Customers of the three-largest gas utilities in Michigan are on track to see their bills soar over the next few decades, as the utilities continue sky-high spending on gas infrastructure, a new report released by the Citizens Utility Board (CUB) of Michigan reveals. In addition to the bill impacts, utility gas infrastructure investment plans are incompatible with Michigan’s emissions reduction goals, potentially putting a shrinking number of customers at risk of footing the bill for assets that are at risk of becoming stranded.
Projected Capital Investments
The report estimated projected future bill impacts using a business-as-usual (BAU) capital investment scenario developed for each utility, relying strictly on the annual investments presented in capital investment plans submitted by the three companies in recent proceedings before the Michigan Public Service Commission (MPSC). The BAU scenario forecasts a stunning $57.6 billion in capital expenditures for Consumers Energy, DTE Gas Co. and SEMCO Energy Gas Co. from 2025 through 2050, using a conservative approach that assumes companies makes investments only up to levels presented in current investment plans and then outside these plans investments grow at the modest rate of one percent per year.
Combined annual capital expenditures for the three utilities have already tripled since 2013, rising to $1.7 billion in 2023, at a growth rate of 11.6 percent per year.1 That’s more than Detroit’s entire annual capital budget ($650 million) and nearly fifteen times more than what has been spent to date addressing the Flint water crisis. If the three companies continue to increase capital expenditure at these rates between now and 2050, a trend the report ultimately thought was unrealistic to continue, it would reach a fantastical $324 billion.
However much the initial utility investment amounts are, customers will be asked to pay several times more as compensation through base rates. For every $1 in capital invested, customers are expected to pay anywhere from $2 to $4 in revenues, depending on the service life of the investment. This is due to factors such as utility capital costs, allowed rates of return on the utility rate base, and property tax increases driven by higher rates of investment by the utilities.
Bill Impacts
To cover this expenditure as well as the ongoing costs of investments in the gas system from before 2025, rates at the utilities are forecasted to increase by 2050 relative to the typical customer monthly bill in 2025:2
- Consumers: 158 percent increase (from $74.62 to $192.35 monthly)
- DTE: 120 percent increase (from $80.38 to $177.22 monthly)
- SEMCO: 106 percent increase (from $62.68 to $129.12 monthly)
Base rates were calculated using the numbers from each company’s most recent base rate case. The report noted that these projections likely underestimate the actual rate impacts as they do not account for potential customer migration away from natural gas. As customers transition off gas entirely and/or significantly reduce gas consumption, the mostly fixed system costs will need to be recovered over a smaller number of customers and throughput deliveries – increasing the per unit charges for the remaining customers.
A 2023 report from Strategen Consulting and Advanced Energy United found that Consumers Energy’s 10-year Natural Gas Delivery Plan would cause that utility’s customers to see their gas bills increase by up to 50% from 2021 to 2030.
State Climate Goals
In addition, while customers are saddled with these costs, the expansion of the gas system will make it more difficult for the state of Michigan to comply with its goals to reduce greenhouse gas emissions by 52 percent of 2005 levels by 2030 and to achieve net-zero emissions by 2050. Natural gas currently accounts for about 23 percent of Michigan’s greenhouse gas emissions (not including gas used in electricity generation) and continued significant investment in gas infrastructure is antithetical to progress towards emissions reduction goals.
The report finds that meeting the state’s emission reduction targets while maintaining current levels of gas consumption would require a 56 percent reduction in emissions from all other sectors by 2030, while also requiring all other sectors to achieve negative emissions by 2050 to offset gas emissions.
The Future of Natural Gas in Michigan
The report discusses several key challenges raised by the results of its analysis that require attention from state regulators and policymakers in the broader context of the state’s climate goals.
- Infrastructure Planning: Current accelerated main replacement program strategies take a wholesale replacement approach that commits utilities to decades of infrastructure investment without considering future system needs in a decarbonized economy.
- Rate Design: Existing regulatory frameworks designed for growing or stable gas demand may be inappropriate as climate policies and market forces move households toward electricity-powered home heating and appliances.
- Equity Concerns: There is a significant risk of vulnerable populations bearing a disproportionate share of transition costs while facing greater barriers to accessing benefits of electrification.
“The findings of the study suggest that continuing [business as usual] investment in gas infrastructure creates risks for both ratepayers and utilities while potentially hindering achievement of state climate goals,” the report states. “However, with proper planning and policy frameworks, Michigan has an opportunity to manage an orderly transition that ensures safety and reliability while advancing climate goals and protecting vulnerable customers.” This requires state policymakers to think comprehensively and over a long-term horizon about the future of gas in Michigan.
The report recommends a number of policy steps to address the key challenges, including:
- Infrastructure Planning Reform
- Shift from wholesale replacement to risk-based project selection
- Require evaluation of non-pipe alternatives
- Establish clear metrics for measuring alignment with climate goals
- Implement joint gas-electric system planning requirements
- Regulatory Framework Updates
- Shorten depreciation schedules for new investments
- Create incentives for maintenance rather than replacement and expansion
- Develop frameworks for managing stranded asset risks
- Equity Protection Measures
- Develop targeted electrification incentives for low-income households
- Create transition assistance funds
- Implement income-based rates or bill assistance programs
- Establish requirements for tracking demographic impacts
The report, “Investor-Owned Utility Gas Distribution Capital Expenditure: A Study on the Potential Bill Impacts of Business-as-Usual Investment in Michigan,” was completed by DHInfrastructure, a consulting firm based in Northampton, Mass.
1 Compound annual growth of 11.6% = ($1,739.1 million CAPEX in 2023 / $577.9 million CAPEX in 2013)1/10 – 1
2 Typical customer usage was estimated by dividing the residential volumetric sales by the number of bills as presented in the revenue proofs of each company’s most recent base rate case: 7.72 Mcf/month for Consumers; 7.54 Mcf/month for DTE; and 7.96 Dth /month for SEMCO.