The Citizens Utility Board (CUB) of Michigan is appealing the recent rate hike approved by Michigan regulators for Consumers Energy, arguing the Michigan Public Service Commission (MPSC) erred by approving an excessively high rate of profit for the utility.
A notice of appeal was filed at the Michigan Court of Appeals on April 24. It asks the court to order the MPSC to reconsider the return on equity (ROE) approved in Consumers Energy electric case U-21870. Briefs will be filed in two to three months, followed by an argument before judges in the fall.
The ROE is the rate of return for equity shareholders for which the utility is allowed to charge ratepayers. In a March 27 order, the MPSC approved a 9.9% ROE for Consumers Energy’s electric utility, higher than the around 9.7% national average for ROE for electric utilities. This order came despite testimony from CUB showing that the ROE should be no higher than 9.2% and a recommendation from an administrative law judge that the ROE should be set at 8.2%.
For years now, the MPSC has been awarding utilities ROEs that are higher than administrative law judges who review the evidence have been recommending, driving up utility rates and squeezing customers.
The appeal will argue that the MPSC should not have overlooked evidence that the ROE is too high relative to the amount of risk that the utility carries as a business endeavor, and that the MPSC should have articulated specific reasons why it rejected the administrative law judge’s recommendation. The judge provided nearly one hundred pages of analysis on ROE, and that analysis was rejected in just a few paragraphs by the MPSC.
“Consumers Energy provides below-average service in terms of reliability at above-average costs. There is no reason why their shareholders should also receive above-average profits,” CUB Executive Director Amy Bandyk said. “For too long, the Commission has allowed Michigan utilities – which are not exposed to competition – to enjoy a ROE that other types of businesses that compete in the marketplace would love to have. The result of this excessively high ROE is a transfer of wealth from ratepayers to shareholders that worsens electricity affordability.”
Excessive ROEs have a significant impact on rates. A 2023 paper published by the Energy Institute at the University of California Berkeley’s Haas School of Business found that rates of return for electric and gas utilities being set unreasonably high costs U.S. consumers around $7 billion per year. In this recent case, Consumers Energy ratepayers would have saved $41 million had the ROE been set at 9.2% instead of 9.9%, according to CUB’s expert witness’s calculations. The total rate increase approved by the MPSC was $276 million.