Rate Roundup: What to Know about Electric Rates

There are several factors that determine electric rates in Michigan—and the process can get a bit confusing. We’re here to clear up some of that confusion with a roundup of some of our most informative rate-related blog posts.

Electric rates are different than the utility bills we pay every month. A good way to imagine it is to think of it in terms of gas prices. The average price of a gallon of gas in Michigan is just under $2.00, so that would be the current “rate” for gasoline. Meanwhile, the amount you pay to fill up your car’s tank—let’s call it $30 for a 15-gallon tank—would be comparable to your monthly electric bill.

The rate for electricity may be the same for two houses, but if one of those households is practicing smart energy efficiency habits, the electricity they use will be going farther, so their monthly bill is going to be notably lower.

Who Determines the Rates Michiganders Pay—and How?

One important thing to remember is that Michigan’s electric rates are not set by local energy providers, but instead are determined by the Michigan Public Service Commission (MPSC), whose role is to represent the best interests of all Michigan energy consumers.

While local providers may make recommendations regarding rate changes, they must demonstrate how any rate increases will benefit consumers. Ultimately, the MPSC determines what constitutes a reasonable rate increase for meeting the needs of residential, business, and industrial consumers.

When determining electric rates, the MPSC considers several factors, including the cost of fuel, generation and transmission costs, anticipated demand for electricity, and maintenance needs—both now and over the long-term. Additionally, a range of other considerations can impact the cost of electricity, from the time of year to the cost of government regulation.

How Rate Increases Benefit Michigan

The rate payments  to local energy providers are reinvested right back into strengthening and improving Michigan’s electric grid. Just as revenue collected from tolls is used to improve our bridges and roads, electric rates help local energy providers ensure we are making the necessary investments in our energy infrastructure, including:

These investments are critical for all Michigan homes and businesses, ultimately ensuring electricity remains reliable, affordable, and safe—all while moving us toward a cleaner, more sustainable energy future. So, while no one wants to pay more for electricity, it’s important to recognize that rate increases often serve a larger purpose by enabling vital energy grid investments that benefit all Michiganders.

For More Information

We encourage you to take a look back at some of our past blog posts to help better understand electric rates. Keep in mind that some of the specifics in these posts may be a little dated, but the basic information is still useful.