CUB Calls for Smarter Spending on the Grid in DTE Electric Rate Case

DTE building
Source: JK Nair

Summer is here, and so is the season of mass power outages. Widespread, prolonged blackouts have struck American Electric Power customers in our neighbor to the south, and outages affecting thousands of customers recently occurred in Michigan. Of course, when you are dealing with thousands of miles of power lines, some outages are inevitable, especially in stormy weather.

But while the utility cannot control the weather, they can clear the lines of tree branches and other vegetation that are responsible for a high percentage of power outages. DTE, Michigan’s largest electric utility has been “historically deficient” in its tree-trimming practices, a failure that explains much of the reason why DTE’s reliability performance is so poor, according to testimony recently filed by expert witness Douglas Jester of 5 Lakes Energy in DTE’s most recent and ongoing electric rate case.

The problem is that DTE is proposing to raise rates to pay for hundreds of millions of dollars of upgrades to the distribution grid without fully addressing the basic failings in its tree-trimming program. Tree trimming is also a relatively inexpensive way to reduce outages, compared to more capital-intensive measures like “hardening” the grid with newer (and more expensive) equipment. Why favor capital-intensive projects over cheaper approaches? The motivations at play are very similar to what we observed last year with Consumers Energy’s rate case (a portion of which is shared here):

Imagine if every time you needed to fix something with your car—a dented bumper, a new tire—instead of paying hundreds of dollars to fix the issue, you just bought a new car for thousands of dollars.

You might, however, buy a new car every few months if you could get someone else to pay for it. In the case of electric utilities, that “someone else” is the ratepayer. Under the cost-of-service utility regulatory model that Michigan and many other states use, utilities can sometimes have a perverse incentive to overspend on capital because they can charge ratepayers for those capital investments later. The bill charges include not only the cost of the capital itself but also a return for the utility’s shareholders.

As we have written on this blog previously, cost-effectiveness should be a top priority in these efforts to improve grid reliability. The testimony CUB is supporting in this case (testimony that was also supported by the groups the Sierra Club, the Natural Resources Defense Council [NRDC] and the Michigan Environmental Council [MEC]) makes the case for how DTE’s spending can and should be smarter.

Here are some of the basics from our lengthy testimony:

The utility is proposing an 8.8% residential rate increase in that case, with much of that increase driven by spending on projects related to the distribution grid, such as a $100+ million increase in spending on its program to replace 4.8-kV lines, poles and pole tops with new equipment.

This emphasis on replacing equipment “raises the question of whether the massive expansion in distribution asset replacements may also have an element of gold plating,” 5 Lakes Energy Senior Consultant Rob Ozar said in his testimony.

These “gold-plated” capital investments that make up a big chunk of DTE’s proposed spending turn out to deliver much less bang for their buck as tree trimming does.

A stunning 73.9% of the time that DTE customers are without power, the cause is trees and tree branches falling from wind, according to information the utility presented in this rate case. DTE has launched a tree trimming “surge” that aims to bring the entire distribution system up to new standards by 2024. Those circuits DTE has already completed as part of the surge have 60% fewer outages, the utility reported.

This progress suggests “that much of DTE Electric’s reliability problem is due to its historically long tree-trimming cycle of approximately 8.5 years and that persistent and perhaps even accelerated tree trimming will significantly improve DTE Electric’s reliability performance,” Jester said in his testimony.

To give the utility some credit, DTE is working to accelerate that timeline from 8.5 years to 5 years. But while utilities need to trim more often, that is only part of the solution. They also need to look more carefully at where they trim. Some of the circuits on DTE’s grid have less than 10 trees per mile. Others have more than 1,000 trees per mile. Clearly, circuits that fall into the latter category will have more potential points of contact between a branch and a line than circuits that fall into the former category.

Placing all of DTE’s circuits on a five-year trimming cycle is a “one-size-fits-all” approach, Ozar points out in his testimony. He proposes that DTE launch a pilot program to test out multiple tree trimming cycles that would vary from circuit to circuit based on tree density. Lessons learned from this pilot program could then be applied to the utility’s tree trimming practices more generally. “By framing the program on the basis of a system-wide tree contact standard, the Company has left some nickels on the table, so to speak. Multiple trimming cycles (rather than a system-wide uniform cycle) may allow the Company to further extract reliability benefits from its tree trimming program, and to do so economically,” he wrote.

Jester called for the Michigan Public Service Commission, in its consideration of DTE’s spending, to “focus on condition-based equipment replacement supported by good monitoring and inspection. In other words, the Commission should expect DTE Electric to focus on being smart about equipment replacement rather than focusing on equipment age.”

CUB, NRDC, the Sierra Club and MEC sponsored more pieces of testimony in the DTE rate case, such as a proposal for a residential pilot program for electrifying propane, fuel oil and kerosene-burning heating systems in homes, as described by Energy Futures Group Principal Chris Neme in his testimony.

None of this is to say that DTE should not be replacing power lines and other grid equipment. But the need for these investments needs to be continually checked relative to their costs compared to the costs of alternatives that are potentially cheaper—but just as, or even more, effective at improving grid reliability.