News Story

Close Coal Plants, Open Gas Plants, DTE Gets 10 Percent Profit Either Way

It’s good to be a regulated electric monopoly in Michigan

Michigan’s largest electric utility has imposed three major rate increases totaling $597.5 million on its 2.2 million customers since 2011, while also posting $3.8 billion in cumulative profits since 2012.

DTE Energy is a government-regulated monopoly provider of electricity and gas. The utility is largely protected from competition in its service area, and, along with Consumers Energy, provides power to almost all residents of the state’s Lower Peninsula. It is also a major player in industrial wind turbine developments in rural Michigan counties.

The Michigan Public Service Commission, which is the regulatory agency charged with overseeing the state’s monopoly energy providers, has to approve all of DTE’s rate increases. Since 2011, the public service commission has modestly trimmed each of the DTE’s requests.

But the commission also guaranteed the company a 10.1 percent return on equity the last time it requested rate increases. This means DTE is guaranteed more than a 10 percent profit on the money it spends building new power generation facilities.

DTE has been requesting rate increases in the midst of what it described in a statement to Michigan Capitol Confidential as a transformation of its power generation and distribution infrastructure.

“Rate reviews are filed to recover costs the company has invested into the business. ... As DTE transitions its fleet, it will replace most of the generation it is retiring with renewable reliable energy sources,” it said in a statement. “The transformation we’re undergoing over the course of the next 20-30 years is the most significant for DTE and the industry since the post-WW II era.”

In practical terms, the transition means shutting down older coal-powered electric generation plants and building new plants fueled by natural gas. It means also installing hundreds of new wind turbines in rural counties, along with some other renewable generation capacity. The latest decision of the public service commission means that DTE gets a 10.1 percent profit to tear down its existing coal plants and then replace them with natural gas and renewables.

DTE is currently looking to install industrial wind farms in rural areas of Lapeer, Midland, Branch, Gratiot and Bay counties.

Together, DTE and Consumers Energy will have to build an estimated 2,000 additional wind turbines in order to meet a mandate imposed by the Legislature at the end of 2016. Under that mandate, they must obtain 15 percent of their electric generation capacity from renewable sources, according to calculations performed by the Mackinac Center for Public Policy.

Michigan’s new law was enacted after the Nov. 8, 2016, presidential election and essentially places in state statute the federal mandates the the Obama administration’s Clean Power Plan set in motion. On Oct. 9, 2017, EPA Administrator Scott Pruitt announced that he was initiating the process to rescind the Clean Power Plan.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.