Why are Michigan’s residential power rates so high? ‘This is getting outrageous’

Katheryn Millbrand hasn’t had a Christmas tree in more than 10 years. She dries her laundry on a clothesline. She and her husband have swapped out all their old appliances for more efficient models.

But the power bill for their home in a rural part of Michigan’s Thumb remains, in their view, stubbornly high.

“We basically live ‘Amish,’” she said. But their bill from DTE Energy still has eclipsed $250 a month.

Millbrand, a retiree living on a fixed income, isn’t alone. Many feel the brunt.

Michigan’s residential power rates are the highest in the Midwest and among the steepest in the nation. Though residents might plead for relief, advocates say there are big obstacles standing in the way. Power companies benefit from utility-friendly oversight and wield big clout with lawmakers in Lansing.

Meanwhile, the state’s largest utilities, DTE and Consumers Energy, say they’re committed to affordability and argue rates don’t tell the whole story.

But the persistently elevated cost of keeping the lights on has turned up the heat on simmering frustration many ratepayers feel with increasingly large and frequent rate increases the utilities are pursuing.

Both power companies are now requesting some of the biggest hikes in decades, totaling hundreds of millions of dollars each, as they race to improve historically bottom-tier reliability, update an aging grid and transition to cleaner power sources.

The hikes worry Millbrand. Her monthly budget isn’t growing as fast as her power bill. “We’re doing everything that we possibly can,” she said.

Big utilities, regulators say look beyond rates

Average residential rates in Michigan are nearly 19 cents a kilowatt-hour, almost 3 cents above the national average, and 11th highest among all states, per federal figures last updated in 2023.

Rates vary by utility, with some small municipal providers falling as low as 10 cents per kWh, and some Upper Peninsula utilities serving small customer bases across remote rural territories reaching as high as 25 cents per kWh.

But more than 80% of Michigan customers pay DTE or Consumers each month. Their rates are both near the state average.

But the big for-profit utilities still boast of “top tier affordability” and lower-than-average costs. How? They’re not talking about rates, but rather the size of the average residential power bill.

That’s about $114 in Michigan, below the national average of $137.

Michigan’s power consumption is lower, corresponding with lower bills but higher rates, according to Dan Scripps, chair of the Michigan Public Service Commission, the regulatory body overseeing big utilities.

Some three in four residents heat their homes with natural gas, and the state’s cool climate reduces air conditioning usage. All that means the fixed costs to serve homes are spread out over a smaller volume of sales, inflating residential rates, Scripps said.

“When you look at states with higher consumption than Michigan, they typically have lower rates, but they often have higher bills,” he said. Florida is one example. Its average bills are among the nation’s steepest, while its rates are below average.

While paying attention to rates is still important, the “right metric” for comparing Michigan’s residential customers to other states is a typical household bill because of that dynamic, Scripps said.

DTE and Consumers agree. Bills “reflect the impact (of) our service on a household or business” and the “powerful impact” of the utility’s energy savings programs, incentives and actions to reduce bills, said Consumers spokesperson Brian Wheeler in a statement, noting the company has connected customers with tens of millions in bill assistance and donated to nonprofits.

Energy usage, energy savings targets and regulations all vary between energy companies across different states, so DTE also prefers to measure average monthly customer bills to evaluate cost and affordability, said spokesperson Ryan Lowry. Over the past five years, its customers’ bills have grown only 2.4%, he added.

“We understand our stakeholders are going to look at costs through a different lens, but we don’t think comparing rates is a fair or accurate measure because at the end of the day customers pay a monthly bill, and those monthly costs are what matter most,” Lowry said.

‘A ridiculous comparison’

Energy experts and ratepayer advocates who are frequently involved in scrutinizing the big utilities’ rates acknowledge that Michigan’s relatively low power use plays a role in explaining its high residential rates.

But they contend there’s much more to the story.

“Our (natural) gas rates are pretty low, relatively speaking, and for the same reason, we use more gas per household, so gas is cheaper. But if you combine the two … our total energy bill per household is still pretty high,” said Douglas Jester, managing partner with 5 Lakes Energy, a Michigan energy policy consulting firm.

Some put it more bluntly.

“It’s a ridiculous comparison to compare the bill in hot weather states with the bills of people in a cold weather state and say, ‘look our bills in the cold weather state are lower,’” said Christopher Bzdok, a Traverse City-based attorney who represents environmental and consumer groups in vetting utility rate increases.

“It should be obvious that of course someone in Arkansas has a higher electricity bill that someone in Michigan because they run the air conditioner 500% more.”

Utility-friendly laws, oversight boost rates, some argue

Advocates like Bzdok who frequently tangle with utility lawyers seeking permission to hike electric rates even further say there are other explanations for Michigan’s high rates.

For one, they say Michigan regulators allow big utility companies’ shareholders to earn outsized profits at the expense of ratepayers.

One commonly debated figure is the utility’s “return on equity,” which reflects the allowed rate of profit monopoly utilities are permitted to earn on capital investments, like power plants, lines and transformers. They are allowed to collect it from customers through power rates. In theory, it’s set by regulators high enough so utilities can attract shareholder investment needed to complete projects and maintain the grid, but not so high it charges customers more than necessary.

