MPSC Proposal for Financial Rewards to Utilities Faces Opposition

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Photo by Brendan Wood, licensed under Creative Commons Attribution-ShareAlike 2.0

Regulations that punish utilities for poor performance is perhaps what Michiganders need the most to get more accountability and better electric reliability. But utilities are steering the regulatory process to craft new regulations toward weak and self-serving rules. Now that process is getting the spotlight it deserves with a recent Detroit News article that reports on how the Citizens Utility Board of Michigan, a number of community and environmental groups, municipalities around the state and more are registering their disapproval of the Michigan Public Service Commission (MPSC) Staff’s proposal for financial incentives and disincentives linked to utility performance on reliability.

We have already talked how what the MPSC has proposed could reward utilities for marginal progress on poor performance with no upside for the customers affected most by frequent and long-duration power outages and, indeed, no checks on how customers could be harmed by rate increases to pay for these rewards (see this blog post about our comments on an initial version of the MPSC Staff proposal).

But now the MPSC Staff has put out a revised version of their proposal for performance-based incentives and disincentives, and it unfortunately retains the problems we talked about before, while introducing some new ones.

For one, the Staff proposal tracks reliability performance in such a way that “utilities would be less motivated to focus on the most important factors that lead to poor performance” on outages, we said in a new set of comments. In these comments, CUB was joined by the Ecology Center, Environmental Law & Policy Center, Michigan Municipal Association for Utility Issues, Union of Concerned Scientists and Vote Solar.

If you’ve seen CUB’s Utility Performance Report, it will be familiar that measures of reliability track frequency and duration of outages including and excluding “Major Event Days,” which are the days when events like severe weather cause mass outages. Major Event Days have an outsized effect on reliability. For example, based on 2021 data, the average length of outage per customer for Michigan when counting Major Event Days was 873 minutes, compared to just 178 minutes when excluding them.

But despite the huge role they play in shaping the outage experience that utility customers face, Major Event Days are undercounted by the Staff proposal. It proposes giving a utility an incentive or disincentive based on how well or poorly they do on two measures of average length of outage per customer: one excluding Major Event Days, and another “all-weather” (meaning, both Major and non-Major Event Days). That means that the non-Major Event Days are counted twice. That double-counting would lead utilities to “focus more on factors causing outages linked to [non-Major Event Days], leaving the majority of the causes of Michigan’s reliability problem insufficiently addressed,” our comments said.

We suggested that instead the MPSC simply use all-weather events to measure utility reliability performance. That easy change would greatly improve the Staff proposal, but it would not be sufficient to make the proposal palatable for ratepayers. That is because even if it got the metrics right, the proposal would offer utilities rewards for performance that is unacceptable by the MPSC’s own standards.

As reported by the Detroit News, communities like Ann Arbor, Birmingham, Flint, Livonia, Kentwood, Pleasant Ridge and Meridian Township are balking at the idea that utilities should get any kind of financial reward as long as their performance on outages is so poor.

“Ann Arbor opposes any mechanism that would give an ‘extra’ financial reward (bonus, incentive payment, etc.) for a utility that improves its reliability to a minimally-compliant level,” the city of Ann Arbor said in its comments, the Detroit News reported.

“This is especially true given it was DTE’s own behavior and choices that caused it to deliver some of the worst reliability in the country — despite being granted the opportunity (which it exploited) to secure above-average earnings. No other industry is rewarded for not meeting basic standards — and Michigan’s utilities should not be the exception.”

In our comments, we point out that the MPSC’s own Service Quality and Reliability Standards — which set out the minimum standards for electric service that Michigan customers should expect — state that the MPSC may authorize a utility to receive a financial incentive only “if it exceeds all of the service quality and reliability standards.”

But DTE and Consumers Energy do not exceed the standards — far from it. For example, the standards require that not more than 6% of a utility’s customers may experience four or more sustained electric service interruptions annually. In 2022, DTE and Consumers Energy reported that around 7% and 9.5%, respectively, of their customer bases experienced four or more electric service interruptions.

The proposal is not final, and there can still be improvements. Any member of the public can submit comments to the MPSC’s docket for this incentives/disincentives proposal, located here. You also can consider contacting your representative in the state legislature and explain that this issue is important to you and that additional policy action may be necessary if the MPSC fails to establish robust performance-based regulation.