Securitization Cases

Case U-20889

Consumers Energy’s Application for a Financing Order Approving the Securitization of Costs related to retirement of D.E. Karn coal power plant units

Filed: 9/18/2020 

Decided: 12/17/2020 

What was Consumers Energy asking for?  

Consumers Energy is asking the Michigan Public Service Commission (MPSC) for approval to issue bonds that will be sold to raise $702.8 million for the remaining balance of D.E. Karn units 1 and 2 in Consumers Energy’s accounting books. The utility agreed to retire those coal-fired power plant units by 2023 as part of a settlement reached in 2019 (Case U-20165). Along with issuing this debt, Consumers Energy will be able to charge customers for the amount it pays in interest, principal payments and other costs associated with the bonds.

At the same time, customers will receive a bill credit that offsets the charge. Customers receive a credit because as part of securitization the value of the plants is taken out of the utility’s “rate base”—the value of all the company’s assets like power plants and distribution grid infrastructure and the value used to determine customer rates.

The exact size of the charge and credit, however, varies by customer class. Under Consumers Energy’s proposal, industrial customers would get the biggest net decrease in their rates, followed by commercial customers and finally residential customers. 

The Citizens Utility Board (CUB) of Michigan intervenes in this case and those like it in order to ensure that the allocation of the costs and benefits of securitization is fair to residential customers.


CUB entered into a joint litigation agreement with the Attorney General and sought to reduce the $702 million in bonds to $677 million, and also reduce other ongoing charges. The Commission ultimately did order $677.7 million for the value of the bonds on Dec. 17, 2020.

CUB supported the Attorney General’s recommendations and offered the testimony of its expert, Douglas Jester of 5 Lakes Energy. These efforts successfully fought off an attempt by large industrial customers to change the method of allocating the charges to customers, a change which would have shifted millions of dollars onto the residential class. Fortunately, the Commission sided with CUB and stated that the “production capacity allocator at the time the securitization bonds are issued shall determine each class’s annual responsibility for the total revenue requirement of the securitization. The securitization charge shall be applied as a uniform per kilowatt-hour charge within each class (p 144 of the Order).”

On Jan. 15, 2021, Hemlock Semiconductor Operations, a large manufacturer of polycrystalline silicon used in solar panels and based in Saginaw County, filed an appeal of the Commission’s order with the Michigan Court of Appeals. Because of its high energy usage, Hemlock is Consumers Energy’s largest single site customer of electricity. Hemlock has struck a Long-Term Industrial Load Retention Rate with the utility, effective Jan. 1, 2021. Hemlock argues that the securitization charge from the bonds should not apply to it under this specific long-term rate.

How are these bonds supposed to help customers?

The bonds are backed by what is called the “securitization property,” which most importantly includes the rights granted by the commission to collect the bond principal and interest payments from customers by charging them higher rates. The charges that appear on customer bills lead to a stable, predictable cash flow for bond investors, making the bonds very low risk. As a result, the bonds can be sold with low interest rates and thus the securitization method becomes a cheap way to finance the retirement of the coal plants.

Consumers Energy had told the MPSC that it expects securitization, relative to the status quo, will save customers $126 million a year.