Retail Rates Soar on Michigan’s Upper Peninsula
On September 8, the Michigan Public Service Commission (MPSC) approved (Docket No. U-17895) an annual retail rate increase of $4.6 million for Upper Peninsula Power (UPPCo), which serves about 54,000 customers in the Wolverine State.Under the terms of the final proposal approved by the commission, customers using 500 kilowatt-hours (kWh) a month will pay nearly $8 more on their bills. That’s almost a 7 percent increment to invoices that already are the highest statewide.
Even so, the raise came out to about 30.4 percent less than the amount for which UPPCo originally had filed – an increase in its revenues of $6.6 million annually or 6.45 percent, contingent on deferring until the utility’s next rate case $6.4 million of forecasted expenses associated with 2016 transition and pension and benefit costs. Without the deferment UPPCo had calculated a base rate deficiency of $13.2 million annually, or 12.7 percent.
UPPCo claims that much of the added expense is related to its 2014 conversion into a stand-alone, independent Upper Peninsula-based energy provider. Indeed, the key factors contributing to its current revenue deficiency, the utility claimed, include:
- The capital investments and conversion costs necessary to achieve independent status,
- Investment in infrastructure improvements necessary for safe and reliable service,
- Changes in the capital structure to reflect status as an independent Michigan based utility, and
- Increased operation and maintenance (O&M) expenses.
In addition, UPPCo said, its service region is large, sparsely populated, and full of dense forests.
Among the interveners in the case was ABATE, an association of large industrial businesses based in and doing business in the State of Michigan – and spending more than $1.2 billion annually on their combined gas and electric bills. The group objected to the rate hike, stating, “ABATE members are directly impacted by the issues raised in this proceeding because ABATE member(s) purchase large amounts of electricity and other services from Upper Peninsula Power … under various tariff provisions and will be subject to the rates, terms, and conditions of service approved in this proceeding.”
Citizens Against Rate Excess, a residential ratepayer advocacy group, also intervened in the proceedings.
In its filing, the utility represented that “its present return on investment is and will be below that required by sound regulation; that UPPCo’s present retail electric rates and charges, if not increased, will produce increasingly inadequate retail electric service revenues to UPPCo and, thus, are unjust and unreasonable; that rate relief is required to permit UPPCo to continue to achieve its goal of rendering adequate retail electric service to the public; and that rate relief, effective in the near future, is necessary to protect the rights of UPPCo.”
However, the commission found, “While UPPCo makes much of its need for more spending on infrastructure and reliability, going so far as to imply that the commission may seek to “sav[e] a buck [by] ignoring the recommendations of those closest to the issue,” UPPCo fails to explain why its spending on [its previous rate case] infrastructure has declined, rather than increased.”
Under the commission’s August 9 orders, Upper Peninsula Power is authorized to implement the new rates on September 23. But first, what goes up must go down: On that same day, residential customers will see a rate decrease of 65 cents, compared to what they have been paying since March, when the utility self-implemented a rate increase that was higher than what the MPSC approved last week.
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