Business Group, Utilities, Clash Over Rate Hikes, Electric Choice

A business group is asking the Michigan Court of Appeals to overturn a rate hike it claims would give Consumers Energy the highest profits granted by regulators this year in the U.S. The lawsuit comes while Michigan customers face the highest electricity rates in the region and the state’s two largest utilities, Consumers Energy and Detroit Edison, lobby the Legislature to return them to the status of full monopolies.

On Monday, the Association of Businesses Advocating Tariff Equity filed an appeal to reverse a decision announced by the Michigan Public Service Commission in November allowing Consumers Energy to impose a 4.5 percent ($130 million annually) rate increase, which went into effect Dec. 1.

According to the business group, under the decision the utility would be permitted to get a 10.3 percent return on equity going forward. ABATE argues that, by comparison, if the utility had been granted an increase that simply restricted its return to the 9.55 percent national average, the resulting cost to customers would have been $46.8 million less per year.

“There’s no evidence to support the commission granting an increase to give Consumers Energy a 10.3 percent return on equity,” said the group's attorney Rick Coy. “The average around the country is less than 9.6 percent and Michigan already has the highest rates in the region.”

The commission approved the Consumers' rate hike in mid-November, about three weeks before granting Michigan’s other quasi-monopolistic utility, DTE, $159 million in rate increases. Both utilities had sought even larger increases than were granted.

Between 2000 and 2008, Michigan’s electricity market was open to competition under a regime known as “electric choice,” and it routinely experienced rates that were either the lowest in the region or among the lowest. Then in 2008, the Legislature rewrote the state’s energy laws. Among other changes, the Legislature capped the level of competition Consumers Energy and DTE faced at just 10 percent of the market. Over the seven years since, Michigan’s electric rates have consistently become the highest in the region.

This year, Consumers Energy and DTE have attempted to persuade the Legislature to eliminate the final 10 percent of the market in which they face competition. Initially, House Bill 4298 would have done that openly, but with polls showing overwhelming opposition to letting Consumers Energy and DTE become full monopolies, the measure failed to move.

In early November, House Bill 4298 was changed in a manner that wouldn’t instantly eliminate the 10 percent electric choice market, but would instead restrict it under an array of new regulations. Opponents of the bill say these regulations would eventually strangle the element of competition and ultimately eliminate it. After the changes were made to the bill, it was voted out of committee and is now poised to move on the House floor if enough votes for its passage can be mustered.

“The big utilities already control 90 percent of the state’s electricity market, but they want it all,” Coy said. “The alternative electricity suppliers are selling electricity at rates 20 to 30 percent lower than the large utilities are charging and Consumers Energy and DTE don’t like the price comparison revealed by the 10 percent of the market where there is competition.”

The term “alternative electricity suppliers” as used here does not refer to companies that sell renewable energy such as wind energy. It simply means power companies that want to compete with the big utilities.

“School districts are among the 10 percent that are taking advantage of the competition and saving taxpayer dollars as a result,” Coy continued. “There are about 11,000 customers waiting for spots to open up within the ‘electric choice’ portion of the market. But in the meantime, the Legislature is considering legislation that would lock them all out permanently.”

Dan Bishop, the director of media relations for Consumers Energy, issued a statement in response to the ABATE lawsuit.

“Consumers Energy continues to make significant investments in the infrastructure to provide safe and reliable service to our customers and comply with federal and state requirements,” Bishop said. “The MPSC’s decision to maintain Consumers Energy’s currently authorized return on equity of 10.3 percent is supported by substantial record evidence and extensive MPSC deliberation, and is fully within the MPSC’s expert ratemaking discretion. The MPSC speaks through its orders, and after carefully weighing the record evidence, reasonably and appropriately concluded its order.”

“The recently concluded electric rate case for Consumers Energy resulted in lower electric costs for job creators in our State, which is helping to drive economic development, as well as ensuring that all customers are benefiting from our enhanced reliability of electric service,” Bishop continued. “Total bills paid by Consumers Energy’s residential customers remain below the national average following this rate case. We also are securing energy supply for the future, purchasing a natural gas-fired plant in our hometown of Jackson for a quarter of the cost of building a new plant. We call on ABATE to suspend its advocacy for massive subsidies — now totaling more than $1.8 billion — paid by virtually all of us, 99.98 percent of customers, to a very small group of customers, 00.02 percent, served by out-of-state and increasingly unreliable alternate energy suppliers.”

Maureen McNulty Saxton, a spokewoman for Energy Choice Now, one of the groups fighting the effort to end electricity choice in Michigan, described the Consumers Energy rate hike in the context of a triple whammy aimed at the state’s ratepayers.

“It comes when the big utilities control 90 percent of the market and are trying to regain full monopoly status by grabbing 100 percent,” Saxton said. “It comes when Michigan residents are paying the highest rates in the region. And it comes when we all know that overall energy costs are down due to competition and the abundance of natural gas.”

“The rate increase also shows that the MPSC can’t be counted on to fully protect ratepayers,” Saxton added. “What’s needed is competition.”