OPINION: DTE & Consumers Energy offered clear lessons at this week’s power outage hearings. Legislators need to act on them.

To fix utilities, lawmakers must stop the bleeding, treat the disease and follow up with preventative care.
DTE President and Chief of Operations Trevor Lauer testifying before the Energy, Communications, and Technology Committee.

A clear roadmap emerges if you put together the pieces of what DTE and Consumers said at Wednesday’s Michigan House Energy Committee. Now legislators need to muster the courage to act on it.

First, let’s establish where we’re starting. There is an $800 million dollar affordability gap for low to moderate-income households in DTE Electric’s service territory. DTE’s overall performance on reliability –  in terms of actual time customers spend without power – is one of the worst in the country, and in 2022 it was substantially worse in census tracts with high cumulative health and social vulnerabilities.

Oakland, Wayne, and Macomb counties combined experienced over $485 Million in economic costs from unreliable power in a single year in 2020.

DTE President and Chief of Operations Trevor Lauer testified that to solve DTE’s reliability problems, the utility needs to continue investing in the grid. 

He repeated this point when pressed about the company’s recent $622 million rate hike request, its decision to reduce certain operating expenditures to maintain shareholder returns shortly after the Michigan Public Service Commission rejected most of its prior rate hike request, and its apparent inability to achieve service improvements despite being continually granted rate hikes centered on solving reliability issues. 

Lauer’s presentation was reminiscent of the signs up in small family diners – “You can have good, fast service, but it won’t be cheap. You can have fast, cheap service, but it won’t be good.” 

Legislators continued to point out that this narrative rang hollow in light of DTE’s actual profits, which, at over a billion dollars in 2022, are enormous.

But Lauer stuck to his guns: you can have affordable service, but it won’t be reliable. You can have reliable service, but it won’t be affordable.

This leads to Lauer’s even more troubling assertion: that the public is responsible for making up the affordability gap. He touted DTE’s advocacy for increasing public spending on energy assistance and DTE’s own contributions to energy assistance funds. 

In practical terms, Lauer proposed that the solution to the affordability problem (which, even at $800 million per year, is smaller in size than DTE’s annual profits for the last three years) should be solved by increasing government spending to pay peoples’ bills – which, in effect, puts public dollars directly into DTE’s pockets. 

DTE isn’t asking for a bailout. It admits it is already being bailed out annually for the unaffordability of its unreliable services. It wants even more public subsidies for service improvements at some point in the future.

The Michigan Public Service Commission has some accountability here, to be sure. They could have recommended a stronger outage credit policy in their administrative rulemaking process –  and still could. 

But as Commissioner Katherine Peretick described in the hearing, the Commission’s broad authority to set “just and reasonable” rates has been curtailed. The Commission cannot make management decisions for the utilities they regulate. Instead, it is left with things like ordering working groups, infrastructure audits, technical conferences and responding as best to utilities’ filings. 

The MPSC cannot, for instance, order DTE to begin offering battery banks to vulnerable households and paying for them with shareholder funds –  unless DTE makes such a proposal. They can ask, but DTE (and Consumers) can deny.

There is one point on which everyone seems to agree: Seeing actual improvements will take time. Peretick highlighted that the state of electric distribution is a major contributor to unreliable power, and the scale of infrastructure improvement that is needed is on the order of billions of dollars and at least decade. 

In the meantime, people like Highland Park Mayor Glenda McDonald still need to keep senior citizens safe, keep fire departments operating, and run municipal operations. Residents will bear thousands of dollars in costs from flooded basements, lost food, work hours, and degraded health and be rewarded with a $35 credit – if lucky. 

As to this reality, DTE and the Commission have no good answer. On the Commission’s part, it is a matter of their limited authority. On DTE’s part, it is a matter of being a publicly-traded company that must put shareholders first and would never willingly advocate for a policy that does otherwise.

But I left yesterday’s hearing excited. Because despite the weight of the problems, what we heard from utilities and the MPSC offers great clarity about potential solutions –  if legislators are willing to reach for them. 

