There are a lot of misconceptions when it comes to electric rates in our state. Did you know that over the last three years Michigan was the only state in the Great Lakes region to reduce its electric rates? Or that Michigan’s industrial rates are nearly 10 percent lower than Wisconsin’s?
More important than what the rates are, though, is how they’re used — and how everyone in Michigan ultimately benefits from what we invest in our electric system.
Think about it. A lot goes into producing energy. Michigan produces a complex energy mix from a variety of sources, including natural gas, wind, hydro, and nuclear, as well as coal. It takes specialized equipment, technology, and skill to extract energy from these resources. Once produced, this energy has to travel safely and efficiently through circuits and utility poles until it reaches the right voltage as it enters your home. Electric rates help pay for not just the charge emitting from our outlet, but for the entire process from production to transmission to consumption.
WHAT’S PAID HERE, STAYS HERE
Rate payments going to Michigan energy providers are reinvested in Michigan. Just like our bridges and roads, our energy infrastructure needs to be updated and repaired. Michigan must maintain substations, transformers, and utility poles; trim back trees compromising transmission wires; and incorporate new technology to make our grid hardier and stronger for the long term. Revenues generated from consumer electric rates pay for grid improvements that translate into new construction jobs, contracts with local suppliers, and lease payments to landowners.
Michigan-based energy providers also support our communities through tax revenue. These funds go to essential services like education, healthcare, emergency services and more.
A REASONABLE INCREASE
Reasonable rate increases produce great benefits for average Michiganders. How? Increased revenue improves our energy infrastructure, ensuring we can maintain a reliable, affordable, and sustainable energy future.
Will Michiganders see their electric rates increase somewhat over the next few years? Yes, given that our state is making dramatic — and crucial — changes in how our electricity is generated and delivered. Because Michigan is a regulated market, rates are not determined by utility companies, but instead are decided by an independent state government agency, the Michigan Public Service Commission (MPSC). Energy companies make recommendations for rate changes, then must demonstrate just how the increased revenues will be used. The MPSC ultimately decides what rate increases are reasonable for industrial, residential and business consumers.
Unfortunately, in deregulated markets, this protection does not exist. Instead, advocates of deregulation will point to the free market as the mechanism to lower energy costs. As we’ve seen before, this policy has not lowered rates effectively. Rates in deregulated states clock in at 25 percent higher than in regulated markets.
Take a look at the graph below to see just how Michigan’s rates compare to our neighboring states over the last three years. Over the last three years, industrial rates in Michigan dropped 3 percent while rates went up in Ohio (2.9 percent), Illinois (2.3 percent), Indiana (1.6 percent), and Wisconsin (1.5 percent).
Same story for retail rates in the same span: down in Michigan (-0.1 percent); up in Illinois (3.6 percent), Ohio (1.9 percent), Indiana (1.6 percent), and Wisconsin (1.3 percent).
The Alliance for Michigan Power is here to demystify rates — what they are, how they’re used, and who sets them. The best news is that electric rates ultimately benefit every Michigander by improving our electric grid and securing our energy future.