Improving energy reliability in Michigan is no small feat. Local energy providers and policymakers are constantly looking for new solutions that will provide Michigan homes and businesses with increasingly dependable power. By working collaboratively across several different stakeholders, such as the Michigan Public Service Commission (MPSC), state legislative bodies, local energy providers, and others, we can create a strong path forward for Michigan.

As a part of this collective effort, the MPSC recently created a Financial Incentives and Disincentives workgroup. But what does that mean for the future of Michigan energy? In this blog, we’ll reintroduce the MPSC, provide an overview of the new working group, and outline how the group can impact how utility rates are determined in Michigan.

What are MPSC Workgroups?

The Michigan Public Service Commission is the regulating body for public utilities in the state of Michigan. Comprised of three appointed members, one of the responsibilities of MPSC is to create workgroups that explore specific issues or develop and streamline regulatory activities. MPSC workgroups consist of an assortment of participants – from MPSC Staff and industry experts to utility customers and others. Current workgroups cover a variety of topics, including:

Energy affordability and accessibility
Energy waste reduction
Renewable natural gas
Distributed generation and legacy net metering rules

MPSC Financial Incentives and Disincentives Workgroup Explores Performance-Based Rate Structures

The primary focus of MPSC’s new workgroup will be evaluating distribution performance and safety based on data from power lines, outages, and other utility metrics. This group will focus on distribution performance issues involving distribution reliability and safety. In addition, the group will assess rate structures and the methods by which incentives and disincentives may be applied to utilities, such as performance-based rates (PBR).

In 2016, MPSC completed a study that found performance-based rates can “… be designed to provide incentives and disincentives that help the utility focus on and improve customer satisfaction, safety, reliability, and environmental performance.”

The workgroup will explore the potential of performance-based rate options and how the approach could translate into more reliable energy for Michigan. Described as a “reliability-plus” model by Chairman Dan Scripps, he states, “Reliability first and foremost in terms of some of the challenges around number of outages, duration of outages, and the number of customers experiencing multiple outages. And the plus is making sure that we retain reliability even as we continue to electrify.”

What You Should Know About Performance-Based Rates

Performance-based rates are an innovative approach to regulating electric utilities and as of March 2022, 17 states have either adopted or are currently implementing variations of PBR that meet their unique energy needs and goals. PBR, also referred to as incentives and penalties for utilities, helps better align a utility provider’s earning from capital investments with state and local priorities, such as sustainability and reliability. With performance-based rates, the traditional “cost of service” rate-making model is tied to specific milestones or performance measures. Instead of standard practice where rates are based on how much electricity a customer uses or investing in new energy infrastructure, PBR would be additive to Michigan’s existing cost of service ratemaking.

AMP believes Michigan’s energy policies should always strive to achieve reliability, affordability, fairness, and our net zero goals – and well-designed performance-based rates can help. As we continue to make investments into our grid’s infrastructure and transition our energy supply to cleaner sources, PBR can help energy providers navigate the changing energy landscape without compromising reliability or quality of service.

Join the Conversation

AMP will be closely monitoring the workgroup’s progress as it begins to take shape and provide updates moving forward. What do you think about performance-based rates? Would you like to see this practice implemented in Michigan? Join the conversation on Facebook to share your thoughts.

How Will MPSC’s New Workgroup Impact Electric Utility Rates for Michiganders?

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