Last year, the state approved a price increase for DTE’s services, which means that the average residential customer’s monthly bill is estimated to be $6.51 higher than before. Looking ahead, the company is also pursuing a gas rate increase that would go into effect this November. The Michigan Public Service Commission has yet to vote on that increase.
Stateside spoke with Sarah Alvarez, the director of Outlier Media, about what’s behind these rate changes and how elected officials and communities are responding to them.
Why does DTE want to raise rates?
There are two primary factors that go into DTE raising their rates: the rate case process and the company paying dividends to shareholders.
Alvarez explained how utility companies in Michigan have the opportunity to go before the Michigan Public Service Commission (MPSC) each year and make a case for why they need more funding to run their business, which is called a rate case. Alvarez said utility companies’ basic argument is showing that their operation costs continue to increase, and assert that customers should be the ones to pay for that increase.
“What the MPSC is looking for when they decide whether or not DTE is asking for too much money is: are the costs reasonable and prudent? And that includes shareholder profits… so that's the way they run their company,” Alvarez said.
Unlike publicly-owned utility companies or cooperatives, for-profit companies like DTE pay out dividends each year to their shareholders.
“The difference between [public utilities] and a for-profit utility is that when rates go up, the money that comes in goes right back into infrastructure, or the costs of the company. In a for-profit utility like DTE, a lot of that money goes straight to shareholders,” Alvarez said.
Alvarez also said that this model is “pretty antiquated,” dating back to the early 19th century.
In her reporting, Alvarez spoke with someone who felt that this business model and the consumers are on a “collision course.” The increases DTE consumers are seeing is just a fraction of what DTE has asked for. In this most recent rate increase, the MPSC only granted 10% of the rate increase the company asked for.
“Basically, with this model, there is never an incentive for costs to go down. They are only going to keep going up from time-to-time,” Alvarez said.
How are rate hikes decided?
Alvarez said that, while rate cases are a public process, the complexity of these cases makes them relatively inaccessible for the average ratepayer. Each rate case has thousands of pages of very technical documents, and an administrative law judge with utilities expertise must give their decision to the MPSC, who then decides whether or not to move forward with the judge’s decision.
To Alvarez, the way rate cases are set up incentivizes for-profit utility companies to have a complicated case.
“The cases need to be decided within ten months. So the more that the utility companies kind of throw at the MPSC, this kind of ‘flood the zone’ idea, the more the commissioners and the staff and the administrative law judge have to go through to decide, ‘does this make sense?’” Alvarez said.
What's being done about it?
As people in places like Ann Arbor call for a public utility model, Attorney General Dana Nessel has pushed back on DTE to further explain why it needs increased funds to run its business.
“[Dana Nessel is] not the Michigan Public Service Commission. She does not have to decide whether this is reasonable or prudent. She wants a very concrete answer of why exactly DTE is asking for the money that they're asking for, and how they would be spending the money that they get,” Alvarez said.
Alvarez asserted that there are larger questions left to be answered about how utility models in Michigan will evolve to meet demand moving forward. One report found that Michigan ranked #2 in most power outages in the country between 2000-2021.
“There have been a lot of questions over the years about how these rates get spent inside of the company. Are we shoring up infrastructure? Are we getting ready for the future?” Alvarez asked.
To hear more about rate increases at DTE and how for-profit utility companies operate, listen to the Stateside podcast.
GUEST ON THIS EPISODE:
- Sarah Alvarez, director of Outlier Media
[Get Stateside on your phone: subscribe on Apple Podcasts, Google Podcasts, or Spotify today.]
