Draft Michigan Report: Subsidized Rates for Large Customers Should Be Considered

A draft segment report on Michigan's energy future from the PSC and Michigan Energy Office states that subsidized electric rates for large volume users should be carefully examined.

The draft report released yesterday deals with "additional areas" of the state's ongoing review of energy issues, meaning those issues apart from the major issues of electric choice, renewables, and energy efficiency, which are being addressed in issue-specific reports. While not specifically covering electric choice, the "additional areas" report covers two issues directly implicated by market design: reliability (including resource adequacy), and electricity rates and prices.

Much of the draft "additional areas" report, however, merely summarizes stakeholder views, and does not make any conclusions. However, one area where there is more substantive policy discussion is with respect to subsidized electric rates.

PA 295 of 2008 requires rates for all customer classes to be based on their respective cost of service, meaning that one customer class cannot subsidize another

"This phased out a historic practice of business customers subsidizing residential customers. Now the state is faced with certain industrial sectors in globally competitive markets that are seeking to maintain their operations in Michigan and are calling for rate relief that would be below their cost of service," the draft notes.

"Revisiting the 2008 law may provide additional flexibility to promote economic development through discounted industrial rates. The costs and benefits of such policies, if they shift costs to other customers, should be carefully examined," the draft concludes.

Link to draft report