Michigan utilities get approval to offer special rates for EV plants

The state of Michigan on Wednesday approved requests by the state's two largest electric utilities to provide special rates for high-volume industrial customers in an effort to help Michigan compete for advanced manufacturing plants, including for electric vehicles and their components.

The Michigan Public Service Commission also approved a hike in residential electricity rates for Consumers Energy customers that would have a household using 500 kilowatt hours of energy per month paying an additional 59 cents, up less than 1%, starting in January. The $27.1 million increase was a nearly 88% reduction from what the Jackson-based utility originally requested for improvements in its distribution system, to make up for declines in sales revenue and to add 300 megawatts of solar power generation.

Both CMS Energy Corp.'s Consumers Energy and DTE Energy Co. filed applications in November for approval of rates geared toward attracting significant investments for electric vehicles, electric battery storage, semiconductors and other high-tech manufacturing. The special rates will not result in an increase in the cost of service for any existing customer, according to the commission.

The requests came after Ford Motor Co. in September announced an $11.4 billion investment in battery and EV plants in Kentucky and Tennessee, citing electricity rates as one reason for selecting those locations.

Michigan industrial electricity rates on average were 7.85 cents per kilowatt hour in September, according to the U.S. Energy Information Administration. That was above the national average of 7.71 cents.

Gov. Gretchen Whitmer earlier this week signed $1 billion in incentives for the Michigan Department of Labor and Economic Opportunity's new Strategic Outreach and Attraction Reservoir known as SOAR to lure high-tech manufacturing to the Great Lakes State.

These steps stand to benefit companies like General Motors Co., which is looking to build a $2.5 billion battery-cell manufacturing plant with partner LG Energy Solution in Delta Township. It's also planning to spend $160 million at its assembly plant in Lake Orion for construction of a new battery pack assembly line.

Consumers Energy in its special-rate application identified 10 projects for which Michigan is under consideration that represent nearly $65 billion in potential investment and about 21,000 new jobs.

Its proposal includes a Large Economic Development tariff that would offer competitive rates it estimates at 4 to 5 cents per kilowatt hour on incremental electric loads for energy-intensive users using a minimum of 35 megawatts annually for at least 15 years. The offering is similar to two other rates for which the company already has approval.

Because the rate is cost-based, it covers the incremental cost of adding the new or expanding electric load to the system so that it doesn't increase other customers' bills.

“Consumers Energy is committed to ensuring Michigan’s prosperity by helping manufacturing companies to adapt, grow and thrive," Brian Rich, chief customer officer at Consumers Energy, said in a statement, "We want to go the extra mile to bring new jobs to Michigan.”

The commission also approved DTE's request to implement an XL High Load Factor rate that would provide competitive prices to new advanced manufacturers or existing companies like automakers shifting their product lines to assemble EVs. The rate will be eligible to customers adding incremental electric load of at least 50 megawatts annually for 15 years at a minimum.

"The new rate will address the anticipated needs for more electrification of large business operations, including EV and EV battery manufacturing as well as data center facilities," DTE said in a statement. "This new rate will not add new cost to existing residential or industrial rates. We are always available to meet with companies and build a competitive package that meets the needs of an individual customer."

Since the baseload is guaranteed, reducing variability, and the rate applies only to added capacity, it helps spread the costs of keeping up the electrical infrastructure over a greater number of users, which actually could help reduce the rates for others, DTE spokesman Peter Ternes said. 

The special rates at both utilities will be based on the marginal cost of serving these new loads. The customers will be responsible for their share of transmission and distribution system costs as well as surcharges.

As for Consumers Energy's hike in residential rates, the increase offers a return on equity of 9.9% for the company compared to the 10.5% it requested.

The hike will fund efforts to improve reliability after customers experienced significant outages resulting from storms this summer. The commission approved more than $200 million for reliability improvements and efforts to modernize the distribution system. It also approved $94.4 million for the company's entire system to be cleared every 7 years of tree branches. Falling trees and limbs are the biggest cause of power outages.

The commission directed the company to file more detailed information about how the increase in forestry spending will improve system reliability, to provide reliability metrics projections and to develop a surge program to address a backlog in tree trimming equitably with priority given to areas that have waited the longest.  

The company also received approval for $63.4 million it projects it will need for outage restoration efforts. The commission, however, didn't approve costs associated with nearly $128 million this and next year for the Washtenaw Solar Energy project near Ann Arbor, saying it would be more appropriate to review them at the company's next general rate case. It also deferred consideration of other costs associated with energy generation that are a part of the utility's pending integrated resource plan looking at the future.

Other costs it disallowed for now were for the utility's vehicle fleet, for acquiring and building solar projects and for battery storage projects. It, however, approved $16.5 million for a two-year extension of the PowerMIDrive pilot to provide rebates for residential and public EV chargers and an increase in funding for the PowerMIFleet pilot program to encourage commercial EV adoption.

Generally, the utility will avoid investing in the grid if it can avoid the spending when the costs aren't approved.

“Consumers Energy is committed to delivering safe, reliable, affordable and increasingly clean energy to power Michigan homes and businesses every day," spokeswoman Katie Carey said in a statement. "From trimming more trees to employing the latest smart technology, we’re committed to achieving fewer and shorter power outages for our customers while preparing our system to support electric vehicles and the challenges of the 21st century. We’re currently reviewing this order and its implications on our future investments in Michigan.”

bnoble@detroitnews.com

Twitter: @BreanaCNoble