Michiganders Pay High Rates for Unreliable Electric Service

Michigan residents pay outsized rates for some of the least reliable electric service in the country.

by Jason Hayes

The February ice storm that struck the state of Michigan took out the electric utility services of as many as 900,000 customers. In the aftermath of the outages and growing grid instability, one regional monopoly utility continues to press its case for rate increases, while legislators focus on energy options that will leave the state vulnerable to cloudy, windless days.

DTE Energy’s request to increase the rates it charges customers is currently before the Michigan Public Service Commission, the state agency charged with overseeing utility rates and plans. The proposed $619 million rate hike is the largest jump in electric rates the company has sought in over a decade. Company filings with the MPSC indicate that, if regulators approve the request, “a typical residential customer’s average electric bill may be increased by up to $12.46 per month.”

DTE’s request for this latest rate increase indicates that it would use the additional funds to cover a mix of operating expenses such as moving electrical distribution lines underground, expanding tree trimming programs to reduce weather-related outages, providing a guaranteed return on shareholder equity, financing debt, and supporting the company’s capital structure and profits..

While DTE’s request was submitted before the February ice storm, the rate increase is going forward at a time when both elected officials and the company’s customers have expressed extreme frustration with recent ice storm-related outages. State legislators and municipal officials called utility executives to task for poor quality service during legislative hearings in March.

“We cannot, and we will not accept that this is our new normal,” said Rep. Helena Scott, who chairs the Michigan House’s Energy, Communications, and Technology Committee. DTE President Trevor Lauer responded with an apology and promised that the utility is implementing a three-part solution to lessen weather-caused outages. The plan includes preventative maintenance, tree trimming and upgrading the utility’s distribution infrastructure.

While legislators raged publicly at the utility on social media and held hearings, the MPSC and utility have approved $35 bill credits for customers who suffered outages for several days. Beyond those measures, it’s not clear what, if anything, more will be done to ensure more reliable service for Michigan residents.

That lack of clear direction continues even after state legislators released a wide-ranging package of energy-related bills they dubbed their “Clean Energy Future Plan” on April 19. After more than a month of waiting, Michigan residents could have reasonably expected the next set of energy-focused bills to directly address the growing problem of unstable electric utility service. But nothing in the seven bills will effectively address these concerns.

In fact, they make it far more likely that costs will increase and system-wide reliability will decrease. That’s because the proposed bills are focused on achieving the goals of Gov. Gretchen Whitmer’s “MI Healthy Climate Plan,” not energy reliability. Legislators have chosen to focus their energies on reducing emissions of carbon dioxide, forcing the rushed closures of reliable fossil fuel generation facilities and mandating the construction of unreliable and expensive generation technologies like wind and solar. The bills will lead to Michigan being open to rapid rate increases and to make it more “vulnerable to cloudy, windless days.”

This is unfortunate, as residents of Michigan already pay the twelfth-highest average retail rates for electricity in the country. As CapCon described in a February look at the rates charged by Consumers Energy, Michigan’s residential electricity rates are 28% higher than the national average of 13.7 cents per kilowatt-hour. Residential customers in Michigan pay an average of 17.5 cents kWh for their electric service, according to the federal Energy Information Administration.

But residents of adjacent states pay far less. Federal government data shows that Ohio residential customers paid 12.8 cents/kWh, or 37% less. Illinois residents paid 13.2 cents/kWh, or 33% less, and Indiana residents paid 13.4 cents/kWh, or 31% less.

While legislators focus on climate and residents endure outages, DTE continues to enjoy strong financial performance. Yahoo Finance reports that DTE has earned an average net annual income over the past four years of over $1.13 billion. On April 21, the company’s “trailing twelve month” net income was reported as $1.08 billion.

Although Michigan residents already pay rates substantially higher than people in other Great Lakes states, state regulators at the MPSC have still approved more than $1.35 billion in rate increases for the utility over the past decade.

DTE has requested permission to up electric and gas service rates 13 times since 2011. MPSC commissioners have approved increases in every one of the company’s rate case hearings.

State regulators have also granted the utility an average guaranteed 10.1% return on equity over the same time period.

Michigan residents pay outsized rates for some of the least reliable electric service in the country.

State legislators steadfastly refuse to consider allowing the utilities to face competition. They choose instead to remain focused on mandating the rushed closure of reliable energy-generation options in favor of more expensive and unreliable renewable options. All the while, state regulators at the MPSC continue to approve rate increases.

MPSC commissioners will still have to approve DTE Energy’s current request for an additional $619 million rate increase.