Michigan’s two largest investor-owned utilities seek to play a more active role in economic development — particularly in luring advanced manufacturing facilities to the state — with plans to offer new electricity rates for large expansion projects.
Jackson-based Consumers Energy and Detroit-based DTE Energy last month filed requests with the Michigan Public Service Commission to create new tariffs, or set rates, for new large customers coming onto the grid. Known as economic development tariffs in other states, the goal is to provide a level of certainty to potential companies making major investments, utility officials say.
In its filing, Consumers Energy specifically cites “10 active electric vehicle supply chain and other high-tech projects” considering sites both within and outside of its Lower Peninsula service territory as a driving factor for its proposal. Consumers Energy says the projects total roughly $64.8 billion in potential future investment and would create about 21,000 new jobs.
Brian Rich, Consumers Energy’s senior vice president and chief customer officer, said the proposed rate would be similar to what existing large industrial customers pay for electricity.
“The biggest difference between this and what an existing rate would be is the certainty,” he said, referring to varying offers utilities can make to potential companies. “In the world of economic development, you have site selectors looking at different criteria in different states. This rate gives them certainty when they pick a site. If a state doesn’t have an economic development rate, it can be disqualifying.”
Consumers filed its “Large Economic Development Rate” on Nov. 4, and DTE followed suit with its “D13 XL High Load Factor Rate” on Nov. 10. The proposals vary slightly but share a goal to help the state lure in major investments. Both utilities are seeking “ex parte” approval from regulators in the coming weeks as an expedited alternative to a potentially months-long ratemaking proceeding.
Consumers Energy’s rate would apply to new customers that add at least 10 megawatts (MW) of load to the system. These are energy-intensive, large manufacturing or agribusiness facilities that draw power on a steady basis. (As a general rule, big box retail stores — though less energy intensive — draw about 1 MW.)
DTE’s rate would apply to new loads of at least 50 MW, and is directed squarely at battery and electric vehicle manufacturing facilities, said Trevor Lauer, president and chief operating officer of DTE Electric Co., the utility’s electricity subsidiary.
“We’ve been advocating for economic development rates for quite a while,” Lauer told MiBiz, noting that Michigan previously had such rates before a state law in 2016 required rates to be based on the cost of service.
Lauer said DTE has only about 10 customers with a 50 MW load currently.
“These are designed very specifically for battery and battery manufacturing operations because of the importance of the auto industry in Southeast Michigan,” Lauer said.
Avoiding cost shifts
The utilities will have to show that the proposed rates would not shift grid costs onto existing customers. Despite utility promises that cross-subsidization wouldn’t occur, the proposals drew opposition last week from clean energy advocates and a group representing large industrial customers.
The Great Lakes Renewable Energy Association and the Association of Businesses Advocating Tariff Equity (ABATE) want regulators at least to hold formal proceedings on the proposals to closely examine the cost-shifting question.
“At a high level, ABATE is interested in supporting these tariffs. However, we need to make sure it does not increase costs to existing industrial customers and we need to make sure it is legally sustainable before any ABATE member relies on these for investment decisions,” said ABATE Executive Director Rod Williamson.
ABATE instead has been advocating for Senate Bill 695, which was introduced in October and would allow large industrial customers to pick their electricity supplier under an expanded electric choice program. The utilities strongly oppose the legislation, saying it would shift costs to other ratepayers when large customers leave the system.
“We need to do something in Michigan beyond just offering up some new tariff rates for new load and address a competitive cost structure for these energy-intensive manufacturing companies that are major employers within this state,” Williamson said.
DTE and Consumers officials maintain that the rates would apply to incremental — not existing — power loads and would thus be based on marginal costs of power.
“When you focus on marginal costs, you don’t have cost shifting,” Rich said. “It’s the cost they’re inducing on the system versus the totality of the cost of infrastructure.”
Lauer says the “only way you get cross-subsidization is taking existing customers and moving them onto this rate. Because this is all incremental load, you not only will not impact any existing customers but the theory is it will lower the overall rate for everyone else.”
DTE’s rate also requires a 15-year contract and for customers to have a relatively high, 75 percent load factor, which measures the efficiency of a customer’s energy usage.
Utilities and economic development
The utilities and economic developers often say energy costs aren’t the only factor in landing big projects, but they can play a key role. The issue surfaced recently after Ford Motor Co. announced an $11.4 billion partnership in Kentucky and Tennessee to build electric vehicles and batteries.
While utilities downplay the role that Michigan’s industrial electricity prices played in Ford’s decision, and say it was driven mostly by generous incentives in those states and site-ready properties, they have nonetheless sprung into action to at least appear more favorable to development.
Consumers notes in its filing that at least six other states have economic development rates.
Randy Thelen, president and CEO of The Right Place Inc., said the proposed rates would be a “big step forward in Michigan’s competitiveness.”
“We saw when Ford chose to invest down in Tennessee and Kentucky, and an element of their decision was electric rates and competitiveness,” he said.
Lauer added that he believes the state’s utilities “have an important role to play with economic development.”
Despite some groups’ objections so far, the utilities are seeking immediate approval from regulators because they say project negotiations are already underway.
“Obviously there’s urgency,” Rich said. “Typically, the regulatory ratemaking process can take up to 10 months. There are some known and unknown highly competitive projects that Michigan is competing for right now.”
Lauer added: “I’m under NDAs with a whole series of auto companies. I’d say time is of the essence.”
The Michigan Public Service Commission is scheduled to meet this month on Dec. 9 and Dec. 22.