepares for coal plant retirements and a possible state mandate that will require utilities to show enough firm capacity to serve retail-choice customers.

DTE Electric earlier this year closed on the \$240mn acquisition of the 732MW Renaissance natural gas-fired power plant in Michigan from energy investment firm LS Power and is negotiating to buy 350MW more of peaking gas-fired generation, DTE Energy chief financial officer Peter Oleksiak said today on an earnings call.

"We look to announce the transaction next month and close this transaction later this year. With this purchase, our full-service customers' capacity requirements will be covered during the summer timeframe," he said.

DTE was keen to buy more gas-fired capacity because of projected capacity shortfalls in Michigan's lower peninsula as federal mercury and air toxics rules take effect. Midcontinent Independent System Operator (MISO) grid planners expect installed capacity in the lower peninsula — MISO zone 7 — to fall by 3GW of the prescribed reserve margin after April 2016.

DTE may need to buy even more capacity in Michigan because state lawmakers and governor Rick Snyder (R) are considering changes to previous mandates that partially de-regulated retail electricity market in Michigan and allowed 10pc of a utility's customers to switch to electricity suppliers of their choice.

The governor's proposal will require retail suppliers to guarantee enough capacity to serve that load for at least five years. DTE is serving 900MW of retail-choice customers so the company is following the legislative proposals closely because they require capacity procurement beyond what DTE already has announced.

Changes to the retail-choice program may also win back customers for DTE, which similarly requires capacity purchases. "Conversations we are having with [state utility regulators] are really highlighting the need for new generation in the state," Oleksiak said.

Meanwhile, bilateral capacity prices are heating up in MISO ahead of the massive wave of coal retirements.

The recent MISO capacity auction for the June 2015-May 2016 yielded a clearing price of \$3.48/MW per day in zone 7, down from \$16.75/MW per day for the annual planning period ending next month.

But DTE is predicting that the next auction will result in a hefty increase for capacity owners, similar to the hike that occured in MISO's Illinois zone this year. Resources in zone 4, which covers much of Illinois but excludes the Chicago metropolitan area, cleared the auction at \$150/MW per day, up from \$16.75/MW per day a year earlier.

"It is a good indication [of what] can happen within one planning year when there is shortfall that occurs ... we will see a sizable increase [in Michigan]," Oleksiak said.