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AG Nessel’s Advocacy Helps Reduce I&M’s Electric Rate Increase Request by 50%

LANSING – 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), slashing 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. In addition, 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 of 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 cancelled 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, the Attorney General testified that the company brazenly capitalized incentive costs that the Commission had explicitly disallowed in a prior rate case, thus continuing to recover costs that should never have been included in rates.

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 the company for attempting to include cancelled projects, failing to present a complete case with its direct evidence, and ordered I&M, in its next rate case, to demonstrate how benefits to customers accrue from its incentive compensation plan compared to the plan’s costs. The Commission noted that “...[d]espite the Commission’s decision in the April 12 [2018] order, I&M chose to shift the disallowed incentive compensation to rate base, which has been inappropriately recovered from ratepayers since 2018...”

Chair of the MPSC, Dan Scripps, expressed disappointment in the rate hike request attempting again to include previously disallowed expenses, saying at the meeting this week, You would think that this message would have been received, but you would be wrong.” Scripps added, Instead...I&M recategorized, or what I'd call, an accounting gimmick, to change how this incentive compensation was treated, switching it from an expense under operations and maintenance to a capitalized investment and hoped we wouldn't notice.

Scripps spoke further on the interaction between the Commission and the regulated utility, and cautioned at the meeting, that 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 cancelled projects. I&M also attempted to pass along incentive compensation costs that overwhelmingly benefited its shareholders at the expense of its customers, even trying to circumvent prior Commission orders that disallowed many of these costs. This is why my office closely examines these cases in order protect customers from utilities that seek to take advantage of the regulatory system.”

I&M serves approximately 129,000 retail electric customers in the state with a service area that is in southwestern Michigan, consisting of Allegan, Berrien, Cass, Kalamazoo, St. Joseph, and Van Buren counties. The Commission’s order can be found here (PDF).

Since taking office, AG Nessel has saved utility customers over $3.2 billion.


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