Final answer:
DTE Energy and other utilities benefit from economies of scale, making extensive capital investments less risky. However, the entrance of new competitors can be cost-prohibitive due to the duplication of infrastructure. Additionally, environment-related marginal external costs, evaluated through impact statements, are critical in assessing the risks and benefits of pipeline constructions and expansions.
Step-by-step explanation:
Construction and capital improvements to power facilities, such as those of DTE Energy, come with inherent risks due to the heavy investments required. When a utility company installs lines in a new subdivision, the cost to add service for one more home is low, benefiting from economies of scale. However, these savings only occur when a single provider serves the whole market without duplication of infrastructure. Should a new entrant come along, they would face significant investment costs without providing additional efficiency.
In the context of pipeline construction, it is not only the direct costs that matter but also the marginal external costs, often revealed through environmental impact statements. These statements evaluate the implications of projects like pipeline construction on the environment and weigh the benefits against potentially harmful effects. For example, impact assessments may consider alternative routes that reduce the impact on aquifers or environmentally sensitive regions.
The proliferation of assets such as pipeline networks, like the extensive ones owned by Kinder Morgan, can facilitate the distribution of resources like natural gas, improving the efficiency of transferring gas from wellheads to end users. Such integration in the energy sector can bring about more smooth and cost-effective operations, showcasing the benefits of owning vast infrastructure networks.