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Electric Rates: Who Determines What They Are?

There are a lot of misconceptions when it comes to electric rates in our state. The first thing you need to understand is the difference between electric rates and electric bills. If you missed our first electric rates blog post, you can get caught up on the entire series here.

SO WHO SETS MICHIGAN’S RATES?

A lot of people think that regulated energy companies can set the rates as they please, willy-nilly. The reality is, electric rates are determined by the Michigan Public Service Commission, an independent state government agency. Energy companies make recommendations to the MPSC based on the costs of fuel, the anticipated demand, the need for investments to maintain and update the grid, and other factors, but ultimately, the MPSC decides what rates industrial, residential, and business consumers can reasonably be charged for electricity.

The MPSC is composed of three members who are appointed by the governor and approved by the Senate. The MPSC investigates and determines appropriate electric rates that will keep energy safe, reliable, and accessible while also helping Michigan make progress toward clean energy goals and other shared energy priorities for our state.

BUYING POWER AND SUPPORTING THE INFRASTRUCTURE

What do your electric fees pay for? They pay for the electricity you actually use. They pay for the cost of the fuel and the processes and equipment required to transform that fuel — whether it’s coal, natural gas, nuclear, wind, solar, or water power — into electricity. And they pay for the cost of maintaining, repairing, and continually upgrading the transmission infrastructure that moves the electricity from its high-voltage source and safely steps it down until it enters your home or business at a much lower, safe-for-consumption voltage.

Michigan is a big state, geographically speaking, and our state’s electricity infrastructure is accordingly immense. It is also aging and needs enhancements and upgrades to bring it up to date with Michigan’s current energy production and energy use. The machinery involved in the energy generation process, the transmission equipment, and the structures to support a diverse energy mix must be maintained and updated.

Just like our bridges and roads, our energy infrastructure experiences wear and tear over the years. Much of our current infrastructure is nearly half a century old. Some of it is even older. Regularly reviewing and updating our electric rates ensures we have the resources we need to keep our energy infrastructure strong, secure, and able to withstand fluctuations in demand, severe weather, and the many other external factors that put strain on the grid day in and day out.

INVESTING IN TECHNOLOGY

Energy companies are not just replacing old infrastructure with new versions of the same old technologies. They are integrating new technology to support renewable energy and achieve greater energy efficiency. As older coal plants continue to close, they are being replaced by wind turbines, solar panels, and modern natural gas generation. Last year’s comprehensive energy legislation package demands local energy providers meet progressive benchmarks of 12.5 percent renewable energy in 2019 and 15 percent by 2021, up from the current 10 percent. Both of Michigan’s local energy providers have made voluntary commitments not only to meet those benchmarks, but also to significantly accelerate their transition to renewable and clean energy sources.

In addition to accommodating renewable power, our grid must also be updated to make it hardier, strengthening it to protect the grid from cyberattacks or storms.

In our next blog, AMP compares how Michigan stacks up to electric rates in our neighboring states and how the dollars Michiganders spend on energy can stay in Michigan and be reinvested in our local communities and economy. Make sure you don’t miss the last blog in our series: “What You Need to Know about Electric Rates!”