Seeking Electricity Rate Increase

December 27, 2004
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Consumers Energy Co. is asking state regulators for a $319.7 million electric rate increase that, if approved, would cover the cost of power plant upgrades and the higher cost of doing business.

The Dec. 17 rate case filed with the Michigan Public Service Commission would raise monthly bills an average of 14.2 percent for residential electric customers. Actual rate increases for residential, commercial and industrial customers would vary depending on their rate classification and electric consumption.

Without the increase, Consumers Energy will experience a “significant revenue deficiency” by 2006, the utility stated in its application to the Public Service Commission. Consumers Energy contends its present rates are “unjust and unreasonable” and do not provide for an adequate return on investment or the ability to continue investing in further upgrades to generating plants and distribution systems.

“It will allow us to continue to provide reliable electric service,” Consumers Energy spokesman Dan Bishop said. “We have had significant costs that have accumulated over the years. In order to serve customers, we’ve got to recapture that cost.”

The Jackson-based utility has 1.7 million residential, commercial and industrial customers in Michigan

Consumers Energy’s last rate increase was in 1996. Since then, the utility implemented a 5 percent reduction for residential customers in accordance with electric choice legislation enacted in Michigan in 2000. Consumers Energy subsequently lost 12 percent of its load base to alternative electric suppliers.

A key driver behind the proposed rate increase is the $700 million needed to upgrade coal-fired power plants — $500 million in recent investments and $200 million planned by 2006 — to comply with the federal Clean Air Act. That amount includes a massive $350 million ongoing project at the J.H. Campbell Generating Complex along Lake Michigan in West Olive to install new pollution-control equipment that will reduce nitrogen oxide emissions by 85 percent.

Consumers Energy has now reached a point where cost-cutting, efficiency and productivity gains — and leveraging technology — have gone as far as they can to offset costs and a rate increase is needed, President and Chief Operating Officer John Russell said in prepared testimony submitted with the rate case.

The utility requires a rate increase to assure adequate funding for future operating and maintenance expenses and to generate a return on investment that will attract the equity needed to make capital upgrades, Russell said.

“It is impossible for the company to continue to absorb such significant increases in investment requirements without reflecting those increases in rates,” he said.    

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