On Sept. 23 one of the most significant milestones in the effort to (hopefully) improve Michigan’s poor electric reliability arrived when the Michigan Public Service Commission (MPSC) released the results of a year-in-the-making, comprehensive audit of the distribution systems of both DTE and Consumers Energy by third-party The Liberty Consulting Group.
“We now have a truly comprehensive deep dive into the state of the electric distribution system” that can help answer why Michigan struggles so much with power outage duration, MPSC Commissioner Katherine Peretick said during the MPSC’s meeting on Sept. 26, 2024.
Such a deep dive couldn’t be more needed right now because Consumers Energy and DTE have put forth plans that would require increasing rates significantly to spend $8.7 billion and $9.9 billion, respectively, on grid investments charged to ratepayers between 2024 and 2028 that they say are needed to improve reliability. But groups like CUB have found these plans to be in some places lacking in detail or relying on cost-ineffective strategies that have failed to address the reliability problem in the past (see this blog post about our comments on Consumers Energy’s distribution grid and investment plan filed earlier this year, and also see our comments on DTE’s plan that identified similar problems).
Digesting Liberty’s lengthy reports on both utilities is going to take time, and the audit will no doubt be revisited repeatedly over the next few years to inform work in regulatory cases that will decide how the grid is changed – and how much customers will pay.
But from what we have seen so far, in several ways the audit confirms our core critiques of Consumers Energy and DTE’s plans: that the utilities have failed to show they are planning to invest in the most cost-effective ways to improve reliability and that they continue to propose investments that carry a high return for their shareholders but have questionable benefits for ratepayers. There certainly are more than enough questions to give the MPSC pause before they approve rate increases that would make Michigan residential rates, already the highest in the Midwest, even higher.
Here are some things we have learned from the initial release of the audit, especially from the presentation given by The Liberty Consulting Group’s John Antonuk at the Sept. 26 MPSC meeting where he gave an overview of the audit’s findings.
1. Consumers Energy and DTE are well below industry standards on the schedules for routine maintenance and inspection checks in several areas.
Trimming trees is one of the most cost-effective ways to reduce outages, and trees falling on power lines is perhaps the most important cause of long-duration outages in Michigan. Both utilities have been making efforts to reduce their “vegetation management cycles” (how often they trim trees along their circuits). But Consumers Energy’s plan would still leave it with an “inordinately long vegetation management cycle,” Antonuk said. The audit found that Consumers Energy would not achieve a planned 7-year vegetation management cycle until 2030, and even that 7-year cycle “far exceeds the four-to-five year cycles typical of the industry,” he said, adding that the situation is such that “some circuits have not been trimmed in 20 years.”
DTE’s trimming cycle is five to seven years, and it is aiming to get to a five-year cycle. A bigger problem for DTE, the audit identified, has to do with how often it sends someone to visually inspect its overhead lines – the visual overhead circuit inspection program cycle. The audit found that DTE’s cycle is 20 years between visual inspections. “The major issue we found at DTE is that it has not operated the visual overhead circuit inspection program at cycles at all close to those that are typical of the industry. Even its plan to reduce that cycle to 10 years would leave DTE inspecting its poles and pole top equipment on a cycle more than twice as long as the typical four-to-five year cycles that others apply,” Antonuk said. As a result, DTE is left “without visual control over what across its whole system exists and poses immediate threats,” he said.
2. The utilities’ plans are very costly, will have a large impact on electricity prices, and may need to be switched to longer-term plans to be more realistic and to spread out the costs.
“The targets of both would require improvements so substantial as to have significant impacts on electricity prices. The uncharacteristically large expenditures planned appear to warrant consideration of longer duration scenarios and of alternate balances among programs and initiatives to reach reliability improvements,” Antonuk said.
