Michigan decoupling ends with 2 settlement deals

July 11, 2014

Experts explain why killing decoupling is a mistake

The Michigan PSC approved two settlement deals Tuesday, reconciling Upper Peninsula Power's (UPP) 2013 revenue decoupling mechanism (RDM). These will be the final defrayals to the electric utility serving most of the state's Upper Peninsula under its defunct decoupling mechanism, Judy Palnau, a spokesperson for the Michigan PSC in Lansing, told us this week.

"The Michigan Court of Appeals in April 2012 found that the [PSC] has no authority regarding decoupling for electric utilities," Palnau said.

"In light of the court's decision, the [PSC] has dismissed all pending cases involving electric revenue decoupling. However, because the Upper Peninsula Power case was a settlement, it still involved decoupling through December of last year," (SGT, 2012-Sept-6).

UPP and the PSC staff took part in the settlement cases that were decided as follows:

• Under the terms of the settlement in Case U-17555, Upper Peninsula Power experienced a gross revenue RDM under-recovery of $619,580 in 2013 and a revenue shortfall of $71,247 in connection with the 2010 RDM reconciliation approved in Case U-16568. Effective Jan 1-Dec 31, 2015, the utility is authorized to implement a surcharge. As a result, a residential customer using 500 KWHs/month will see an increase of 56¢ on the monthly bill. UPP and the PSC staff took part in the settlement, the PSC said.

• Under the terms of the settlement in Case No U-17605, a residential customer using 500 KWHs/month will see a 5¢ increase on the monthly bill, for service rendered on and after Aug 1.

While over 20 US states have opted for some form of electric utility decoupling, Michigan may be the only one that since backed out of it. These states gave it a try: Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Maryland, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Tennessee, Utah, Virginia, Washington, Wisconsin and Wyoming.

According to the NARUC, "decoupling" or "revenue decoupling" refers to a rate adjustment mechanism that separates an electric or gas utility's fixed cost recovery from the amount of power or gas it sells. Under decoupling, utilities collect revenues based on the determined revenue requirement, most often on a per-customer basis. Periodically, revenues are "trued-up" to the predetermined revenue requirement using an automatic rate change.

This type of rate mechanism encourages utilities to take part in energy efficiency programs and other initiatives that cut power bills, but would represent gains for the environment.

Indeed, the commissioners said in a 2007 study, "Since utilities will be protected, if their sales were to decline because of efficiency, proponents of decoupling contend that they are more likely to invest in this resource, or may be less likely to resist deployment of otherwise economically beneficial efficiency initiatives."

A step backwards

In light of the perceived and proven benefits, Michigan's move to deter decoupling was definitely counterproductive, American Council for an Energy Efficient Economy (ACEEE) Senior Fellow Martin Kushler told us. He has been with ACEEE since 1998 and right before that was supervisor of evaluation at the Michigan PSC for nearly 10 years, he added.

Not only does decoupling "offer protection to utilities from the under-collection of fixed costs," but it "has great advantages for consumers because it's symmetrical," Kushler said. "So, if either the ratepayer or the utility is over-collecting or under-collecting, the amount will be reconciled and everyone will be made whole."

Kushler characterized the court's decision on the measure, "Enrolled Senate Bill No. 213," as "problematic. The 2008 finding was a real judiciary over-reach. The court looked at the plain language of a statute relating to decoupling that said the [PSC] 'shall authorize' natural gas providers to grant decoupling and from that, determined one, that there was no mention of electricity providers and two, that there was no mandate that the [PSC] 'must' provide decoupling."

NRDC surprised by it

Rebecca Stanfield, deputy director for policy, Midwest program, Natural Resources Defense Council (NRDC), agreed with Kushler. "That decision came after two years of talks with the [PSC], during which the [state] legislature thought decoupling was a good idea.

"It was a surprising verdict – made for a really unusual legal reason, based on the imprecise wording of a statute. This was unheard of prior to the court's finding. It is certainly well within the authority of a typical public service commission to regulate programs such as decoupling," she added.

Looking at the other side of the meter, "The finding absolutely is not in the interest of ratepayers," Stanfield said. "Decoupling enables the utility to provide the best, most reliable service to its customers, as opposed to increasing revenues by escalating sales every year. Decoupling enables utilities to boost energy efficiency without risking their own financial health," she added.

Legislature is next hope

As of now, Michigan's advocates of decoupling may be down, but they are not out. "I think that the folks at the commission feel that it would not be productive to lodge a legal appeal," said Kushler. "However, the legislature still may step in. It would be fairly simple to add a few words to that paragraph of the statute.

"This is just an unnecessary obstacle that has to be rectified."

Stanfield would like to see the ruling reversed. "I honestly don't know what will happen," she said, "but I am hoping that, after the election, we will see some forward movement."