Consumers and DTE are permitted to earn 9.9% on every dollar in capital investment, three tenths of a percentage point above the industry average in 2023, per S&P Global. It might not sound like much, but the utilities are investing hundreds of millions annually.

“A small swing in ROE means huge numbers, so having consistently among the highest ROEs, there’s a direct through line to having consistently among the highest rates,” Bzdok said.

Independent examinations of utility bills illustrate this. Some 15 to 20% of an average customers’ bill can be attributed to return on equity, according to data from the think tank RMI.

In Michigan, ratepayer advocates and groups representing large industrial customers commonly argue for those returns to be lowered, but regulators have kept them flat for several years. Utilities want them raised.

The return on equity Michigan awards falls between those two ends of the spectrum, said Scripps, the utility regulator. “We think the ROEs that we have are appropriate.”

But there are other quirks of Michigan electric ratemaking that juice costs, according to Bzdok.

Large, for-profit utilities base their requests to raise rates on a yearlong sample of revenue and costs, spanning a range of expenses, from replacing power lines to dealing with storm damage. In Michigan, they are allowed to project their expenses for a future time period, known as a “projected test year,” and commonly do.

This makes it easier for them to grow their rates, as the costs aren’t drawn from actual projects that have been completed, Bzdok argues. “It’s less rigorous in terms of what the utility has to do,” he said.

Advocates like Bzdok and Michigan Attorney General Dana Nessel frequently haggle with utility attorneys about whether the companies will actually complete projects as planned. But the best they can do is mount arguments based on whether past utility projections turned out to be accurate, Bzdok said.

“The utility is winning on the margins of every one of those fights,” he said. “That’s a losing game for customers, and that drives rates higher.”

Scripps noted the use of projected test years gives utilities certainty that they will be able to recover their costs, and they are permitted to do so under Michigan law that regulators are bound to follow.

“We’re looking pretty granularly at every investment that the utilities proposing to see whether it’s reasonable, whether it’s prudent, if it’s in a forward test year environment, whether it actually will be incurred in that timeline,” he said.

“We’re keenly aware that that there are challenges with utility affordability, particularly for customers who struggle with household bills more generally.”

Look to Lansing

Some believe another explanation for Michigan’s energy costs lies in Lansing, if you follow the money.

More than 80% of state lawmakers have accepted campaign cash from political groups affiliated with DTE and Consumers, according to a tally from the Energy and Policy Institute, a nonprofit utility watchdog group.

“It becomes really difficult for lawmakers in the Legislature to truly hold them accountable and pass laws that run counter to their primary goal, which is as profit-driven corporations is to maximize profits for shareholders and CEOs,” said Nick Dodge, communications director for the Michigan League of Conservation Voters, which has raised concerns about the political influence.

“That’s a broken system, and it really is a breeding ground for these problems we’re starting to see with high rates,” he said.

Dodge cited utility reform packages that have failed to advance in the State House amid utility lobbying and a lack of meaningful reforms, even after widespread frustration about outages following 2023 ice storms. About 15 of 148 state lawmakers have signed a pledge to reject the contributions, he said.

A bill package reintroduced this year by a bipartisan group of lawmakers would ban the utility donations outright, seeking to stem corporate influence in Lansing.

Spokespeople for both DTE and Consumers said their political activity follows the law, pointing to transparency disclosures they each publish and underscoring that shareholder funds or employee donations, not money drawn from customer bills, support political contributions.

“We participate in the legislative and political processes with a focus on compliance and transparency,” said Consumers spokesperson Katie Carey.

“DTE Energy is committed to being a responsible corporate citizen and complies with all applicable laws regarding corporate donations and political contributions,” said Lowry.

Geography matters too

There’s another factor that influences power costs in Michigan, and it stems from what many would consider the state’s greatest asset – its place in the middle of the Great Lakes.

Wholesale energy prices shift hour to hour based on supply and demand, as well as location. And Michigan’s Lower Peninsula has relatively constrained connections with the larger regional transmission grid that connects into Indiana and the rest of the Midwest, according to Bzdok and Scripps.

“Because they’ve been limited, it’s hard to import cheap power from elsewhere,” Bzdok said. This isn’t reflected in utility rate increases but ultimately appears on a charge on power bills called the “power supply cost recovery.”

Projects now underway to build the first interstate high-voltage transmission lines crossing into Michigan in 50 years might help alleviate the issue.

The massive $850-million buildout, stretching in two strips from the Indiana border into Mid-Michigan, and others planned for the future, have been justified in part on their long-term financial benefits to Michigan power customers.

While they’ve garnered enemies in the residents whose backyards are in their path and could be taken through eminent domain, the new power lines have support from a range of ratepayer advocates who say they’re a good thing for affordability. Michigan regulators are expected to rule on a key project approval for the lines in the coming month.

Those savings can’t come soon enough for some Michiganders.

Pat Frantz, a St. Clair Shores resident, says her electric service is a lifeline for her husband. He requires an oxygen generator that’s always plugged in because of a medical condition. It has boosted their power bill to over $200 a month.

Frantz opposes efforts by her utility, DTE, to raise rates, recounting experiences with outages. She doesn’t expect state leaders to step in, she said, as she knows big utilities fill campaign accounts of politicians on both sides of the aisle.

“This is getting outrageous,” she said. “Every year they want more money.”