Earlier this week, the Michigan Public Service Commission (MPSC) approved only 50% of the electric rate increase requested by Indiana Michigan Power Company (I&M), reducing the hike by more than $16 million following intervening testimony from Michigan Attorney General Dana Nessel. Last fall, the company filed a request for a $34 million rate increase or 9.9% hike for residential customers. Additionally, I&M sought to increase the residential customer monthly service charge by 59% and the small commercial customer monthly service charge by nearly 90%. The company also sought the highest return on equity in the state at 10.5%.
Nessel filed testimony opposing this request, advocating for a $4.3 million rate decrease for I&M’s customers, with no increase in the monthly service charge and a return on equity of 9.8%. Her testimony argued that I&M had failed to properly support many of its expenses, sought increases for canceled projects, failed to disclose the amount of incentive compensation included in its application, and designed the incentive compensation to create shareholder value versus customer benefits. Moreover, Nessel testified that the company capitalized incentive costs that the Commission had explicitly disallowed in a prior rate case.
Although an interim order found that I&M should only receive $6.6 million, the Commission ultimately approved $17.3 million, which is 50% less than the company’s original request. The Commission also limited the monthly service charge to residential customers to under 1% and approved only a 9.86% return on equity.
The Commission chastised I&M for attempting to include canceled projects and failing to present a complete case with its direct evidence. It ordered I&M in its next rate case to demonstrate how benefits accrue from its incentive compensation plan compared to its costs.
Chair of MPSC Dan Scripps expressed disappointment in I&M's attempt to include previously disallowed expenses: “You would think that this message would have been received, but you would be wrong.” Scripps added: “Instead...I&M recategorized...an accounting gimmick...switching it from an expense under operations and maintenance to a capitalized investment and hoped we wouldn't notice.”
Scripps further cautioned against utility practices aimed at circumventing regulatory oversight: “When the utility mindset shifts instead to asking: 'what can we get away with?' Dark days are ahead.”
“Our review of I&M’s rate increase revealed significant issues,” Nessel said. “The request was inflated with unsupported costs and funding for canceled projects...even trying to circumvent prior Commission orders that disallowed many of these costs.”
I&M serves approximately 129,000 retail electric customers in southwestern Michigan across Allegan, Berrien, Cass, Kalamazoo, St. Joseph, and Van Buren counties.
Since taking office, AG Nessel has saved utility customers over $3.2 billion.
###