Michigan regulators have approved a settlement agreement that concludes Consumers Gas’s latest rate case, cuts the utility’s requested rate increase on residential customers by about half and provides additional assistance to low-income customers who are struggling to pay utility bills in the current economic climate.
Residential ratepayers will see a 9% rate increase, compared to 8.6% for all customer classes. The settlement allows Consumers Energy’s to raise $144 million from ratepayers from October 1, 2020, to September 30, 2021, down from $245 million as the utility previously requested.
But a substantial amount of that revenue decrease is from a change in accounting, not because Consumers Energy or the Michigan Public Service Commission decided to give ratepayers a break. Most of the difference between the $144 million being collected now and the $245 million requested comes from $84.5 million in tax accounting items that will be amortized by the utility from Oct. 1, 2021, to Sept. 30, 2022, instead of spread out over a longer period. The simple explanation for this accounting move is that due to the Trump tax cuts, Consumers Energy will be paying less taxes than it had previously thought, so it has many accounting items on its books that represent a decrease in revenue. The company can recognize those revenue decreases over a long period of time, but, through the settlement, the utility agrees to accelerate the amortization, reducing its revenue requirement in 2021 to 2022. As a result, it does not need to increase rates as much as it would have if it amortized the tax items more slowly. The flip side of the coin, however, is that rate increases in the future will be larger because these tax items have already been dealt with through this settlement.
The settlement also provides for $2 million to be donated to nonprofit groups that assist consumers struggling to pay their heating bills. As the Citizens Utility Board (CUB) of Michigan has written about in this space before, due to the pandemic and recession, more aid is urgently needed to help customers who are no longer subject to a moratorium on shut-off of service for non-payment. SIgnificantly, Consumers Energy shareholders will cover the costs of this assistance. Usually, in Michigan low-income assistance is financed through charges on the bills of all customers or through federal funding.
Read more below about the history of this rate case that led to this settlement, and check out the announcement from the Michigan Public Service Commission and this statement from Attorney General Dana Nessel.
Filed: December 16, 2019
Decided: September 10, 2020
Approved return on equity: 9.9% (10.5% originally requested by the utility)
Approved residential rate increase: 9% (18.5% requested)
Approved revenue requirement increase: $144.5 million for the period Oct. 1, 2020 to September 30, 2021 ($245 million requested). Part of the decline from $245 million is due to $84.5 million in accelerated amortization of deferred liabilities related to tax cuts for the period October 1, 2021 to September 30, 2022.
On Aug. 20, a settlement agreement was reached between Consumers Energy and several parties to this case including the Citizens Utility Board of Michigan, and the Michigan Public Service Commission approved the settlement on Sept. 10. Besides the significant reductions to the rate increase and other elements of the rate case as mentioned above, other provisions of the settlement include:
-the utility will contribute $2 million to The Heat and Warmth Fund and other nonprofits that provide energy assistance to utility customers, and this amount will be borne by Consumers Energy shareholders, not ratepayers.
-Consumers Gas will explore a pilot program to provide more assistance to low-income customers, particularly those at or below 150% of the federal poverty level.
-Consumers Gas’s fixed, monthly customer charge will be increased from $11.75 to $12.60, instead of increasing to $13.75 as the utility had initially requested.
-The parties to the settlement agreement are Consumers Energy, the staff of the Michigan Public Service Commission, the Attorney General of Michigan, the Association of Businesses Advocating Tariff Equity, the Retail Energy Supply Association, Michigan State University, the Lansing Board of Water and Light, Energy Michigan, Inc., the Residential Customer Group, the Midland Cogeneration Venture Limited Partnership and CUB. Michigan State University and the Lansing Board of Water and Light were not signers of the agreement but made statements of non-objection.
Here are a few things we think are important for you to know about this case if you are a Consumers Gas customer:
- Consumers Gas originally requested an 18.5% average increase in residential rates, and ultimately received 9%. In its last rate case, U-20322 (decided in September 2019), the utility requested a 16.7% increase but only received 7.6%.
- The biggest piece of the $245 million in requested additional revenue (ultimately reduced to $144.5 million) was $124 million from infrastructure investment.
- Consumers Gas proposed to increase its fixed monthly customer charge from $11.75 to $13.75. That increase would have made Consumers Gas’s monthly charge the highest of any gas utility in Michigan, based on December 2019 data from the Michigan Public Service Commission.
- The 10.5% requested return on equity is up from 9.9% approved in the previous rate case. The utility had requested 10.75%, but received 9.9%.