Back in April, DTE filed its latest request to increase electric rates. The rate case, U-22046, sought a $474.3 million rate hike, which would boost residential customer rates by 9.7%. For comparison, at the conclusion of DTE’s last electric rate case, decided in February, residential rates went up 4.1%.
This fall, the Citizens Utility Board of Michigan filed expert witness testimony with the Michigan Public Service Commission (MPSC) criticizing several aspects of DTE’s rate case. The testimony reveals several ways that customers would be unfairly harmed by DTE’s excessive request.
First, there is the matter of DTE’s return on equity (ROE), which is the rate of profit that DTE is able to charge ratepayers for a return that goes to its equity shareholders. DTE is asking that its ROE be increased from 9.9% to 10.25%, which would make its ROE one of the highest in the country for any electric utility.
CUB’s testimony from 5 Lakes Energy Senior Consultant Matt Bandyk details the flaws in DTE’s attempt to justify the 10.25% ROE. DTE uses several questionable financial methods that inflate the number compared to what a fair return would be relative to the amount of risk that DTE takes on. Bandyk proposed that a fair ROE for DTE would be 9.17%, and if regulators approved that ROE instead of 10.25%, along with a more balanced equity-debt structure than what DTE is proposing, DTE customers would save about $122 million annually. Relative to the current ROE of 9.9%, DTE customers would save about $70 million annually from Bandyk’s lower proposed ROE.
Second, our testimony also takes on the thorny issue of tariffs for large load customers such as data centers. DTE is expecting large loads from Oracle and Google to ramp up in 2029. The utility says its contracts with Oracle and Google won’t cause costs to go up for other ratepayers, but according to CUB’s expert witness testimony from Synapse Energy Economics Principal Associate Ben Havumaki, DTE is failing to provide the information to prove this is the case. The utility has proposed special contracts with Oracle and Google, but these contracts are not transparent. “Special contracts are not an adequate long-term substitute for a standardized allocation framework,” Havumaki writes in his testimony. But DTE’s existing cost allocation framework does not prevent cost shifting from new large load customers, he argues.
“Traditional methods may fail to prevent cost shifts because new large load customers are likely to cause investments in new capacity that are costlier than average historical investments,” he writes. “Further, traditional cost allocation does not protect other ratepayers from rate increases that could occur when large load customers depart and shoulder other customers with responsibility for the costs associated with assets that these large load customers caused to be constructed.”
Havumaki recommends that the MPSC require DTE to establish a separate rate class for large load customers, one that would directly charge these customers for the costs of any incremental generation, transmission or distribution facilities that have to be built but would not have been built but for the large load customer.
Third, testimony from 5 Lakes Energy Senior Consultant Moksha Menghaney looked at the costs for labor that DTE is trying to pass onto customers at a specific rate of inflation. Menghaney found that historically, DTE’s labor costs have not grown at this inflation rate. She recommended an offset to labor costs to reflect this historical growth rate that would save customers over $21 million annually.
An administrative law judge will review the various arguments made by groups such as CUB and issue recommendations in a formal proposal for decision, scheduled for Dec. 21. The MPSC usually makes a final decision several weeks after the administrative law judge’s proposal for decision.
Photo Credit: JK Nair. Licensed under Creative Commons.
