Summer is heating up—and with the higher temperatures come increased energy use and greater demand. All of these factors can have a significant impact on the rates we pay for electricity. That’s why now is a good time to take a look back at some of our previous discussions on rates and infrastructure investments.
Electric Rates 101
The most important thing to understand is the difference between rates and bills. Remember our analogy—think of electric rates as the price of gasoline and bills as the monthly cost of filling up your tank. How much gas you use depends on how efficiently your car runs and how much you use it.
Similarly, while all Michiganders may pay the same electric rates, residential electric bills can vary wildly depending on a number of factors. A smaller home with better insulation, energy-efficient appliances, and that uses energy in smarter ways will end up paying a much lower energy bill at the end of a month than a larger home that doesn’t take these energy-saving steps.
Electric rates can and do change frequently based on fuel costs, grid maintenance costs, the impact of government regulation, the time of year, and even the time of day. During “peak” hours, when energy demand is highest—in the summer from 2:00 pm to 6:00 pm—energy rates are higher. When demand is high, the cost of generating and delivering electricity—as well as the difficulty of balancing demand with supply through a process called “load balancing”—also increases, all of which means higher rates.
Who Sets the Rates—and What do They Pay For?
In Michigan, the Michigan Public Service Commission determines the rates consumers pay for electricity, not energy companies. While local providers make recommendations to the MPSC on certain contributing factors to consider, it is ultimately the MPSC’s job to decide what rates industrial, residential and business consumers pay.
The electric fees you pay every month pay for a number of things, but primarily go toward:
Just like Michigan’s roads and bridges, our energy infrastructure needs regular maintenance to ensure it’s working as best as possible. That’s why Michigan’s local energy providers are constantly making updates to both incorporate new technology to support renewable energy and improve energy efficiency. All of that work adds up to a more resilient, modern grid and more reliable, affordable, and sustainable energy for Michigan homes and businesses.
The Benefits of Rate Increases
Occasionally, Michigan—like all other states—has to increase electric rates in order to invest in our electric system and help support cleaner, more reliable energy. Believe it or not, there is a benefit for all Michiganders when electric rates go up.
Electric rates pay for the entire energy production, delivery, and consumption process. Rate increases help cover the costs associated with maintaining and improving our electric grid, as well as programs like tree trimming that benefit communities by lessening the chance of outages during a storm.
Ultimately, reasonable rate increases help ensure Michigan’s electric system is as strong and secure as possible—and that it is updated with 21st century technologies to meet the energy needs of our state well into the future.