Sticking to five-year plans may set the utilities up to fail by stressing their capabilities, the audit found. Antonuk said he has “concerns” that “the expenditures as proposed can even get the utilities to their goals in five years. To do so, work levels will have to increase dramatically…that will stress both program and project management organizations which have grown in capability but could still benefit further from maturation before facing work increases of the magnitudes indicated by the company’s plans.”
“Too sudden and too large an increase in work will substantially threaten work efficiency and effectiveness by stressing both those management organizations internal to the companies and the outside resources, which will be substantial,” he added.
Longer-term plans could also allow the utilities to get a better handle on forecasting their costs and understanding the value of individual programs to improve the grid. “It is not clear, however, that the companies have advanced sufficiently in work… to capture the unique and incremental benefits of programs and measures that operate together. Parsing their individual contributions is essential in aligning expenditures in a way that will produce the greatest reliability gain for the least cost,” Antonuk said.
3. The utilities have not fully taken into account how speeding up their trimming and inspection cycles could make their plans less costly in the long-run.
“It is not clear to us that DTE or Consumers have given full credit to the benefit in reduced restoration costs that will come from producing a system that will be subject to reduced rates of failure,” Antonuk said. For example, getting a tree trimming cycle down from seven years to five years is expensive initially because of the extra work that has to be done, but it ends up more than paying for itself in the long run because there are fewer trees and branches falling onto power lines and thus fewer outages, meaning less needs to be spent on power restoration.
The audit found that the utilities’ estimates for what they need to spend on restoring power after outages have been inflated because they rely on five-year averages to forecast restoration costs that continually overrun actual project spending.
“We found restoration budgeting problematic at both,” Antonuk said. “There needs to be an effort to produce better budgets and hold managers accountable to better and more accurate budgets for restoration.”
4. The audit identified utility equipment replacement practices that inflate costs because they focus too much on replacing equipment when it reaches a certain age rather than looking at the actual condition of the equipment.
One of CUB’s biggest criticisms of utility distribution grid spending has been that both DTE and Consumers Energy are trying to “gold-plate” the grid by making unnecessary investments in new equipment that may not be needed for reliability. The utilities have an incentive to make unnecessary capital investments because doing so increases the return they can collect on capital, which increases shareholder profit (for example, see this blog post about Consumers Energy actually highlighting the expense of their distribution plans as an opportunity for investors).
Antonuk mentioned a few examples that support CUB’s criticism. “Consumers plans to replace all 40-plus-year-old poles during its inspections whether or not they should be replaced based on their actual condition. Age is the critical factor. That approach is excessive,” Antonuk said. “Unless and until it becomes more clear by how much shortened vegetation cycles will improve reliability, we do not consider age-based pole replacements to be demonstrably effective.”
In addition, when it comes to transformers, “the company does overemphasize age as compared to equipment condition in setting its replacement criteria,” he said.
5. DTE has a big, expensive problem with its 4.8-kV lines.
About 45% of DTE customers are served by old 4.8-kV lines that pose reliability and safety risks because they require “more time to locate and fix faults than more modern 8.3 kV and 13.2kV systems, and also exposes workers and the public to direct higher risk of electric shock hazards,” the MPSC said in a press release about the audit.
While DTE’s plan through 2028 will upgrade some of those 4.8-kV lines to higher voltages, there will still be a portion of these lines that DTE estimates will cost a whopping $25 billion on the high end to complete upgrading by 2040, far exceeding the $9.9 billion of its distribution investment plan in general.
But Antonuk says even that high end estimate could be too low. “I’ve been in the industry a long time and I’ve seen a lot of megaprojects. Estimates at this stage are more likely to be exceeded than be underrun,” he said during his presentation.
These are just some of the issues that will be further explored in upcoming rate cases, distribution plan cases and in comments on Liberty Consulting’s audit report. In a Sept. 26 order in Case U-21305, the MPSC directed DTE and Consumers Energy to file responses to the audit by Nov. 15. The Commission is also taking comments on the issues raised by the audit from other interested parties by Dec. 16.