Overview:
- The Michigan Public Service Commission has approved a $113.8 million gas rate increase for DTE Energy, cutting the company's original request by over half.
- The MPSC also mandated DTE to present a plan for reducing greenhouse gas emissions. Advocates applauded the MPSC's move to shield ratepayers from steep hikes and to closely examine rate increase proposals.
- The requirement for DTE to file an updated gas delivery plan is crucial, as it enables advocacy groups to assess the need for larger rate hikes to support a potentially shrinking customer base and to evaluate the feasibility of expanding gas services in light of the state's climate objectives.
Environmental groups and ratepayer advocates praised Michigan regulators’ decision to reduce DTE Energy’s return on equity in its gas rate case and require the utility to file a plan showing how the company will reduce greenhouse gas emissions.
The Michigan Public Service Commission granted DTE a $113.8 million gas rate increase, roughly 42% of the $266 million the utility requested.
This will add about $2 to the average customer’s monthly bill. However, a separate “Infrastructure Recovery Mechanism” surcharge will add 66 cents to the average monthly bill starting this month. The charge will increase annually until 2029, when it will reach $6.28 per month.
Advocates said the MPSC’s move to reduce DTE’s return on equity from 9.9% to 9.8 and cut the company’s requested rate increase could help protect residents from the utilities’ increasingly frequent rate hike requests. The return on equity is how much the company can bill its customers in excess of its costs for certain projects, generating profit for shareholders.
DTE spokesperson Ryan Lowry said the utility was “currently assessing” how the rate case would affect its work, including upgrading older cast iron pipes with more durable and reliable materials, which could improve safety and reliability and reduce emissions.
Michigan Attorney General Dana Nessel’s office intervened in the rate case, arguing that “most of the company’s requested rate hike was excessive and unnecessary.”
“The Commission’s decision to slash DTE’s requested rate hike by more than half will save consumers hundreds of millions of dollars on their utility bills,” Nessel said in a statement. “This is money that families can now use for their own needs rather than seeing it spent on corporate jet travel for utility executives.”
Nessel had previously pushed back on DTE’s effort to include private jet travel in its gas and electric rate hike requests. The MPSC removed a request for $74,769 for travel from the gas rate increase.
The MPSC last approved a gas rate hike for DTE in 2021 when it approved an $84 million increase. The utility also has a pending $456.4 million electric rate hike request. In October, Planet Detroit reported that DTE had ghostwritten comments from businesses in support of the electric rate increase.
Nessel says frequent rate hike requests ‘abuse’ the ratemaking system
Ratepayer advocates say the MPSC’s response in the gas case shows the commission’s willingness to scrutinize rate hike requests to protect ratepayers.
“The increasing frequency with which DTE files to raise rates underscores the importance of the MPSC approaching their work in a rigorous way, and setting an appropriately high standard for what is just and reasonable to charge customers,” said Karlee Weinmann, research and communications manager for the Energy and Policy Institute, an industry watchdog group.
In a brief filed as part of DTE’s pending electric rate case, Nessel said DTE is issuing rate cases so frequently that it’s preparing new ones before it knows the outcome of pending cases.
“While this may be good for company shareholders, it is an abuse of the ratemaking system, places a continuous burden on Commission and Intervenor resources, and most importantly creates an ever-increasing demand on DTE Electric’s customers, specifically its most vulnerable low-income customers,” Nessel said.
Amy Bandyk, executive director of the Citizens Utility Board of Michigan, told Planet Detroit that the commission’s decision to lower its return on equity represents a “significant rebuke to DTE”
“Typically, the Commission either increases this return on equity or keeps it the same,” she said.
Bandyk said Michigan has been one of the most generous states in terms of the returns it grants to utilities. CUB has argued that the utility’s return on equity is set too high relative to the low-risk nature of the investment.
DTE had requested 10.25% return on equity in the rate case, but even the 9.8% granted by the MPSC is high for U.S. gas utilities, which are authorized to receive 9.6% on average.
5 Lakes Energy, a consulting firm and expert witness for CUB, calculated that the reduction from 9.9% to 9.8% would save Michigan ratepayers about $3 million.
DTE and the future of gas
Advocates called the MPSC requirement that DTE file an updated gas delivery plan significant, especially considering the state’s goal of achieving 100% carbon-free electricity production by 2040. Residential gas use accounts for 20% of U.S. greenhouse gas emissions, according to the University of California Davis Western Cooling Efficiency Center.
Bandyk said the plan could allow advocacy groups to examine whether bigger rate hikes will be needed to cover a gas network that may have fewer customers and take a closer look at questions over whether more extensive rate hikes will be needed to cover a gas network that may have fewer customers and if expanding gas service makes sense considering the state’s climate goals.
Energy experts have expressed concern that if homeowners switch to electric heat pumps, it could leave remaining gas customers paying increasingly large bills to cover the cost of gas infrastructure.
Weinman said the gas delivery plan, which is due at the end of 2025, could feed into a bigger process for examining the future of gas as other states have done.
Illinois and Minnesota have implemented processes to examine further gas investments’ climate impacts and cost-effectivenessthe climate impacts and cost-effectiveness of further gas investments.
Massachusetts completed its process in 2023. The state now bars utilities from charging customers for new gas infrastructure if viable alternatives exist and keeps them from using ratepayer money to promote natural gas.
Weinmann said these “future of gas” proceedings are a good way to engage a diverse group of stakeholders in examining utility business models, ways to reduce emissions and the risks of a business-as-usual approach.
“Challenging gas utilities to meaningfully reduce emissions is a huge but necessary undertaking, and it requires ambition, long-term commitment, and accountability for the utilities,” she said.