These solutions point to what I perceive as a three-step approach to addressing the combined crises of affordability and reliability: Stop the bleeding, treat the sickness, and provide preventative care.

Stop the bleeding: The critical intervention here is hourly, automatic outage credits from shareholder earnings. Utilities must be made to share customers’ pain in their profit margins – a publicly traded company’s most critical behavioral driver. 

This intervention ensures compensation for those harmed by outages without drawing on the public budget. It creates real pressure for utilities to care not just about how much money they’ve spent but whether they’ve achieved outcomes. This is an element of performance-based ratemaking that the Commission is currently considering – and could be greatly expedited with legislative action.

Treat the disease: The data clearly shows that we have crises of affordability and reliability that must be addressed. Recent testimony indicates that the most cost-effective measures to reduce the affordability gap are technological – solar, energy efficiency, demand response, and electrification. And the solution to the immediate crisis state of reliability is also technological –  providing batteries and generators to essential facilities and vulnerable households.

Source: https://mi-psc.force.com/sfc/servlet.shepherd/version/download/0688y00000789BlAAI; FPL= Federal Poverty Line
Source: https://mi-psc.force.com/sfc/servlet.shepherd/version/download/0688y00000789BlAAI; LMI= Low-Moderate Income

The above two charts are from the testimony of Boris Lukanov of PSE Healthy Energy in DTE’s Integrated Resource Plan (Case #U-21193). The first chart shows the impact to energy burden for households at 200% of the Federal Poverty Level and below of utilizing weatherization, heat pump efficiency and electrification, solar, and demand response. The second chart shows the effect of funding these interventions on the affordability gap and the long-term cost-effectiveness compared to providing assistance to close the gap fully.

As Lauer pointed out, utility profits are based on capital expenditures on which they get a legal right to earn a return, so forcing the utilities to build such assets only increases the affordability gap. The Michigan Legislature should begin steadily increasing funding incentives to low-to-moderate income households to implement solar, batteries, energy efficiency, demand response, and electrification, focusing on census tracts with especially poor reliability performance and households with cumulative vulnerabilities. 

This goes hand-in-hand with existing and likely soon-to-be-introduced legislative efforts to enable community solar, increase outage compensation rates, and lift the cap on distributed generation. 

It is almost certain that public dollars will be spent improving the grid in parallel, flowing from federal and state governments to utility budgets. Legislators should look for opportunities to directly fund community-based efforts to improve the grid, such as micro-grid construction. 

When dollars must go to utilities, they should be tie-barred to commitments that such assets will not earn a rate of return (as they were publicly funded) and that failure of those investments to improve reliability outcomes will incur steep penalties for the misuse of public funds.

These measures will directly address two major social crises and create an economic boom for emerging technologies, ensure equity in their rollout, and put competitive pressure on the utilities to get with the times. 

Preventative care: The legislature must take action to reconstitute the authority of the Michigan Public Service Commission, explicitly empowering it to require affordability, reliability, and equitable access to emerging technology as conditions for regulated utilities to earn a profit. The legislature should also consider what happens if, despite these efforts, utilities still fail to improve and find ways to continue rewarding shareholders regardless. 

The material fact is that the utilities own the infrastructure, provide the service, and are literally banking on the belief that everyone is too afraid of what might happen if they get into a real fiscal crisis to press them too hard.  Assessing the feasibility of placing investor-owned utilities under emergency management or establishing energy as a public service territory-wide would give legislators much greater leverage to press service improvements.

We will see more public hearings from the MPSC, the Michigan Senate, and hopefully further hearings from the House in the coming weeks. And they will undoubtedly continue to illustrate the problem more clearly than ever before.

The interventions I’ve outlined above are not easy. We have waited far too long, and the disease has festered – but it’s not too late. Providing outage credits, battery storage, and solar for the most vulnerable pays off in the short term and long term – for everyone – on the fronts of reliability and affordability. The legislature cannot continue to hide behind the regulators they have failed to empower or the utilities who have demonstrated an utter disregard for their customers.

The work ahead is hard. But it’s time to get started.


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