Would $10 million in fines push DTE to improve reliability? (2024)

In an effort to reduce Michigan power outages, regulators are seeking input on a new “straw proposal” that could fine investor-owned utilities like DTE Energy and Consumers Energy as much as $10 million a year if they fail to meet reliability benchmarks, such as the amount of time residents are without power or the time it takes to restore service. Companies could also offset penalties by meeting benchmarks or receive $10 million in incentives if they improve performance and meet state reliability standards.

“I think that focus on these key pain points can lead to better results in the places where poor reliability is most frustrating for customers,” said Michigan Public Service Commission Chair Dan Scripps at a meeting on June 6.

Yet, ratepayer advocates say the proposed penalties are far too small to change the behavior of companies that earn hundreds of millions of dollars in profits, and would do little to help those who have suffered the most from frequent outages. They say a better disincentive program would create hourly credits for those experiencing power outages that have increased significantly in recent years.

“We don’t really understand why penalties should be capped at $10 million,” Amy Bandyk, executive director of the Citizens Utility Board of Michigan, told Planet Detroit. “The amount of time the power is out isn’t capped. Why should the utilities’ penalties be?”

Bandyk said that customers were paying a cost for time spent without power and this should be reflected in utility penalties. Outages often force ratepayers to replace spoiled food in their refrigerators or pay to stay in hotels to have access to heat or air conditioning. For those who work from home, power failures can lead to lost wages.

The MPSC currently requires utilities to credit ratepayers $35 for each day the power is out. However, during “catastrophic” conditions, when more than 10% of customers are without power, the credits take four days to kick in, with outages applied after shorter periods under other conditions.

Michigan power outages: Utilities could get incentives for below-average reliability

Between 2000 and 2021, Michigan experienced the second-highest number of power outages during which at least 50,000 residents lost power. Michigan power outages increased 78% between 2011 and 2021 compared to the prior decade.

By incentivizing small improvements to this baseline of poor reliability, ratepayer advocates say a utility could still be rewarded for continued poor performance if it achieved just marginal improvements.

For example, one MPSC proposal metric is based on a utility’s three-year average for SAIDI, or how long the average customer is without power, excluding major event days. Utilities are penalized if this increases by 5% or more and incentivized if it improves by 10%.

According to MPSC data, DTE and Consumers have a SAIDI baseline of 141 minutes and 180 minutes, respectively, well above the national average of 119.1 minutes. Bandyk said, both utilities could potentially improve their performance enough to at least offset other penalties while still providing subpar reliability.

However, for a utility to earn a net incentive it would need to meet all of the MPSC’s Service Quality and Reliability Standards as well as the requirements included in the straw proposal, according to MPSC spokesperson Matt Helms.

Helms said that fines could offset rates, although the commission may consider other suggestions for using them as it reviews the proposal.

Is ‘Couch cushion money’ enough to improve reliability?

Penalties not offset by incentives could be small compared to corporate earnings. In 2023, DTE reported a net income of $1.4 billion and Consumers’ parent company CMS Energy had a net income of $876 million.

“The scale of the staff’s proposal is couch cushion money,” said Jackson Koeppel, an energy consultant, who previously served as executive director for the Highland Park-based nonprofit Soulardarity.

He criticized the current plan for proposing disincentives that were too small to influence utility decision-making and for failing to directly address the needs of those most impacted by outages.

Koeppel said a better method for improving reliability would be automatic, hourly credits for customers who lose power. He added that additional credits and benefits should be created for customers most affected by outages or who have climate or health vulnerabilities that make power outages even more of a hardship.

CUB previously proposed a $2 hourly credit for outages. However, the MPSC rejected this proposal, calling it “not reasonable.”

Representatives for DTE and Consumers were supportive of the process of developing incentives and disincentives.

Consumers spokesperson Brian Wheeler told Planet Detroit in a statement that the company was confident the MPSC will adopt a performance-based regulation “mechanism which is fair to all stakeholders and designed to achieve the shared goal of improved reliability.” He added that Consumers “takes seriously any potential regulatory penalty, and the contemplated $10 million annual penalty is significant.”

DTE spokesperson Ryan Lowery said the company is working with the MPSC and community stakeholders on “reasonable and prudent penalties and incentives that can be supportive toward our shared goal of improving electric reliability as we strive to reduce power outages by 30% and cut outage time in half by 2029.”

Residents can submit comments on the proposal electronically in the MPSC case docket or by email at mpscedockets@michigan.gov. Comments can also be mailed to: Executive Secretary, Michigan Public Service Commission, 7109 W. Saginaw Highway, Lansing, MI 48917. Comments should reference Case No. U-21400.

The commission expects to hold a public meeting to inform the development of additional performance metrics on Aug. 7.