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Financial Incentives/Disincentives

Notice: MI Power Grid meetings and all other MPSC workgroup meetings will be conducted via teleconference only until further notice. Please find remote access information for upcoming meetings on our calendar of events

MI Power Grid Optimizing Grid Investments & Performance Stamp

Utility companies make money by earning a return on investments in new infrastructure, like power plants, poles, and wires. By pursuing alternatives to utility-owned infrastructure, such as power purchase agreements, reducing customer energy use through efficiency measures, or shifting energy use to times when electricity costs less to produce, there may be cost savings. Financial incentives provide an ability for utilities and customers to share in these savings, while disincentives may be appropriate if utilities are unable to achieve an expected level of performance.

As a result of the April 24, 2023 Commission order in Case No. U-21400, this workgroup will evaluate financial incentives and disincentives to better align utility financial performance with customer value specifically to a “reliability-plus” approach to the distribution grid performance. The immediate focus is developing metrics around distribution reliability and safety, while exploring rate structures by which incentives and disincentives can be applied. Several considerations for future discussions are:

  1. The utility’s financial PBR system should include both incentives and disincentives based on performance; incentive structures should be holistically considered in terms of impacts on potential earnings;
  2. The utility should consider the pros and cons of a comprehensive PBR system, which would avoid concurrent regular annual rate cases and separate PBR reconciliations;
  3. Performance metrics should include outcome measures (e.g., customer average interruption duration index (CAIDI)) and not be limited to output metrics such as number of poles replaced;
  4. Performance metrics should be linked to regional, national, and/or peer utility benchmarks, where possible;
  5. Data and calculation methodologies should be well defined, transparent, and open for auditing/verification purposes;
  6. Targets should be utility specific; and
  7. Potential areas of performance focus are safety, customer service (end-use customers, builders, interconnecting generators, etc.), timeliness and quality, reliability and resiliency, long-term costs, and innovation.

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Actions to Date

  • As directed by the Commission in the December 21, 2023 order, a straw proposal was filed to the docket on May 3, 2024 by MPSC Staff.
  • August 30, 2023 the Commission issued an order with a straw proposal attached soliciting comment and reply comments from interested parties on the straw proposal. Comments are due September 22, 2023, and reply comments are due on October 20, 2023, no later than 5:00 p.m. Eastern Time on their respective due dates.
  • U-21400 April 24, 2023 Commission order
  • MPSC Performance Based Regulation report
  • Power purchase agreement financial incentive mechanism approved in Consumers Energy Integrated Resource Plan (U-20165), pending in UPPCO Integrated Resource Plan (MCL 460.6t(15))
  • Demand response incentives considered in pending Consumers Energy, DTE demand response reconciliation cases (MCL 460.1075; MCL 460.6x)
  • Energy waste reduction incentives allowed and approved under 2008 PA 295 (MCL 460.1075; MCL 460.6x)

Next Steps

  • Work with stakeholders to analyze and evaluate appropriate incentive/disincentive metrics, including but not limited to: 
    • Reliability - SAIDI (including and excluding MEDs), SAIFI, CEMI, CAIDI
    • Resilience - downed wire response, and frequency and duration of outages during extreme weather
    • Grid readiness to effectively accommodate and leverage the increasing and further anticipated growth of distributed generation, EVs, and other DERs
  • Work with stakeholder to explore rate structures by which the metrics can be applied

Engagement Sessions

February 12, 2024 (Teleconference Only)

Meeting Event | Agenda | Recording

November 30, 2023 (Teleconference Only)

Meeting Event | Revised Straw Proposal | Recording

October 10, 2023 (Teleconference Only)

Meeting Event | Agenda | Presentation | Recording


Related MPSC Case(s)

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